Case Digest: Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., et al. (2016)

Doctrine

Corporate rehabilitation is a statutory privilege meant to preserve a viable business as a going concern, but it cannot be invoked where the debtor's assets are largely non-performing and its plan is unrealistic, speculative, or incapable of generating better present value recovery for creditors. Procedural liberality in rehabilitation cases does not excuse non-compliance with mandatory appellate requirements under Rule forty-three; on appeal, creditors are indispensable parties and must be impleaded to satisfy due process.

Facts

Viva Shipping Lines, Inc. filed a petition for corporate rehabilitation before the Regional Trial Court of Lucena City on October four, two thousand five. The court initially denied the petition for failure to comply with the requirements under the Interim Rules of Procedure on Corporate Rehabilitation, but Viva later filed an amended petition. In that amended pleading, Viva claimed that it owned and operated numerous maritime vessels and an Ocean Palace Mall in Lucena City, and it stated that its assets had an assessed value of only around forty-five million pesos.

The documents attached to the amended petition, however, told a different story. Viva's property inventory showed that it actually owned only two vessels, M/V Viva Penafrancia V and M/V Marian Queen. The inventory also reflected a much higher fair market value for its assets, amounting to four hundred forty-seven million eight hundred sixty thousand pesos, although some properties were already encumbered by creditors. Viva listed several obligations, including a bank loan secured by real estate mortgage, vessel repair charges, and taxes due to local governments. It blamed its financial distress on the peso devaluation, increased competition, and mismanagement, and it claimed that most of its vessels had become unserviceable because of age and deterioration.

Viva's rehabilitation plan proposed to fund recovery by selling old vessels and commercial lots of its sister company, Sto. Domingo Shipping Lines. It also proposed converting the Ocean Palace Mall into a hotel, buying two new vessels, and reviving an oil mill in Buenavista, Quezon. Viva nominated rehabilitation receiver candidates and, later, a former judge was appointed as receiver. The trial court later granted a stay order, suspended monetary and judicial claims, and barred Viva from disposing of its properties except in the ordinary course of business.

Several creditors and interested parties opposed the petition. Metrobank, Keppel Philippines Marine, and the City of Batangas filed comments and oppositions. Pilipinas Shell also opposed the petition, and former employees including Luzviminda Cueto and Alejandro Olit, et al. filed monetary claims before the trial court. Metrobank sought production of documents relating to Viva's operations, but Viva failed to comply with the order to produce them and also failed to submit a memorandum. Later, the rehabilitation receiver withdrew his acceptance, and the trial court continued the proceedings without curing the underlying defects.

On October thirty, two thousand six, the RTC lifted the stay order and dismissed the amended petition. It found that Viva failed to show viability and feasibility of rehabilitation, noted that its debts exceeded or at least substantially undermined its free assets, and observed that the assets appeared to be non-performing. Viva then elevated the matter to the Court of Appeals through a petition for review under Rule forty-three, but it impleaded only the trial judge and not its creditors, although it served copies on some counsel. The Court of Appeals dismissed the petition for procedural defects and denied reconsideration, prompting Viva to seek relief from the Supreme Court.