SEC En Banc Case No. 04-14-325 China Banking Corporation, Petitioner - versus - Hon. Daniel P. Gabuyo and Hon. Myrla B. Barribal, in their respective capacities as Head and Member of the Special Hearing Panel 2, and St. Francis Square Realty Corporation, and St. Francis Square Development Corporation, Respondents.

U2 Securities and Exchange Commission SEC BuidingEDSA,GreenillMandaluyong City Republic of the Philippines Department of Finance

Office of the General Counsel

CHINA BANKING CORPORATION Petitioner,

versus- SEC En Banc Case No. 04-14-325

MYRLA B. BARRIBAL, in their respective Special Hearing Panel 2, and ST. FRANCIS DEVELOPMENT CORPORATION, HON.DANIEL P. GABUYO and HON. capacities as Head and Member of the SQUAREREALTY AND ST. FRANCIS CORPORATION, Respondents. SQUARE

27 April 2016 TO:

Maningding Counsel for the Petitioner 4th Floor Philcom Building 8755 Paseo de Roxas, Makati City ATTY.CORAZON I.MORANDO Alcala Dumlao Alameda Tan Alano & 4th Floor, St. Francis Square, Bank Drive Corner J. Vargas St. Ortigas Center Mandaluyong City JOSE MENDOZA & ASSOCIATES Counsel for the Private Respondents

ATTY.DANIEL P.GABUYO ATTY.MYRLA B. BARRIBAL Special Hearing Panel 2 Securities and Exchange Commission, SEC Bldg., EDSA, Greenhills Mandaluyong City

GREETINGS:

entitled case, the original of which is now on file with this office. Please take notice that on 27 April 2016 a DECISION was issued in the above-

Mandaluyong City, Philippines

By Authority of the Commission En Banc:

tlavf Office offthe Commissipn Secretary ARMANDO A.PAN, JR. Offtcer-in-charge

SEC Bldg. EDSA Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance

CHINA BANKING CORPORATION, Petitioner,

-versus- SEC En Banc Case No.04-14-325

CORPORATION,AND ST. HON. DANIEL P. GABUYO and HON. respective capacities as Head and Member of the Special Hearing Panel 2, and ST. MYRLA SQUARE FRANCIS CORPORATION, B. BARRIBAL, SQUARF DEVELOPMENT Respondents. FRANCIS in REALTY their

X

DECISION

of Stay/Status Quo Orderl filed, on 02 April 2014, by China Banking Corporation capacities as Head and Member of the Special Hearing Panel 2 (SHP2, St.Francis Square Realty Corporation (SFSRC), and St. Francis Square Development Corporation (SFSDC (Chinabank against Hon. Daniel P.Gabuyo and Hon. Myrla B. Barribal, in their respective This resolves the pending Petition for Review on Certiorari with prayer for issuance

entitled "In the Matter of: Petition for Rehabilitation with Prayer for Suspension of Actions and Proceedings against Petitioners, ASB Holdings, Inc., ASB Realty Corp., ASB dated 25 March 2014 (Assailed Order) issued in relation to SEC Case No. 05-00-6609 Development Corp. (formerly Tiffany Tower Realty Corp.), ASB Land, Inc., ASB Finance, Inc., Makati Hope Christian School, Inc., Bel-Air Holdings Corp., Winchester Trading, Inc. VYL Development Corp., Genrick Holdings Corp., and Neighborhood Holdings, Inc. " (ASB Group). The dispositive portion of which reads as follows: The Petitioner seeks the cancellation of the Order of the SHP2 of the Commission

"WHEREFORE, premises considered, the hearing panel hereby resolves as follows:

1 Declaring the petitioners loans with Chinabank to be over-collateralized.

the mortgaged Bel-Air and Caloocan properties and to cancel/release the appropriate bidding rules and procedure, seeing to it that the value of the properties are maximized and the sale awarded to the highest bidder. Hence, Chinabank is hereby directed to release to petitioners the titles over corresponding mortgage on said properties. Petitioners are hereby authorized to sell the same via public bidding within 180 days from date hereof. Accordingly, the Rehabilitation Receiver is directed to promulgate

Dated 31 March 2014.

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 2 of 14

2. Directing Chinabank to accept the proceeds of such sale, net of taxes and

3 Chinabank is further directed to cancel/release the mortgage on The Legaspi Php300,000,000.00 Million loan (with no interest and charges whatsoever) of the Petitioners expenses, and to credit the same as partial payment for the

Place within one (1) year from completion of the said project. Legaspi Place as are sufficient to pay-off such loan balance based on current directed to resume construction thereat within one (1) year from release of mortgage and turn-over of said title/s to Petitioners.Thereafter, Petitioners shall allocate for Chinabank as a security, such number of units at the The market value of the units. Furthermore, Petitioners are directed to pay the remaining unpaid balance to Chinabank on cash basis, (with no interest or charges whatsoever) from the proceeds of the sale of units at The Legaspi Place, as well as to release the title/s thereon to petitioners. Petitioners are

