RUBBERWORLD (PHILS.), INC., OR JULIE YAP ONG, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, MARILYN F. ARELLANO, EMILY S. LEGASPI, MYRNA S. GALGANA, MERCEDITA R. SONGCO, …

Rubberworld versus National Labor Relations Commission

The Case

This is a petition for certiorari under Rule 65 filed by Rubberworld Philippines, Incorporated, through Julie Yap Ong, against the National Labor Relations Commission and several of its employees led by Marilyn Arellano. The company asks the Supreme Court to annul the Commission's refusal to suspend labor proceedings despite an order of the Securities and Exchange Commission placing the company under a management committee and suspending all actions for claims against it. The case matters because it settles a question every labor and commercial law practitioner must know: when a distressed corporation is under rehabilitation, do money claims of workers before labor tribunals proceed, or are they too caught by the automatic stay?

Procedural History

The employees filed complaints for illegal dismissal, unfair labor practice, damages, separation pay, retirement benefits, thirteenth month pay and service incentive pay before the labor arbiter. Rubberworld moved to suspend the proceedings, invoking the Securities and Exchange Commission order of December 28, 1994. The labor arbiter denied the motion, reasoning that the order covered only the enforcement of established rights and not claims still to be ascertained. Rubberworld appealed to the National Labor Relations Commission, which dismissed the appeal for lack of merit and sustained the labor arbiter. Its motion for reconsideration was likewise denied. Rubberworld then came to the Supreme Court on certiorari, and the Court issued a temporary restraining order restraining the public respondents from further conducting proceedings.

Facts

Rubberworld was a domestic corporation engaged in manufacturing footwear, bags and garments. On November 24, 1994, it filed with the Securities and Exchange Commission a petition for suspension of payments, praying that it be declared in a state of suspension of payments, that its creditors be restrained from enforcing their claims, and that a management committee be created and a rehabilitation plan approved.

On December 28, 1994, the Commission granted the petition. It created a management committee and ordered that all actions for claims against Rubberworld pending before any court, tribunal, office, board, body, commission or sheriff be deemed suspended, and that pending incidents for preliminary injunction, attachment and foreclosure be rendered moot and academic.

From April to July 1995, the private respondents, claiming to be employees of the corporation, filed their respective labor complaints. Rubberworld moved to suspend these proceedings on the strength of the Commission's order, citing prior jurisprudence. The labor arbiter denied the motion, and the National Labor Relations Commission affirmed. Hence the petition.

Issues

• Whether or not the National Labor Relations Commission acted with grave abuse of discretion in affirming the labor arbiter's denial of the motion to suspend proceedings despite the Securities and Exchange Commission order under Presidential Decree 902-A directing the suspension of all actions against a company under rehabilitation.
• Whether or not the automatic stay extends to labor claims for money before labor tribunals.
• Whether or not the workers' preference under Article 110 of the Labor Code defeats the suspension.
• Whether or not the suspension order expires after three months under the Insolvency Law.

Applicable Provisions

Section 5, paragraph (d) of Presidential Decree 902-A, as amended, provides:

Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree.

This is the jurisdictional anchor: it is this provision, not the Insolvency Law, that governs a solvent but illiquid corporation seeking suspension of payments.

Section 6, paragraph (c) of the same Decree provides:

Provided finally, That upon appointment of a management committee, the rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnerships, or associations under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly.

This is the automatic stay clause on which the entire ruling turns.

Article 110 of the Labor Code provides:

Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their wages and other monetary claims, and provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid.

The Court cites it to show that the preference operates only upon insolvency or judicial liquidation, not rehabilitation.

Ruling

The petition is meritorious. On the first issue, the Court holds that upon the appointment of a management committee or rehabilitation receiver, all actions for claims against the corporation pending before any court, tribunal or board are suspended ipso jure, that is, by operation of law itself. The purpose is to give the committee breathing space, free from judicial or extrajudicial interference, to rescue the debtor company.

On the second issue, the Court rejects the argument that labor claims are exempt. The law is clear, and no exception in favor of labor claims is mentioned. The Court states the maxim: ubi lex non distinguit nec nos distinguere debemos — where the law does not distinguish, neither should we. Allowing labor cases to proceed would defeat the automatic stay, encumber the committee's time and resources, and open the floodgates to other claimants. Even an award in favor of the workers could not be enforced while the company is under the committee. The Court also harmonizes Article 217 of the Labor Code with the Decree, holding that the Commission's authority is deemed suspended when the Decree is put into effect, since implied repeals are not favored.

On the third issue, the Court holds that the workers' preference under Article 110 may be invoked only upon the institution of insolvency or judicial liquidation. Rehabilitation aims to give the company a new lease on life so creditors may be paid from earnings; liquidation is different. Hence the preference does not apply.

On the fourth issue, the Court notes that the Decree itself fixes no duration for the automatic stay, and neither did the Commission's order. The suspensive effect has no time limit and remains in force as long as reasonably necessary to accomplish the purpose of the order.

Doctrine

Upon the appointment of a management committee or rehabilitation receiver under Presidential Decree 902-A, all actions for claims against the corporation pending before any court, tribunal, board or body are suspended ipso jure, by operation of law. This automatic stay includes money claims before labor tribunals. No exception is made for labor claims, because where the law does not distinguish, neither should the Court. The jurisdiction of labor arbiters and the Commission under Article 217 of the Labor Code is deemed suspended while the Decree is in effect, and the two statutes must be read in harmony. The workers' preference under Article 110 of the Labor Code arises only in bankruptcy or judicial liquidation, not in rehabilitation. The automatic stay has no fixed period and lasts as long as reasonably necessary to accomplish its purpose.

Disposition

The petition was granted; the resolutions of the National Labor Relations Commission were reversed and set aside, and the labor proceedings were ordered suspended. No costs.

Remember This

Memorize the line: upon appointment of a management committee or rehabilitation receiver, all actions for claims are suspended ipso jure, and labor claims are not exempt. Examiners use this case to test the interplay of Presidential Decree 902-A and the Labor Code, and the rule that Article 110 preference applies only in bankruptcy or liquidation, not rehabilitation.