San Jose Timber Corporation v. SEC

P. Corporate Dissolution 2. Rehabilitation (Financial Rehabilitation and Insolvency Act of 2010 R.A. !o. 101"2# 1. $an %ose &i'ber Corporation v. $C ).R. !o. 1*21+* February 2, 2012 FactsPetitioner Petitioner Casilayan Casilayan Softwood Softwood Development Development Corporation Corporation (CSDC) (CSDC) is a corporation corporation duly organized organized and existing under and by virtue of the laws of the Republic of the Philippines and is the controlling stocholder and creditor of petitioner San !ose "imber Corporation (S!"C)# S!"C is primarily engaged in the operation of a logging concession with a base camp in $estern Samar by virtue of a "imber %icense &greement ("%&) 'o# * issued by the Department of +nvironment and 'atural Resources (D+'R)* which is to expire in ,--.# /n 0ebruary * 11* the D+'R issued a 2oratorium /rder (2/) suspending all logging operations in the island of Samar effective 0ebruary 11 to 2ay 3-* 11 which prompted S!"C to cease operations effective 0ebruary * 11 and caused it to lose all its income# "hen* on &ugust .* 11-* S!"C and CSDC filed with the Securities Securities and +xchange +xchange Commission Commission (S+C) (S+C) a petition for the appointment of a rehabilitation receiver and for suspension of payments# &fter due hearing* the S+C 4earing Panel granted such with the condition that S!"C would 5resuscitate its operations and properly service its liabilities in accordance with the duly approved schedule to be submitted by the Rehabilitation Receiver within a one () year period# Petitioners* on 0ebruary ,6* 11,* submitted their 2otion to &pprove Revised Rehabilitation Plan and 7rgent 2otion to +xtend $aiting Period for Commencement of Rehabilitation# "he S+C 4earing Panel extended the  waiting period up to &ugust 8* 11, but held in abeyance its approval of the revised rehabilitation plan# &lso* subse9uent motions filed by petitioners extended the waiting period several times# 2eanwhile* prior to the expiration of the waiting period to commence rehabilitation* petitioners filed their 2otion for Settlement of Claims &gainst Petitioner San !ose and subse9uently* their 2otion to Dispose of Personal Properties which were both granted by S+C# /n 2ay 6* ,--,* however* "he S+C +n :anc motu propio issued its decision terminating the rehabilitation proceedings and dismissing the petition for rehabilitation since S!"C could no longer be rehabilitated because the logging moratorium;ban* which was crucial for its rehabilitation* had not been lifted# Such was affirmed by the C&# "he petitioners filed a motion for reconsideration but it was denied by C&# 4ence* this petition for review with the SC# Significantly* Significantly* except for the Social Security System (SSS)* none of the cr editors filed an opposition to or comment on the petition# During the pendency of the petition before the SC* D+'R issued an /rder allowing S!"C to resume operations and extending the term of its "%& up to ,-,# "hen* petitioners filed their Supplemental Petition# "he SC gave due course to such and directed the parties to submit their respective memoranda within thirty (3-) days from notice# S!"C and CSDC filed their memorandum arguing* among others* that the S+C acted illegally and beyond its statutory mandate when it ordered the termination of the rehabilitation proceedings# "he C&* in turn* acted contrary to law when it upheld the S+C Rulin'o# "he C& did not err in affirming the dissolution of S!"C when the vast ma=ority of the creditors had agreed to await its rehabilitation# &t the time of the promulgation of the C& decision* there was no certainty that the moratorium on logging activities in Samar would be lifted or a law on selective logging was forthcoming# "here being no assurance* the C&  was correct in sustaining the decision of the S+C to terminate the rehabilitation proceedings to protect the interest of