Facts of the Case

(formerly known as ASB Development Corporation), along with several other affiliate suffering financially from the Asian currency crisis in the late 90's. companies, initiated rehabilitation proceedings with the Hearing Panel of the Commission's Securities Investigation and Clearing Department (SEC Hearing Panel, presently SHP2) after On 02 May 2000, SFSRC (formerly known as ASB Realty Corporation) and SFSDC

parcels of land located in Salcedo Street, Legaspi Village, Makati City (Legaspi Property) and 2.) a parcel of land located in Bel-Air 2, Makati City (Bel-Air Property).While, SFSDC a real estate mortgage over two (2) contiguous lots in Caloocan City (Caloocan Property) Chinabank for the total principal amount of Two Hundred Sixty Five Million Pesos Was indebted to Chinabank in the sum of Thirty Five Million (Php35,000,000.00) secured by Php265,000,000.00 which is secured by two 2 real estate mortgages over 1. two 2 At the time of filing of the petition for corporate rehabilitation, SFSRC is indebted to

going, a Stay Order was issued by the SEC Hearing Panel on 04 May 2000. To preserve the ASB Group's assets while the rehabilitation proceedings are on-

Hearing Panel on 26 April 2001 and, eventually, upheld by the Supreme Court in several cases2 filed by the various Creditor-Banks of the ASB Group namely, Metropolitan Bank & Trust Company (Metrobank), Bank of the Philippine Islands (BPI) and Chinabank. After due proceedings, the ASB Rehabilitation Plan was approved by the SEC

Property -- Php 46,462,000.005; and Caloocan Property --Php 82,031,000.006. alleging that the mortgaged properties' market value increase based on the appraisal report of Cuervo Appraisers, Inc. (CAI), to wit: Legaspi Property Php 1,086,102,000.004; Bel-Air On 13 September 2013, SFSRC and SFSDC filed an Omnibus Motionwith the SHP2

22d paragraph of the Petition for Review on Certiorari citing Metropolitan Bank & Trust Company v. ASB Holdings, Inc., G.R. No. December 2007; and China Banking Corporation v. ASB Holdings, Inc. et al., G.R. No. 172192, dated 23 December 2008. 3Dated 13 September 2013. 4 Annex "A" of the Omnibus Motion, CAI's Appraisal Report dated 26 July 2012. 5 Annex "B" of the Omnibus Motion, CAI's Appraisal Report dated 22 July 2013. Annex "C" of the Omnibus Motion, CAI's Appraisal Report dated 29 July 2013. 166197, dated 27 February 2007; Bank of the Philippine Islands v. Securities and Exchange Commission, G.R. No. 164641, dated 20

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No.04-14-325 Page 3 of 14

SFSDC's loans to Chinabank; 4.) directing Chinabank to release the mortgage on the Legaspi Property and ASB Group will complete the construction of the same; 5.) upon completion of the Legaspi Property, directing SFSRC to set aside units to fully settle the remaining balance confirming that the SFSRC and SFSDC's loans to Chinabank are over-collateralized; 2.) directing the immediate release of the Bel-Air and Caloocan Properties; 3.) authorizing the sale of the Bel-Air and Caloocan Properties and the proceeds to be used to pay SFSRC and of its loan with Chinabank based on their prevailing market value. In their Omnibus Motion, SFSRC and SFSDC sought that an order be issued: 1.

128,491,000.00 will be applied to the loan of the ASB Group. He also noted that the Chinabank, allocating such number of units in said project after completion, sufficient to pay- that the secured status of Chinabank will not be diminished considering that the cash generated from the sale of the Bel-Air and Caloocan properties with a combined value of Php completion of the Uunfinished Legaspi Place will finally settle ASB Group's debt to off the remaining loan balance and to pay unsecured creditors. On 03 October 2013, the Rehabilitation Receiver filed his comment recommending

Omnibus Motion. On 25 March 2014, SHP2 issued the Assailed Order granting SFSRC and SFSDC's

that the SHP2 acted with grave abuse of discretion amounting to lack or excess of jurisdiction: Aggrieved by the said Assailed Order, Chinabank filed the instant Petition contending

HONORABLE COMMISSION EN BANC; WHEN THEY ARBITRARILY EXCLUDING INTEREST AND OTHER CHARGES ON PRIVATE PREEMPTING ARULING ON THE SAID ISSUE BY THIS RESPONDENTS' LOAN, THEREBY

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WHEN THEY ARBITRARILY ORDERED THE SALE OF THE BEL-AIR CONSTITUTION AND APPLICABLE LAW; AND CALOOCANPROPERTIESIN VIOLATION OF THE

I

MORTGAGES ON THE LEGASPI PLACE, THE BEL-AIR PROPERTY WHEN THEY WHIMSICALLY ORDERED THE RELEASE OF THE AND THE CALOOCAN PROPERTY IN VIOLATION OF THE CONSTITUTION,APPLICABLE LAW, ANDTHE CONTRACTS VALIDLY ENTERED INTO BETWEEN THE PARTIES;

