Mercantile Law

BIR v.LEPANTO CERAMICS G.R. No. 224764 April 24, 2017 J. Perlas-Bernabe Financial Rehabilitation and Insolvency Act (FRIA) of 2010


Due to the financial difficulties, Lepanto Ceramics, Inc. (LCI) filed a petition for corporate rehabilitation pursuant the FRIA. LCI alleged its inability to pay its obligations as they become due and that its total liabilities far exceed its total assets.
The Rehabilitation Court, issued a Commencement Order, which, inter alia: (a) declared LCI to be under corporate rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; and (c) prohibited LCI from making any payment of its liabilities, except as may be provided under RA 10142.
Accordingly, the said Order was published and served upon LCI’s creditors, including the BIR.
Misajon, et al. of the BIR sent LCI a notice of informal conference informing the latter of its deficiency internal tax liabilities.
In response, LCI’s court-appointed receiver, Mendoza, sent BIR a letter-reply, of the pendency of LCI’s corporate rehabilitation proceedings. The BIR sent LCI a Formal Letter of Demand requiring LCI to pay deficiency taxes in the amount of P567,519,348.39. This prompted LCI to file a petition for indirect contempt against petitioners.
The RTC found Misajon, et al. guilty of indirect contempt.
Aggrieved, Misaj on, et al. moved for reconsideration, which was, however, denied; hence, this petition.


Whether or not the RTC correctly found Misajon, et al. to have defied the Commencement Order and, accordingly, cited them for indirect contempt.


The petition is without merit.

“[C]ase law 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. It contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity.”
Verily, the inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the rehabilitation period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating form.
Section 16 of RA 10142 (FRIA) provides, inter alia, that upon the issuance of a Commencement Order all actions or proceedings, in court or otherwise, for the enforcement of “claims” against the distressed company shall be suspended.
The creditors must ventilate their claims before the rehabilitation court, and any “[a]ttempts to seek legal or other resource against the distressed corporation shall be sufficient to support a finding of indirect contempt of court.”

Unmistakably, Misajon, et al. ‘s acts are in clear defiance of the Commencement Order.

It was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings, and in willful disregard of the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them for indirect contempt.

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