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THE Court of Appeals has ordered the termination of the proceedings
for the rehabilitation of the Steel Corp. of the Philippines (SCP),
which has been suffering from financial difficulties, particularly
on how to service its debt from various creditors amounting to more
than P8 billion.
In a 34-page decision penned by Associate
Justice Juan Enriquez Jr., the appellate court’s Twelfth Division
set aside the December 3, 2007, decision of the Batangas City
Regional Trial Court, and declared the rehabilitation proceedings of
Steel Corp. terminated pursuant to Section 27, Rule 4 of the Interim
Rules of Procedure on Corporate Rehabilitation.
In its ruling, the appellate court found that
the rehabilitation plan adopted by Batangas City Presiding Judge
Maria Cecilia Austria may no longer be implemented in accordance
with the terms, conditions and assumptions set forth in the approved
rehabilitation plan, considering the heavy debt burden and business
financial status of Steel Corp.
“After a careful examination of the evidence
on record, this court deems it wise to terminate the rehabilitation
proceedings since the rehabilitation plan may no longer be
implemented in accordance with its terms, conditions, restrictions,
or assumptions,” the appellate court’s ruling stressed.
Banco de Oro-Equitable PCI Bank, the steel
firm’s creditors, earlier asked the appellate court to annul and
set aside the December 3, 2007, decision rendered by the Batangas
City court, which acted as a Special Commercial Court, mandating the
petitioner, Steel Corp. and other parties to comply strictly with
provision of the approved rehabilitation plan.
In September 11, 2006, the creditor banks, which
accounts for about 27.45 percent of the total liabilities of Steel
Corp., filed a petition to place the latter under corporation
rehabilitation, after the firm, on account of several factors,
particularly the 1997 Asian financial crisis, suffered from
financial difficulties and temporary negative liquidity.
Aggravated by the shortage in working capital
and reduced operating capacity, Steel Corp. was unable to service
its principal payments.
Based on the interim financial statement of the
steel firm as of December 31, 2005, total assets amounted to P10.99
billion, while aggregate liabilities amounted to P8.36 billion.
There being practically no ongoing
implementation of rehabilitation plan, the appellate court stressed
that the interim rules never contemplated a stalemate situation,
with both the creditor and debtor locked in uncertain and prolonged
litigation that is prejudicial to the interest of both parties.
According to the appellate court, when the
approved rehabilitation plan had ceased to be implementable, the
interim rules mandate the “termination of the proceedings.”
Besides, the appellate court noted that the
rehabilitation case has already resulted to an adversarial
proceeding contrary to the explicit provision of the interim rules
that rehabilitation proceedings are summary and not adversarial.
Calling the decision of the Batangas City court
a “solomonic” resolution, the appellate court, however, noted
that the feasibility of the rehabilitation plan is seriously put in
issue considering all relevant facts and circumstances.
The appellate court also found that the Batangas
City court, “albeit out of the noble intention to highlight
SCP’s prospects for rehabilitation given its strong market shares
and other intangible assets, overlooked the fact that the seemingly
improved cash position, as per the 2006 AFS [audited financial
statements], was merely due to the enforcement of the Stay Order and
not reliable indication of financial viability.”
The appellate court observed that the adamant
resistance of Steel Corp. to the equity conversion aspect of the
rehabilitation plan stems from its misunderstanding of the concept
of debt-to-equity conversion.
The debt-to-equity conversion, which is part of
the three-phase rehabilitation plan adopted by the Batangas City
court, is a sort of compromise both for the stockholder of the
debtor corporation and the creditor, which results in a change of
the ownership structure. According to the appellate court, these are
valid concerns that may impel creditors to accept such repayment
scheme for a portion or whole of the debt, which represents
legitimate decision-making and certainly not the “opportunistic”
and malicious “corporate greed” imputed by Steel Corp.
“Indubitably, both parties admitted that
requiring stockholders of SCP to raise the amount of P2.672 billion,
as fresh equity in a period of only 180 days, is highly improbable,
if not impossible. In fact, even the [Batangas] RTC has observed in
the first informal meeting held on April 25, 2007, that raising an
amount that magnitude and under the circumstances is impossible in
such a short period of time,” the appellate court noted.
While also finding that the opposition of the
petitioner bank to the recommended rehabilitation plan is not
manifestly unreasonable, it said however, that any modification of
the approved rehabilitation plan would not change the fact that the
plan may no longer be implemented in accordance with its terms,
conditions and assumptions.
Stressing that the purpose of the rehabilitation
proceedings is to enable the company a new lease on life and at the
same time allows creditors to be paid their claims from its
earnings, unfortunately, none of these objectives will be achieved
by the rehabilitation plan approved by the Batangas City Court.
-- William B. Depasupil
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