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UNITS IN THE LEGASPI PLACE AS REPLACEMENT SECURITY FOR PRIVATE RESPONDENTS' LOANS; WHEN THEY ORDERED CHINABANK TO ACCEPT CONDOMINIUM

7 Page 2 of the Assailed Order.

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No.04-14-325 Page 4 of 14

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BY EFFECTING AMENDMENTS TO THE ASB REHABILITATION PLAN IN VIOLATION OF THE FR RULES;

V

POWER IN VIOLATION OF THE CONSTITUTION. BY ACCORDING UNTO THEMSELVES THE EXERCISE OF POLICE

of discretion can be attributed to the public respondents, as the Assailed Order was anchored SFSRC and SFSDC aver that: on substantial and undisputed evidence on record and established jurisprudence. Particularly. SFSRC and SFSDC filed their Answer, on 02 May 2014, alleging that no grave abuse

I The statements made by the SHP2 relative to the issue of interest was

3. 4. 2. 5. The instant Rehabilitation proceeding is primarily governed by the Rules of Procedure on Corporate Recovery; A Rehabilitation Court has the power to order the sale of the property of the The Rehabilitation Plan may be modified or altered by the rehabilitation The findings of fact made by the SHP2 that the SFSRC and SFSDC's loans merely a reiteration of its previous ruling on the matter; debtor in partial payment of the debts owing to a creditor; tribunal upon motion by the debtor

6. I The Rehabilitation Tribunal, as agent of the State in the exercise of its police The Non-Impairment Clause is not applicable with respect to the exercise by power, is authorized to modify the contracts between the parties pursuant to the purpose of rehabilitation; with Chinabank are over-collateralized' is duly supported by evidence on record

8. 9 It is settled that the power of a rehabilitation tribunal to amend or alter the Any preference in favor of a particular creditor, by virtue of a mortgage in its favor, is deemed suspended during the pendency of the rehabilitation the State of its quasi-judicial power; proceedings;

delegated police power. existing contract between the parties constitutes as a valid exercise of

Iss ues

resolve are the following: Summarizing the parties arguments, the relevant issues left for this Commission to

in ASB's rehabilitation; (FRIA) and Financial Rehabilitation Rules of Procedure (2013)" (FR Rules) are applicable 1 Whether or not the "Financial Rehabilitation and Insolvency Act of 2010

issued the Assailed Order; 2 Whether or not SHP2 effectively amended ASB's Rehabilitation Plan when it

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No.04-14-325 Page 5 of 14

Legaspi Property, Bel-Air Property and Caloocan Properties to be over-collateralized based on the appraisal of Cuervo Appraisers, Inc.; 3. Whether or not the SHP2 was correct in declaring the mortgaged properties

properties, and sale of the Bel-Air Property and Caloocan Properties. 4 Whether or not the SHP2 was correct in ordering the release of the mortgaged

Ruling

We find the Petition partially meritorious.

reasons like economic crisis or mismanagement had become distressed or insolvent, i.e., that common parlance, torestore means "to bring back to or put back into a former or original state. Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the In other words, rehabilitation assumes that the corporation has been operational but for some it is generally unable to pay its debts as they fall due in the ordinary course of business or has liability that are greater than its assets. Thus, the basic issues in rehabilitation proceedings its former healthy financial condition through the adoption of a rehabilitation plan. company a new lease on life and allow its creditors to be paid their claims out of its earnings. concern the viability and desirability distressed corporation, all with a view of effectively restoring it to a state of solvency or to Restoration is the central idea behind the remedy of corporate rehabilitation. In of continuing the business operations of the

ruled that: In San Jose Timber Corporation, et al. vs.SEC, et al., the Supreme Court likewise

the plan, more if the corporation continues as a going concern than if it is "Under the Rules of Procedure on Corporate Rehabilitation, "rehabilitation" is 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 projected in immediately liquidated. defined as the restoration of the debtor to a position of successful operation and

Rehabilitation provides the requisites thereof: An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation plan. Section 5 of the Interim Rules of Procedure on Corporate

desired business targets or goals and the duration and coverage the creditors and shareholders would receive if the debtor's properties were SEC. 5. Rehabilitation Plan. -- The rehabilitation plan shall include (a) the include the manner of its implementation, giving due regard to the interests of secured creditors; (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the rehabilitation; (b) the terms and conditions of such rehabilitation which shall 01

9 G.R. No. 162196, February 27, 2012. 8BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., G.R. No. 205469, March 25, 2015.

