Week 7 Case 22 G.R. Nos. 213130 & 218193 Flashcards
G.R. No. 213130: Dismissed
(SEC and IC v. CAPPI)
G.R. No. 218193: Granted
(IC v. CAPPI)
Respondent College Assurance Plans Philippines, Inc. is permanently ENJOINED from including the properties of Comprehensive Annuity Plans and Pension in its rehabilitation proceedings.
The doctrine of immutability of judgment does not apply whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.
Did the 2006 Resolution place CAP Pension and its assets under custodia legis?
No, the 2006 Resolution did not place CAP Pension and its assets under custodia legis.
The rehabilitation court, as affirmed by the Court of Appeals, found that the order to sell and dispose of CAP Pension, “stemmed from the fact that it is one of the indicated sources of funds of [respondent] for its rehabilitation and that 86% of CAP Pension’s outstanding stock is owned by [respondent].”
Petitioners contend that the directive should be interpreted as an order for respondent to sell its equities in CAP Pension, as stated in the proposed Rehabilitation Plan. It insists that the separate and distinct personality of CAP Pension precludes the sale of the whole company.
Meanwhile, respondent counters that the dispositive portion controls and CAP Pension along with its assets had long been under the rehabilitation court’s jurisdiction.
Which position is meritorious?
The respondent’s position is more meritorious.
Well-settled is the rule that “a corporation has a personality separate and distinct from that of its individual stockholders.” This separate personality allows the corporation to acquire properties in its own name and incur obligations. A stockholder owning all or nearly all the capital stock of a corporation is not a ground to disregard a corporation’s personality.
There are stark differences between the businesses of respondent CAPPI and CAP Pension. Respondent corporation was a pioneer in the pre-need industry in selling educational plans which guaranteed the planholders’ payment for tuition and other school fees.
On the other hand, CAP Pension, respondent’s subsidiary, sold pre-need plans for other purposes:
“(1) [p]ost-graduate funds;
(2) [starting] a business;
(3) [a]dditional income during the children’s growing-up years;
(4) [b]uilding up one’s estate;
(5) [f]unds for eventual retirement;
(6) [a]ugment other pension/retirement benefits; and
(7) [f]unds for final expenses.” Needless to state, each corporation has a distinct personality, does business separately, and has its own clientele of planholders.
Thus, CAP Pension retained a personality separate and distinct from respondent throughout its rehabilitation proceedings. The 2006 Resolution placed neither CAP Pension nor its assets under custodia legis. Neither could the rehabilitation court hold CAP Pension personally liable for the obligations of its parent corporation.
Is the subsidiary an asset of the parent corporation?
The subsidiary is not a mere asset of the parent corporation. “If used to perform legitimate functions, a subsidiary’s separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.”
Why is separating CAP Pension’s conservatorship from respondent’s rehabilitation vital?
Separating CAP Pension’s conservatorship from respondent’s rehabilitation is vital. Apart from their separate and distinct personalities, with each having its own assets and liabilities, the corporations’ remedies of conservatorship and rehabilitation are under two separate jurisdictions.
Although of a similar nature, rehabilitation and conservatorship fall under different jurisdictions and are governed by different laws. While rehabilitation in this case was supervised by a trial court sitting as a commercial court, conservatorship was to be under the Insurance Commission’s jurisdiction.
Rehabilitation is a remedy availed by financially distressed corporations “to gain a new lease on life[.]”
What is the rationale of corporate rehabilitation?
The rationale in corporate rehabilitation is to resuscitate businesses in financial distress because “assets are often more valuable when so maintained than they would be when liquidated.” Rehabilitation assumes that assets are still serviceable to meet the purposes of the business. The corporation receives assistance from the court and a disinterested rehabilitation receiver to balance the interest to recover and continue ordinary business, all the while attending to the interest of its creditors to be paid equitably. These interests are also referred to as the rehabilitative and the equitable purposes of corporate rehabilitation.
What is the nature of corporate rehabilitation, as discussed in Pryce Corporation v. China Banking Corporation?
Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave the various creditors unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their concerns. Corporate rehabilitation allows a court-supervised process to rejuvenate a corporation. It provides a corporation’s owners a sound chance to reengage the market, hopefully with more vigor and enlightened services, having learned from a painful experience.
Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporation’s limited resources.
What is corporate rehabilitation, as discussed in Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc.?
Corporate rehabilitation is a remedy for corporations, partnerships, and associations “who foresee the impossibility of meeting their debts when they respectively fall due.” A corporation under rehabilitation continues with its corporate life and activities to achieve solvency, or a position where the corporation is able to pay its obligations as they fall due in the ordinary course of business. Solvency is a state where the businesses’ liabilities are less than its assets.
What are exceptions to the doctrine of immutability of judgment?
However, the doctrine of immutability of judgment admits of exceptions:
(1) The correction of clerical errors;
(2) The so-called nunc pro tunc entries which cause no prejudice to any party;
(3) Void judgments; and
(4) Whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.
Was the execution of the November 8, 2006 Resolution, as interpreted by the rehabilitation court, unjust and inequitable for CAP Pension’s planholders?
The execution of the November 8, 2006 Resolution, as interpreted by the rehabilitation court, is unjust and inequitable for CAP Pension’s planholders.
What were the findings of the petitioner Insurance Commission as to the capital stock of CAP Pension?
The petitioner found that CAP Pension’s capital stock was impaired by P5,171,390,117.00, its trust fund deficient by P3,136,663,312.00, and the pre-need company did not set up a separate account for the Insurance Premium Fund of P169,453,089.00.
What power did Republic Act No. 9829 vest on the Insurance Commission?
Republic Act No. 9829 vested petitioner with primary and exclusive supervision and regulation over all pre-need companies. In the exercise of its regulatory function, petitioner was constrained to place CAP Pension under conservatorship upon the discovery of the financial infirmities of the pre-need company. The company’s distressed state entailed petitioner’s intervention to avoid serious peril to its planholders. Per Laigo, this protection to the planholders is the primary consideration in the enactment of Republic Act No. 9829.
Republic Act No. 9829 was passed in response to “the chaos confounding the [pre-need] industry at the time.” The legislation was intended to be a stronger legal framework that shall govern the pre-need industry and primarily protect the rights of the planholders. Section 2 declares the policy considerations of the law:
SECTION 2. Declaration of Policy. — It is the policy of the State to regulate the establishment of pre-need companies and to place their operation on sound, efficient and stable basis to derive the optimum advantage from them in the mobilization of savings and to prevent and mitigate, as far as practicable, practices prejudicial to public interest and the protection of planholders.
The State shall hereby regulate, through an empowered agency, pre-need companies based on prudential principles to promote soundness, stability and sustainable growth of the pre-need industry. (Emphasis supplied)
The Insurance Commission, as the primary agency governing pre-need companies, should not be restrained from fulfilling its mandate. To rule that CAP Pension was placed under custodia legis by the order of the rehabilitation court is prejudicial to the interests of CAP Pension’s planholders. CAP Pension’s planholders need protection in the same manner and degree as respondent corporation’s planholders who had been amply protected through the rehabilitation proceedings.
Was there any circumstance that existed to reverse the Court of Appeals’ affirmation of the rehabilitation plan’s extension and modification?
No circumstance exists to reverse the Court of Appeals’ affirmation of the rehabilitation plan’s extension and modification.
Thus, the petition in G.R. No. 213130 must be denied outright for raising issues that require a review of the evidence. This Court finds no reason to disturb these findings.
Should CAP Pension’s assets be included in the rehabilitation plan?
However, the Court of Appeals is incorrect in ruling, “[t]he fact that there are properties owned by CAP Pension which are included in the proposed redevelopment project of respondent [CAPPI] is not a sufficient ground for the disapproval of the request for extension or modification of the rehabilitation plan[.]” Again, CAP Pension’s assets are not and should not be included in the rehabilitation plan.
