Corporate Rehabilitation Venue and Joint Petitions Under Philippine Law

The Supreme Court's 2016 ruling in Mervic Realty, Inc. and Viccy Realty, Inc. v. China Banking Corporation (G.R. No. 193748) clarifies two important procedural points for companies seeking corporate rehabilitation in the Philippines: separate corporations cannot jointly file a single rehabilitation petition under the Interim Rules, and the petition must be filed in the court where the debtor's principal office—as stated in its Articles of Incorporation—is located. This decision provides essential guidance for financially distressed corporations and their counsel.

The Case: Two Family Corporations, One Petition

Mervic Realty, Inc. and Viccy Realty, Inc., two real estate corporations sharing common officers and stockholders from the Siochi family, jointly filed a petition for corporate rehabilitation in October 2006 before the Regional Trial Court of Malabon City. They claimed that the Asian financial crisis of 1997 had made it impossible for them to meet their obligations, which had reached approximately P193 million as of September 2006.

China Banking Corporation, a creditor, opposed the petition on two grounds: first, that the two corporations were separate legal entities that should have filed separate petitions; and second, that the petition was filed in the wrong venue because the corporations' Articles of Incorporation showed their principal office was in Quezon City, not Malabon City.

The Issue: Joint Petitions and Venue Under the Interim Rules

The central question before the Supreme Court was whether two close family corporations could jointly file a single rehabilitation petition under the Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC), and if so, whether they had chosen the correct venue.

The Court resolved the first question in the negative. Under the Interim Rules, which governed the petition because it was filed in 2006, joint or consolidated rehabilitation petitions were not allowed. The Court cited its earlier ruling in Asiatrust Development Bank v. First Aikka Development, Inc. (665 Phil. 313 [2011]), which held that even corporations with interlocking directors, officers, and intertwined loans remain separate legal personalities. Each corporation's rehabilitation feasibility must be evaluated based on its own assets and liabilities, not jointly with other corporations.

No Retroactive Application of the 2008 Rules

The petitioners argued that the 2008 Rules of Procedure on Corporate Rehabilitation, which explicitly allow a group of companies to file a joint rehabilitation petition, should be applied to their case. The Court rejected this argument.

The 2008 Rules took effect on January 16, 2009, and their transitory provision allows retroactive application only to pending petitions that had not yet undergone the initial hearing stage at the time of effectivity. In this case, the initial hearing was conducted on January 22, 2007, and the rehabilitation plan was approved on April 15, 2008—both well before the 2008 Rules took effect. The Court found no legal basis to apply the new rules retroactively.

Venue: Where Is the Principal Office?

The Court also emphasized that venue in corporate rehabilitation is determined by the location of the debtor's principal office as stated in its Articles of Incorporation. The Court of Appeals had found that the petitioners' principal office was in Quezon City, not Malabon City.

While the petitioners claimed they had amended their Articles of Incorporation to move their principal office to Malabon City, the Court declined to resolve this factual dispute. Determining the authenticity and completeness of the documents proving the alleged amendments would require fact-finding, which is not appropriate in a Rule 45 petition where only questions of law may be raised.

Practical Takeaways

• Separate corporations must file separate rehabilitation petitions under the Interim Rules, even if they share the same owners, officers, and business operations. The corporate veil is not pierced merely because of common ownership or management.
• Venue is determined by the principal office stated in the Articles of Incorporation. A corporation's "residence" for venue purposes is the place designated in its AOI, and this cannot be changed by mere claim or practice.
• The 2008 Rules do not apply retroactively to petitions that had already undergone initial hearing before January 16, 2009. Companies should be aware of which procedural rules govern their specific case.
• Venue objections must be raised promptly. While venue may be waived by failure to object, a timely objection—as China Bank made here—can defeat a rehabilitation petition filed in the wrong court.
• Factual disputes about venue should be resolved early. The rehabilitation court's failure to rule on China Bank's venue objection at the outset ultimately led to the dismissal of the entire petition.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.