China Banking Corporation vs, Hon. Daniel P.Gabuyo, et al SEC En Banc Case No.04-14-325 Page 6 of 14

to make an informed decision on the feasibility of the rehabilitation plan. liquidated; and (f) such other relevant information to enable a reasonable investor

in the business fortunes of the debtor, and (2) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens, extent of dilution, etc. The debtor must demonstrate by convincing and compelling evidence that these circumstances exist or are likely to exist by the time the debtor submits his revised or substitute rehabilitation plan for the final approval of the court." "A successful rehabilitation usually depends on two factors: (1) a positive change

the ASB Rehabilitation Plan to serve as guidance to the SHP2 and the parties. In connection with the above legal principles, we see the need to discuss the design of

ASB Rehabilitation Plan

the Supreme Court1o, provides a Total Approach on how ASB, now SFSRC and SFSDC, would reduce its debt, to wit: The ASB Rehabilitation Plan, which was approved by the Commission and upheld by

1. Complete or sell on-going projects; 2. Invite secured creditors to complete Dacion en Pago transactions,

3. Invite unsecured creditors to purchase real estate parcels and other assets and set-off the amount of their outstanding claim against the waiving all penalties; and purchase price.

options for the settlement of its claims, thus: Based on the above-mentioned program, the secured creditors are given two (2)

2 1 To enter into a Dacion en Pago Agreement as presented in the Rehabilitation To settle the obligations (without interest penalties, and other related charges Plan;

mortgaged properties at ASB selling prices11. accruing after 04 May 2000, the date of the Stay Order) to secured creditors with

there appears to be sufficient assets to meet liabilities provided a significant portion of assets are quickly converted to a In order to determine the feasibility of the above, representatives of our financial advisors met with or had discussions with most of the secured creditors. Preliminary discussions indicate support from the secured creditors towards the concepts of the program We also attach as Appendices B to O, term sheets setting out ASB's expectations of the outcome of the dacion en pago transactions with the secured creditors. We continue to pursue discussions with secured creditors. Based on the program, secured creditors claims amounting to PhP5.192 billion will be paid in full including interest up to April 30, 2000. Secured creditors have been asked It is apparent that ASB's corporate indebtedness needs to be reduced as quickly as possible in order to prevent rapid deterioration in equity. Based on calculations of the net realizable value of real estate assets and other assets determined on a combined basis, reduction of debt. Based on the current status of the Philippine real estate sector, assets will not be converted quickly enough through normal sales methods. If assets are sold in the normal course through present sales methods, interest accumulating over the period of sales will cause unsecured creditors to incur substantial losses. In order to reduce debt quickly, we must do the The assets included in the above program include all real estate assets. associated with them. The majority of these secured creditors appear to want to complete dacion en pago transactions based on 11 pp. 17-18, ASB Rehabilitation Plan - IV. THE REVISED REHABILITATION PLAN following: outstanding claim against the purchase price mutually agreed upon terms. We attach as Appendix A, a listing of properties expected to be subject to dacion en pago transactions. I0 Note 2, Supra. A 3 N Invite unsecured creditors to purchase real estate parcels and other assets and set-off the amount of their Invite secured creditors to complete dacion en pago transactions, waiving all penalties; and The Total Approach Complete or sell on-going projects;

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 7 of 14

interest due and unpaid as of 30 April 2000 without any penalties and charges. The 2nd option provides that, in case the Dacion en Pago transaction fails, the AsB Group can settle its initial suspension order) to secured creditors with mortgaged properties at ASB selling prices. en Pago, albeit, the amount of the obligation shall be comprised of only the principal plus any obligations (without interest, penalties, and other related charges accruing after the date of the The 1st option contemplates settlement of ASB Group's obligation through a Dacion

remaining creditors of ASB12. Among the properties included in the Asset Pool are the real estate assets will be transferred into an Asset Pool for the benefit and protection of the (TLP or Legaspi property), which shall likewise be released from their current two (2) unfinished developments, namely the BSA Twin Towers and the Legaspi Place encumbrance I? After the completion of above transactions (1st option and 2nd option), the remaining

asset development managed by a Project Governing Board (PGB') into which assets of ASB unfinished, will be contributed14.The Asset Pool is an important component for the released from the secured creditors or otherwise unencumbered, whether developed or Group of Companies.With the Asset Pool, funds could be generated to complete the unfinished developments; new projects could be started and the assets properly managed for the benefit and interest of the creditors. settlement of the obligations of ASB to the unsecured creditors and the rehabilitation of ASB An Asset Pool is an unincorporated entity administered by a Trustee Bank and the

known as Creditor's Participation Certificate (CPC), as evidence of indebtedness of the ASB unsecured secured. One of the CPCs to be issued is Series B which is specifically designed shall administer the Asset Pool. The Trustee Bank once appointed shall issue certificates Group of Companies that are outstanding as of the date of filing of petition. The assets in the Asset Pool may be utilized to generate cash or income to settle the obligation in favor of the for secured creditors. A reputable bank acceptable to the creditors and ASB shall be chosen as trustee and it

at ASB selling process at the time of conversion. units in completed buildings which have been contributed to the Asset Pool or in units of yet to be completed, such as the Legaspi Place (Legaspi property). The conversion value shall be The holders of the CPC shall have the option to convert their certificate into lots or

rule on the relevant issues raised. Prescinding from the foregoing legal principles and ASB Rehabilitation Plan, we now

