REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE SECURITIES AND EXCHANGE COMMISSION, PETITIONER, VS. HON. CESAR O. UNTALAN AND PET PLANS, INC., RESPONDENTS.

Republic of the Philippines versus Untalan

The Case

This is a petition for certiorari filed by the Republic of the Philippines, represented by the Securities and Exchange Commission, against Judge Cesar O. Untalan of the Regional Trial Court of Makati City, Branch 149, and PET Plans, Inc. The Republic asks the Supreme Court to annul two resolutions issued in the corporate rehabilitation proceedings of PET Plans: one that modified the company's approved rehabilitation plan, and another that denied reconsideration and ordered the termination of the rehabilitation. The case matters because it fixes the boundary between a goal and a means in an approved rehabilitation plan, and it settles the correct remedy for orders issued after a plan has been approved.

Procedural History

PET Plans filed a petition for corporate rehabilitation with the Regional Trial Court of Makati City. The trial court issued a stay order and appointed a rehabilitation receiver. On April 30, 2007, the trial court approved PET Plans' modified rehabilitation plan, subject to terms and conditions, and expressly limited the approval to two years, with a review of compliance not later than March 30, 2009.

In October 2010, PET Plans filed an omnibus motion to revive and amend the plan and to exit from rehabilitation. The rehabilitation receiver supported the proposal; the Securities and Exchange Commission opposed it and prayed instead for liquidation. On February 22, 2011, the trial court granted the modification but denied the motions to exit rehabilitation and to exit the pre-need business. The Securities and Exchange Commission moved for reconsideration. On December 9, 2011, the trial court denied reconsideration and ordered the release and exit of PET Plans from rehabilitation.

The Republic then filed a petition for certiorari under Rule 65 before the Supreme Court. PET Plans moved to dismiss, arguing that the assailed resolutions had become final and executory and should have been appealed under Rule 43. The Supreme Court resolved the procedural objection and then decided the merits.

Facts

PET Plans is a pre-need company. Its modified rehabilitation plan, dated March 12, 2007, had two key features. First, the existing educational, pension, and life plans would be converted into a single enhanced value plan, with a net plan value as its face value. Second, the three separate trust funds would be unified into a single enhanced value fund, whose growth would be enhanced in two ways: by the earnings and growth of the fund's assets and investments, ranging from eight to twelve percent per annum, and by PET Plans' annual contributions of fifteen percent of its net income after tax generated from the continuance of its pre-need business, for ten years from approval of the plan.

In November 2007, PET Plans converted the existing plans into the enhanced value plan and established the enhanced value fund, managed by the Bank of the Philippine Islands. It complied with the other conditions of approval, except its commitment to contribute fifteen percent of its net income after tax to the fund. It later explained that it could not generate new sales or income from the pre-need business for lack of a necessary license from the Securities and Exchange Commission, and that its income from other ventures was marginal.

In October 2010, PET Plans moved to amend the plan and to exit from rehabilitation. It proposed an outright contribution to the enhanced value fund of two million pesos in cash and real properties in Silang, Cavite with a market value of three million four hundred ninety-six thousand five hundred pesos, or a total of five million four hundred ninety-six thousand five hundred pesos. The rehabilitation receiver endorsed the proposal as more favorable to planholders, since the amount was double the projected income contribution and its effect on the fund was immediate. The Securities and Exchange Commission opposed it, insisting that an approved plan cannot be materially modified and that failure to meet the targets warranted liquidation.

Issues

• Whether or not the resolutions issued after the approval of the rehabilitation plan may be reviewed only through a special civil action for certiorari under Rule 65, rather than by a petition for review under Rule 43.
• Whether or not the trial court committed grave abuse of discretion in allowing the modification of the approved rehabilitation plan by substituting an outright contribution of cash and real properties for the fifteen percent annual contribution from net income after tax.
• Whether or not the trial court committed grave abuse of discretion in ordering the termination of the rehabilitation proceedings and the exit of PET Plans from rehabilitation.

Applicable Provisions

Section 1 of Rule 8 of the Rules of Procedure on Corporate Rehabilitation provides:

An order issued after the approval of the rehabilitation plan can be reviewed only through a special civil action for certiorari under Rule 65 of the Rules of Court.

This provision governs the remedy and defeats the argument that the petition should be dismissed for having become final and executory.

Section 22 of Rule 3 of the same Rules provides:

An approved rehabilitation plan may, upon motion, be altered or modified if, in the judgment of the court, such alteration or modification is necessary to achieve the desired targets or goals set forth therein.

This is the provision the trial court applied, and the Supreme Court construes it to permit the substitution at issue.

Ruling

On the first issue, the Court held that the petition was the proper remedy. An order approving or disapproving a rehabilitation plan is reviewed by petition for review under Rule 43. But the assailed resolutions were issued after the approval of the plan, and the Rules expressly provide that such orders may be reviewed only through a special civil action for certiorari under Rule 65. The resolutions therefore had not attained finality, and dismissal was unwarranted.

On the second issue, the Court found no grave abuse of discretion. Reading the approved plan, the Court agreed with the rehabilitation receiver that the goal or target is the financial growth of the enhanced value fund, and that the fifteen percent annual contribution is merely one of the enhancers, that is, one of the means to augment the fund. The Rules allow alteration or modification when necessary to achieve the desired targets or goals set forth in the plan. The Court found the substitute contribution more favorable to planholders: the projected income contribution of two million four hundred thousand pesos from 2012 to 2016 was not even guaranteed, while the outright contribution of five million four hundred ninety-six thousand five hundred pesos was immediate and certain. The planholders interposed no objection, and the trial court conducted a chamber conference requiring the attendance of the finance officer, the trust fund portfolio officer, the receiver, and all stakeholders.

On the third issue, the Court held that termination was proper because the record showed that PET Plans had complied with its undertaking to contribute to the fund and had implemented the plan. The Court stressed that a writ of certiorari is an extraordinary prerogative writ, never demandable as a matter of right, and that the abuse of discretion must be so gross and patent as to amount to lack of jurisdiction or a virtual refusal to perform a duty enjoined by law. No such abuse appeared. The findings of the specialized commercial court, designated for its expertise in rehabilitation, are entitled to great weight and respect.

Doctrine

An approved rehabilitation plan is not absolutely immutable. Under Section 22 of Rule 3 of the Rules of Procedure on Corporate Rehabilitation, the court may alter or modify it upon motion when, in the court's judgment, the alteration or modification is necessary to achieve the desired targets or goals set forth in the plan. The test is purpose: a change in the means by which the goal is reached is permitted, while the goal itself remains the measure of every proposed change.

An order issued after the approval of a rehabilitation plan is reviewed only by a special civil action for certiorari under Rule 65, not by a petition for review under Rule 43. Certiorari lies only for grave abuse of discretion so gross and patent as to amount to lack of jurisdiction or a virtual refusal to perform a duty enjoined by law.

Disposition

The petition was dismissed, and the resolutions of the trial court dated February 22, 2011 and December 9, 2011 were affirmed.

Remember This

Memorize the line that the fifteen percent contribution was a means, not the goal, and that the goal was the financial growth of the enhanced value fund. Examiners use this case to test the Rule 65 remedy for post-approval orders in rehabilitation and the limits of modifying an approved rehabilitation plan.