all concerned* particularly the investors and the creditors# "o have resolved otherwise would have been pre=udicial to these entities as they would be made to wait indefinitely for something the lielihood of which was 9uite remote#  7nder the Rules of Procedure on Corporate Rehabilitation* rehabilitation is defined as the restoration of the debtor to a position of successful operation and solvency* if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments pro=ected in the plan* more if the corporation continues as a going concern than if it is immediately li9uidated# &n indispensable re9uirement in the rehabilitation of a distressed corporation is the rehabilitation plan# Section 8 of the ?nterim Rules of Procedure on Corporate Rehabilitation provides the re9uisites thereof@ $C. /. Rehabilitation Plan# AA "he rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation* giving due regard to the interests of secured creditorsB (c) the material financial commitments to support the rehabilitation planB (d) the means for the execution of the rehabilitation plan*  which may include conversion of the debts or any portion thereof to e9uity* restructuring of the debts* dacion en pago* or sale of assets or of the controlling interestB (e) a li9uidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtors properties were li9uidatedB and (f) such other relevant information to enable a reasonable investor to mae an informed decision on the feasibility of the rehabilitation plan# & successful rehabilitation usually depends on two factors@ () a positive change in the business fortunes of the debtor* and (,) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens* extent of dilution* etc# "he debtor must demonstrate by convincing and compelling evidence that these circumstances exist or are liely to exist by the time the debtor submits his revised or substitute rehabilitation plan for the final approval of the court# :oth the S+C and the C& had reasonable basis in deciding to terminate the rehabilitation proceedings of S!"C because of the lac of certainty that the logging ban would* in fact* be lifted# ?t is clear from the records that the proposed rehabilitation plan of the petitioners would depend entirely on the lifting of the logging ban either by the lifting of the moratorium on logging activities in Samar issued by the D+'R* or by the enactment of a law on selective logging# Such lifting of the logging ban is indispensable to the rehabilitation of S!"C# ?f it would not be lifted* the company would have no source of income or revenues and no investor or creditor would come in to lend a hand in its resuscitation#

/n &ugust 8* ,--8* however* an event supervened# $ith the lifting of the logging moratorium in Samar* an indispensable element for the possible rehabilitation of S!"C has been made a reality# Considering the extension granted by the D+'R* the "%& of S!"C will expire on ,-,* or nine (1) years from now# ?t appears from the proposed &d=usted Rehabilitation Plan* that S!"C would only need a period of ,E months from the lifting of the logging moratorium within which to li9uidate all of its liabilities* except those of its affiliates# "he Court is of the considered view that S!"C should be given a second chance to recover and pay off its creditors# "he only practical way of doing it is to resume the rehabilitation of S!"C which estimated its first year production upon resumption of operations at ,1*--- cubic meters# "hereafter* production is pro=ected to rise to 6-*--- cubic meters per year#  ?f the estimated selling price per cubic meter as of December 3* 11 was P3*8--#-- and between P8*---#-- and P6*---#-- in ,--E* there is no doubt that the price has again risen# "he Court is not unaware of the issuance of +xecutive /rder (+#/#) 'o# ,3 on 0ebruary * ,-# +#/# 'o# ,3 declares a 2oratorium on the Cutting and 4arvesting of "imber in the 'atural and Residual 0orests and Creates the &ntiA?llegal %ogging "as 0orce that will enforce the moratorium# ?t aims mainly at the promotion of intergeneration responsibility to protect the environment# &s pronounced in the D+'R website* however* it does not impose a total  log ban in the country# $hat is being protected by the executive order is simply the natural forests and residual

forests# Section , thereof provides for a moratorium on the cutting and harvesting of timber in the natural and residual forests of the entire country# "imber companies* such as petitioner S!"C* may still be allowed to cut trees sub=ect to the provisions thereof# "hus* S!"Cs rehabilitation appears highly feasible and the proceedings thereon should be revived# ?t should* therefore* be given an opportunity to be heard by the S+C to determine if it could maintain its corporate existence# 0or said reason* the case should be remanded to the S+C so that it could factor in the aforecited figures and claims of S!"C and assess whether or not S!"C could still recover# ?t appears from the figures that S!"C can generate sufficient income to pay all its obligations to all its creditors except* as the petitioners pledged* its corporate affiliates who allegedly represent more than 66F of the liabilities#