Applicable law or rules in ASB's rehabilitation

release of the mortgaged properties and sale of the Bel-Air and Caloocan properties. In Chinabank argues that its consent is necessary before the SHP2 could order the

the ASB Group of Companies. If the dacion en pago herein contemplated does not materialize for failure of the secured creditor to agree thereto, the rehabilitation plan contemplates to settle the obligations (without interest, penalties and other related to waive all penalties and other charges. This Dacion en pago program is essential to eventually pay all creditors and rehabilitate charges accruing after the date of initial suspension order) to secured creditors with mortgaged properties at ASB selling pricefor the general interest of the employees, creditors, unit buyers, government, general public and the economy. 13 Paragraph 2, Page 20 of the ASB Rehabilitation Plan, Note 12, Supra. 14 Paragraph 2, Page 21 of the ASB Rehabilitation Plan, Note 12, Supra. Ii2 Paragraph 2, Page 18 of the ASB Rehabilitation Plan, Annex B" of the Petition.

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al SEC En Banc Case No. 04-14-325 Page 8 of 14

support of its contention, it cited Section 5015 of FRIA and Section 4916 FR Rules which provides that prior consent of an affected creditor is needed before any sale or disposal of an encumbered asset may be effected. We disagree with Chinabank.

applied, it must comply with the FRIA's transitory provision as provided for in Section 146 of thereof, to wit: It should be emphasized that before any provisions of the FRIA and FR Rules can be

Section 146. Application to Pending Insolvency, Suspension of Payments and which event the procedures set forth in prior laws and regulations shall apply. Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of the court their application would not be feasible or would work injustice, in

the sale will not only reduce its debt to Chinabank, but, most importantly, will help SFSRC the release of the mortgaged properties and sale of the Bel-Air and Caloocan properties as it will receive partial payment of the SFSRC and SFSDC's outstanding loans. and SFSDC finance the completion of the TLP. This is consistent with the intent of the Total Caloocan properties would benefit the ASB Group in its rehabilitation as the proceeds from Approach in the Rehabilitation Plan. On the other hand, Chinabank would also benefit from In the instant case, the release of the mortgaged properties and sale of the Bel-Air and

advantageous, feasible nor would it facilitate ASB Group's rehabilitation. Otherwise stated, Recovery)7 should apply. Besides, ASB Group's rehabilitation was filed way back in 2000 and during that time the FRIA and FR were not yet in effect. The applicable law at that time the provisions of the Rules of Procedure on Corporate Recovery (Rules on Corporate is the Rules on Corporate Recovery. Thus, provisions of the FRIA cannot be applied in the instant case for it is not

Amendment to ASB's Rehabilitation Plan

issued the Assailed Order which is in violation of Sections 6318 and 7219, Rule 2 of the FR rules. Such argument is without merit. Chinabank argues that SHP2 effectively amended ASB's Rehabilitation Plan when it

15ection 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by DebtorThe court may application of the rehabilitation receiver authorize the sale, transfer, conveyance or disposal of encumbered property of the debtor, or property of others held by the debtor where ethereis security interest pertaining to third parties under a financial, credit or other similar transactions if, upon anawith.the.c consent of the affected owners of the property, or secured creditor/s in (a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the debtor's business; and(b) the debtor has made arrangements to provide a substitute lien or ownership right that provides an equal level of security for the counter- rty's claim or right se of encumbered property of the debtor and, after notice and hearing, the court determines that

receiver shall submit the Plan to the court for confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court ownership right that provides an equal level of security for the counter-party's claim or right. A. the affected owner or secured creditor/s have given their consent; B. the sale, transfer, conveyance or disposal is necessary for 18 Sec. 63,FR Rules Submission of Rehabilitation Plan to the Court - If the Rehabilitation Plan is approved, the rehabilitation (1) encumbered property belonging to the debtor, or (2) property of third persons held by the debtor where there is a security interest pertaining to third parties under a financial, credit or other upon a showing that the conti 'eceiver Sections 4-18,20,21 of the Rules on Corporate Recovery Section 49.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor.-In cases of: nue application, after due notice and hearing, authorize the sale, transfer, conveyance or disposition of the property, peration of the debtor's business; and c. the debtor has made arrangements to provide a substitute lien or similar transactions, the court may, upon the rehabilitation

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 9 of 14

with the SHP2 their motion for the release of the mortgaged properties. This is because the amount as is equivalent to the selling price of the mortgaged properties2 Second, SFSRC and SFSDC simply followed the ASB's Rehabilitation Plan when they filed secured creditor, the next alternative for said creditor is the 2nd option (settlement of obligation/claims). In the 2nd option, ASB Group can propose to settle its debts at such ASB Rehabilitation Plan provides that if the 1St option (Dacion en Pago offer) is rejected by a First, as above-discussed the FR Rules finds no application in ASB's rehabilitation.

