Petitioner Wonder Book and eight other corporations, collectively known as the LGC, filed a joint petition for rehabilitation with the RTC.
The RTC approved the petition for rehabilitation.
The Order was questioned by EPCI Bank and PBCOM, creditors of LGC. EPCI Bank’s petition was granted. The CA reversed the Order of the RTC and dismissed LGC’s petition for rehabilitation. While PBCOM’s petition was denied by the CA.
Meantime, Wonder Book filed a petition for rehabilitation with the RTC.
The RTC issued a Stay Order.
Wonder Book filed what it described as its detailed rehabilitation plan, which was approved.
PBCOM filed a petition for review of the approval of Wonder Book’s rehabilitation plan, which the CA granted. According to the CA, Wonder Book’s financial statements reveal that it is not merely illiquid but in a state of insolvency.
Wonder Book instituted the present petition claiming that the CA erred in dismissing its petition for rehabilitation.
Whether or not Wonder Book’s petition for rehabilitation is impressed with merit.
This Court rules in the negative.
Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.
Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved if there is a showing that rehabilitation is feasible and the opposition entered by the creditors holding a majority of the total liabilities is unreasonable.
Rehabilitation is therefore available to a corporation who, while illiquid, has assets that can generate more cash if used in its daily operations than sold. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors.
Foremost of all, it appears that the petitioner does not really have enough assets, net worth and earning to meet and settle its outstanding liabilities.
The figures appearing on Wonder Book’s financial documents and the nature and value of its assets are indeed discouraging.
In other words, rehabilitation is not the proper remedy for Wonder Book’s dire financial condition. Given that it is actually insolvent and not just suffering from temporary liquidity problems, rehabilitation is not a viable option.