filed with the SHP2 a Manifestation dated 13 November 2009 which was the subject of SEC En Banc Case No. 03-13-286. Hence, SFSRC and SFSDC resorted to the 2n& option for secured creditors (settlement of claims/obligations) to settle its obligation to Chinabank with mortgage properties at ASB's selling prices. Therefore, there is no amendment to the ASB Rehabilitation Plan. In the case at bar, Chinabank rejected the 1st option (dacion en pago offer) when it

Declaration of "Over-collateralized" Mortgaged Properties

"over-collateralizedby acceptinghook, line and sinkerCAI's appraisal reports simply rely on SFSRC and SFSDC's real property valuation22. Such argument is untenable. Chinabank also claims that SHP2 should have sought an independent appraiser and not Chinabank argues that SHP2 erroneously declared the mortgaged properties to be

the Commission's requirements to be an accredited appraiser, pursuant to SEC Memorandum Circular No. 4, series of 201023. Hence, its evaluation and findings may be relied on by the SHP or the Commission, absent any contrary evidence. Cuervo Appraisers,Inc. is an SEC-accredited Asset Valuer. It has complied with all

are "over-collateralized", based on CAI's appraisal report as well as the recommendation of or other evidence, to support its contention. It is basic that mere allegation is not evidence the basic evidentiary rule is to the effect that the burden of evidence lies with the party who the Rehabilitation Receiver. Meanwhile, Chinabank did not present any evidence to rebut CAI's evaluation and Rehabilitation Receiver's recommendation, such as a counter-appraisal In the instant case, SHP2 declared that SFSRC and SFSDC's loans with Chinabank

23 Guidelines on Property Valuation. 21 Note 4,5,6, Supra. rehabilitation receiver or any creditor may file a verified motion for the leave to amend the Plan. The motion shall state the reasons receiver. Within five days from filing of the motion, the court motu proprio shall grant or deny the motion. If the court grants the later than five (5) days from the date of the order. The proposed amendments shall be subject to the same requirements set forth in Section 63 of this Rule. The court shall act on the proposed amendments not later than forty-five (45) days from the date of the filing does not find the dacion en pago modality acceptable, the ASB Group can propose to settle its debts at such amount as is equivalent distribution of the ASB Group's assets. It will not lose its status as a secured creditor, retaining its preference over unsecured 22 bid shall notify the creditors that the Rehabilitation Plan has been submitted for confirmation; that any creditor may obtain copies of the Rehabilitation Plan; and that any creditor may file an objection theretc 19 Sec.72. Amendments to the Approved Rehabilitation Plan - motion, it shall set the proposed amendments for hearing r of the motion for leave to amend the Rehabilitation Plan to the selling price of the mortgaged properties. If BPI still refuses this option, it can creditors when the assets of the corporation are finally liquidated. which shall include the prope N S arranting the amendment if the Rehabilitation Plan and the proposed amendments, with a copy given to the rehabilitation Bank of the Philippine Islands v. Securities and Exchange Commission et al., G.R. No. 164641, 20 December2007 -Thus, if BPI hall be published once in a newspaper of general circulation in the Philippines not not later than fifteen (15 days from the date of the order. The order After the confirmation of the Rehabilitation Plan, the debtor assert its rights in the liquidation and

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 10 of 14

asserts the affirmative of an issue and has the burden of proving the same, with such quantum of evidence required by law24 which in this case, Chinabank failed to do.

and have no probative value25. Thus, between Chinabank's unsupported argument and SHP2's declaration, we find credence in SHP2's argument and evidence that the mortgaged properties are"over-collateralized As a rule, bare and unsubstantiated allegations do not constitute substantial evidence

Release of the Mortgaged Properties and Sale of Bel-Air and Caloocan properties

a) Caloocan Properties

the Caloocan properties. The Caloocan properties are valued at Php 82,031,000.00 but it bidding, it can fully pay off SFSDC's obligation to Chinabank, plus an excess to settle other creditors with mortgage properties at ASB selling prices. secures SFSDC's debt which amounts only to Php 35,000,000.00. SFSDC's loan to property is released and sold within 180 days and the best price obtained through public Chinabank is obviouslyover-collateralized by Php 47,031,000.00.Assuming that said obligations. Undoubtedly, this would be beneficial to both parties. In fact, this falls within the 2nd option ASB Rehabilitation Plan, which is the settlement of obligations to secured The SHP2 did not abuse its discretion when it ordered the release of the mortgage on

and SFSDC's obligation to Chinabank. Unfortunately, the ASB Rehabilitation Plan provides a general assertion on how the settlement of claims is effected. Thus, we need to interpret the same for the guidance of the parties. Article 1231 of the New Civil Code provides various ways of extinguishing obligations, viz: As above-discussed, the 2nd option is designed for the extinguishment of the SFSRC

"Art. 1231. Obligations are extinguished: (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (1) By payment or performance: (2) By the loss of the thing due; (3) By the condonation or remission of the debt; 6) By novation.

extinguish SFSRC and SFSDC's obligation, to wit: 1.) payment or performance26; or 2.) novation27. In the instant case, it obvious that the 2nd option is contemplates payment or performance of SFSDC's obligation. Thus, release and sale of the Caloocan properties is considered as payment or settlement of SFSDC's obligation. In ASB's Rehabilitation Plan, there are two (2) possible ways that is applicable to

25 LNS International Manpower Services vs. Armando C. Padua Jr., G.R. No. 179792, March 5, 2010. 24 General Milling Corporation-Independent Labor Union vs. General Miling Corporation, G.R. Nos. 183122 and 183889, June 15, 26 Payment as it is understood in the Civil Code, means not only the delivery of money but also the performance, in any other 27 Novation is the substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. It is one of the modes of extinguishing obligations through the creation of a new one effected by the change or substitution of an obligatory relation by another with the intention of substantially extinguishing or modifying the same - Ibid, page 323 2011 TY ler, of an obligation -Comments and Jurisprudence on Obligations and Contracts, Desiderio P. Jurado, 2002, page 227

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al SEC En Banc Case No. 04-14-325 Page l1 of 14

b) Bel-Air Property

for secured creditors on settlement of claims/obligations in the ASB Rehabilitation Plan. The is released and sold within 180 days and the best price is obtained through public bidding, it sale of Bel-Air property, however, does not fully extinguish SFSRC's obligation to Chinabank. Nonetheless, the Legaspi property can still secure the remaining balance of SFSRC's loan. and SFSRC. In the same way as the Caloocan properties, this also falls within the 2nd option that secures SFSRC's loan of Php 265,000,000.00. Similarly as above, assuming the property will partially settle the obligation which likewise would work for the benefit of Chinabank The Bel-Air property is valued at Php 46,462,000.00 and it is one of the properties

c) Legaspi Property

ruling on how the release of the Legaspi property should be implemented. despite the release and sale of the Bel-Air property. However, we do not agree with SHP2 Php 265,000,000.00.Clearly, SFSRC's loan is still over-collateralizedby 821,102,000.00 The Legaspi property is valued at Php 1,086,102,000.00 and secures SFSRC's loan of

Bank for the payment of the remaining creditors. Among the properties to be included in the Asset Pool is the Legaspi property, to wit: (2) options for ASB Group to pay its obligations. The rehabilitation plan further provide that the remaining ASB properties will be transferred to an Asset Pool to be managed by a Trustee As above-discussed, the ASB Rehabilitation Plan provides the secured creditors two

"1. List of Properties

After the Dacion En Pago, the following properties are expected to be released by the secured creditors:

XXX

In addition to the foregoing properties, two other unfinished developments namely the BSA Twin Towers and the Legaspi Place, currently mortgaged to Metro Bank and China Bank respectively, shall likewise be released from their current encumbrance. x x x"28

Furthermore, the ASB Rehabilitation Plan provides that:

"Assets in the Asset Pool

3. The Asset Pool shall be composed of the following assets: 1. 2 Internally, generated cash from the sale of certain assets identified in this Real estate assets released by the secured creditors Unencumbered real estate assets plan, namely, DBS shares and ASB Malayan Tower Project

28 Note 13, Supra.

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 12 of 14

5. 6 T A Outstanding receivables of ASB on uncompleted projects Future receivables from project completion and future development Units released as a result of units swapped with fully paid buyers Other assets 8. Proceeds from the sale of any of the above

X X X

3. Creditor's Participation Certificates

The Trustee Bank, once appointed, shall issue certificates to the unsecured creditors. These certificates shall be employed to serve as evidence of indebtedness of the ASB Group of Companies that are outstanding as of the date of filing of the petition. These certificates shall be known as Creditors Participation Certificates (CPC), which shall have the backing of the assets in the the obligations in favor of the unsecured creditors. pool. The assets in the pool may be utilized to generate cash or income to settle

Series A: to be issued to the unsecured creditors of ASB holdings, Inc. Series B: to be issued to secured creditors, if any Series C: to be issued to contractors and other unsecured creditors Series D: to be issued as a subordinate tranche for interest payments The following certificates shall be issued:

XXX

The holders of the CPCs shall have the option to convert their certificates into lots or units in completed buildings which have been contributed to the Asset Pool or in units of yet to be completed buildings such as BSA Twin Towers and Legaspi Place. The conversion value shall be at ASB selling price at the time of conversion. x x 29

the Assailed Order is not in accordance with the ASB's Rehabilitation Plan. the release of mortgage on the Legaspi property on the sole purpose to complete the construction of the Legaspi Place. Thereafter, it directed SFSRC to allocate such number of under the ASB Rehabilitation Plan provided that the said property will be included in the Asset Pool for the payment of the remaining creditors. In the Assailed Order, SHP2 directed units, as replacement security, for Chinabank after the completion of the said project. Clearly. Applying the foregoing, releasing the mortgage over the Legaspi property is allowed

is no clear commitment from SFSRC and SFSDC on when the project will be completed, and release of the mortgage over the Legaspi property will reduce Chinabank's status from a secured creditor to an unsecured one during the time when SFSRC is completing construction on the said property. While SFSRC commits to resume construction within one (1) year, there which would take some time and with no clear certainty. Considering that the Assailed Order is silent on the issuance of the Series B CPC, the

Holdings30, et al., the Supreme Court ruled that: It should be emphasized that in Metropolitan Bank & Trust Company vs. ASB

"As we stressed in Rizal Commercial Banking Corporation v. Intermediate Appellate Court, such suspension "shall not prejudice or render ineffective the

30 G.R. No. 166197, February 27, 2007. 29 Page 20 of the ASB Rehabilitation Plan.

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 13 of 14

what P.D. No. 902-A merely provides is that all actions for claims against the arrangement provided by law is intended to give the receiver a chance to to be settled, the secured creditors, like petitioner bank, shall enjoy preference over the unsecured creditors." status of a secured creditor as compared to a totally unsecured creditor," for distressed corporation, partnership or association shall be suspended. This rehabilitate the corporation if there should still be a possibility for doing so, without being unnecessarily disturbed by the creditors' actions against the feasible and the claims against the distressed corporation would eventually have distressed corporation. However, in the event that rehabilitation is no longer

SFSRC and SFSDC, together with its allied entities, to its former position of successful operation and solvency, the manner of implementing the approved Rehabilitation Plan should still give due regard to the interests of the ASB Group's creditors. Stated otherwise, while it is correct to release the mortgage over the Legaspi property, the SHP2 should still comply will the provisions of the ASB Rehabilitation Plan in the disposition of the same. In releasing the Legaspi property, SHP2 failed to conform with the provisions of the ASB Rehabilitation Plan when they ordered Chinabank to release the Legaspi property and to accept condominium units in the said property as replacement security. Even though, the SHP2, as the rehabilitation tribunal, has the primary duty to restore

is unnecessary to resolve Chinabank's first assigned error. China Bank is enjoined from charging, accruing and/or collecting interests, penalties and other charges on the loans of SFSRC after the issuance of the Stay Order on 04 May 2000, it Finally, in view of our holding in SEC En Banc Case No. 03-13-286, declaring that

GRANTED. The paragraphs 1 and 2 of Special Hearing Panel 2's Order dated 25 March 2014: WHEREFORE,premises considered,the instant petition is PARTIALLY

promulgate appropriate bidding rules and procedure, seeing to it that the value of the properties are maximized and the sale awarded to the highest bidder. "1. Declaring the petitioners' loans with Chinabank to be over-collateralized. Hence, Chinabank is hereby directed to release to petitioners the titles over the mortgaged Bel- Air and Caloocan properties and to cancel/release the corresponding mortgage on said properties. Petitioners are hereby authorized to sell the same via public bidding within 180 days from date hereof. Accordingly, the Rehabilitation Receiver is directed to

2. Directing Chinabank to accept the proceeds of such sale, net of taxes and expenses, and to credit the same as partial payment for the Php300,000,000.00 Million loan (with no interest and charges whatsoever) of the Petitioners."

are hereby AFFIRMED with MODIFICATIONS,to wit

1. That the Chinabank is directed to release the titles of the Bel-Air and Caloocan 3 That the cancellation of the mortgage over the Bel-Air and Caloocan properties shall properties to the Rehabilitation Receiver; That the public bidding shall be conducted by the Rehabilitation Receiver;

4 That SFSRC and SFSDC shall execute an undertaking that in case the 180-day period only be done after a successful sale and payment by a buyer of the said properties;

expires with no successful public bidding, that the Rehabilitation Receiver shall

China Banking Corporation vs, Hon. Daniel P. Gabuyo, et al. SEC En Banc Case No. 04-14-325 Page 14 of 14

return/turnover the titles of the mortgage properties to Chinabank, without need of demand.

Pargraph 3 wherein -

such number of units at the The Legaspi Place as are sufficient to pay-off such loan one (1) year from completion of the said project." "3. Chinabank is further directed to cancel/release the mortgage on The Legaspi Place, as construction thereat within one (1) year from release of mortgage and turn-over of said title/s to Petitioners. Thereafter, Petitioners shall allocate for Chinabank as a security, balance based on current market value of the units. Furthermore, Petitioners are directed to pay the remaining unpaid balance to Chinabank on cash basis, (with no interest or well as to release the title/s thereon to petitioners. Petitioners are directed to resume charges whatsoever from the proceeds of the sale of units at The Legaspi Place within

is hereby REVERSED and SET ASIDE.

REMANDED to the SHP2. The SHP2 and the parties are further directed to adhere to the provisions of the ASB Rehabilitation Plan in the disposition of the Legaspi property. The settlement of SFSRC's outstanding obligation with Chinabank is hereby

SO ORDERED.

City of Mandaluyong, 27 April 2016.

C TERESITA J. HERBOSA Chairperson

MANUEI Commissioner TO B.GAITE ANTONIETA F.IBE Vraormeta Commissioner MeaMK0

EPHYRO LUIS B.AMATONG Commissioner BLAS JAMES G.VITERBO* Commissioner

**On Official 3usiness *On Leava C