In Lexber, Inc. v. Dalman, the Supreme Court addressed the procedural aspects of corporate rehabilitation, particularly concerning real estate companies. The Court held that a prior request from the Housing and Land Use Regulatory Board (HLURB) is not a mandatory requirement before a trial court can give due course to a rehabilitation petition. Furthermore, the lapse of the 180-day period for approving a rehabilitation plan does not automatically warrant the dismissal of the petition, especially when delays are attributable to the court’s evaluation process. This decision clarifies the roles of regulatory bodies and the judiciary in corporate rehabilitation, emphasizing a balanced approach that considers both regulatory oversight and the potential for successful rehabilitation.

Real Estate Rescue: Does HLURB’s Approval Dictate a Company’s Recovery?

Lexber, Inc., a real estate developer, faced financial difficulties due to the 1997 Asian financial crisis, leading it to file a petition for rehabilitation. Among its creditors were the Spouses Dalman, who sought either the delivery of their purchased property or a refund. The trial court initially gave due course to the petition, but the Spouses Dalman challenged this decision, arguing that the HLURB’s prior request for the appointment of a rehabilitation receiver was necessary and that the rehabilitation plan had not been approved within the prescribed 180-day period. The Court of Appeals (CA) sided with the Spouses Dalman, prompting Lexber to elevate the matter to the Supreme Court.

The Supreme Court, while ultimately denying Lexber’s petition due to a supervening event (the trial court’s dismissal of the rehabilitation petition), clarified critical aspects of the Interim Rules of Procedure on Corporate Rehabilitation. The Court emphasized the importance of avoiding conflicting rulings with the CA’s ongoing review of the trial court’s dismissal order, particularly since the dismissal was based on the disapproval of Lexber’s rehabilitation plan—a more substantive reason. This decision highlights the procedural remedies available in rehabilitation cases and the need for a streamlined approach to prevent multiple appeals and potential inconsistencies.

The Court addressed the CA’s reliance on Section 6(c) of Presidential Decree (PD) 902-A, as amended, which pertains to the appointment of a rehabilitation receiver upon the request of a government agency supervising or regulating the corporation. The CA interpreted this provision to mean that the HLURB’s prior request was a prerequisite for the trial court to give due course to Lexber’s rehabilitation petition. However, the Supreme Court disagreed, drawing a distinction between entities like banks and insurance companies, where specific laws mandate the central regulatory bodies’ involvement in appointing receivers, and real estate companies regulated by the HLURB.

The Supreme Court emphasized that the HLURB’s enabling law does not grant it the power to appoint rehabilitation receivers. The Court highlighted that the HLURB’s powers primarily focus on regulating real estate practices to protect the investing public from fraudulent activities, rather than intervening in the general corporate acts of companies under its supervision. This delineation of powers underscores the principle that administrative agencies’ authority is limited to what is expressly conferred or necessarily implied by their enabling acts.

“An administrative agency’s powers are limited to those expressly conferred on it or granted by necessary or fair implication in its enabling act. In our constitutional framework, which mandates a limited government, its branches and administrative agencies exercise only those powers delegated to them as ‘defined either in the Constitution or in legislation, or in both.’”

Regarding the 180-day period for approving a rehabilitation plan, the CA had ruled that the trial court’s failure to meet this deadline automatically warranted the dismissal of the rehabilitation petition, citing Rule 4, Section 11 of the Interim Rules. The Supreme Court, however, clarified that while the term “shall” generally implies a mandatory character, it is not an inflexible criterion. The Court noted that Lexber had filed a motion for an extension of the approval period, which the trial court did not resolve, and that the trial court continued to conduct hearings even after the 180-day period had lapsed.

In construing the provisions of the Interim Rules, the Supreme Court took cognizance of Rule 2, Section 2, which directs courts to liberally construe the rules to carry out the objectives of PD 902-A and to assist parties in obtaining a just, expeditious, and inexpensive determination of rehabilitation cases. Applying the Interim Rules, the Supreme Court held that the procedural lapse of the 180-day period for approving the rehabilitation plan should not automatically result in the dismissal of the petition, especially when the delay is attributable to the court’s evaluation process. The trial court’s decision to approve or disapprove a rehabilitation plan is not a ministerial function but requires extensive study and analysis. Therefore, Lexber should not be penalized for the trial court’s need for more time to evaluate the plan.

The Court’s interpretation of the Interim Rules aligns with the policy of liberal construction to facilitate the rehabilitation of distressed corporations. This approach ensures that procedural technicalities do not unduly hinder the opportunity for a struggling company to regain financial stability. The decision underscores the importance of a balanced approach, considering both the regulatory framework and the potential for successful rehabilitation.

“Rule 2, Section 2 of the Interim Rules dictates the courts to liberally construe the rehabilitation rules in order to carry out the objectives of Sections 6(c) of PD 902-A, as amended, and to assist the parties in obtaining a just, expeditious, and inexpensive determination of rehabilitation cases.”

Arguments Against Lexber	Arguments for Lexber
HLURB’s prior request is mandatory under Sec. 6(c) of PD 902-A for real estate firms undergoing rehabilitation. Failure to approve a rehabilitation plan within 180 days from the initial hearing warrants dismissal of the petition.	Sec. 6(c) of PD 902-A does not explicitly require HLURB’s prior request for a real estate company’s rehabilitation. Outright dismissal for non-compliance with the 180-day period goes against the Interim Rules’ policy of liberal construction to facilitate rehabilitation.

FAQs

What was the key issue in this case?	The key issue was whether the CA erred in finding grave abuse of discretion on the trial court’s part when it gave due course to the rehabilitation petition, despite the absence of the HLURB’s prior request and the lapse of the 180-day period for the approval of a rehabilitation plan.
Is HLURB’s prior request mandatory for rehabilitation of real estate companies?	No, the Supreme Court clarified that the HLURB’s prior request for the appointment of a receiver of real estate companies is not a condition sine qua non before the trial court can give due course to their rehabilitation petition.
What happens if the 180-day period for rehabilitation plan approval lapses?	The Supreme Court ruled that the lapse of the 180-day period for the approval of the rehabilitation plan should not automatically result in the dismissal of the rehabilitation petition, especially if the delay is due to the court’s evaluation process.
What is the significance of the Interim Rules in this case?	The Interim Rules of Procedure on Corporate Rehabilitation govern the procedural aspects of rehabilitation cases. The Supreme Court emphasized the importance of liberally construing these rules to facilitate the rehabilitation of distressed corporations.
What is the role of the HLURB in corporate rehabilitation?	The HLURB’s role primarily involves regulating real estate practices to protect the investing public from fraudulent activities. Its powers do not extend to intervening in the general corporate acts, such as the rehabilitation, of companies under its supervision.
What is the legal basis for the HLURB’s powers?	The HLURB’s powers are based on its enabling law, Executive Order 648, which enumerates the powers that the HLURB is authorized to exercise. The Supreme Court emphasized that administrative agencies’ authority is limited to what is expressly conferred or necessarily implied by their enabling acts.
What is the effect of the trial court’s disapproval of Lexber’s rehabilitation plan?	The trial court’s disapproval of Lexber’s rehabilitation plan and dismissal of the rehabilitation petition led to a separate proceeding in the Court of Appeals (CA G.R. No. 103917), which reviewed the dismissal for substantive reasons (the disapproval of the rehabilitation plan).
Why did the Supreme Court deny Lexber’s petition in this case?	The Supreme Court denied Lexber’s petition due to the pendency of CA G.R. No. 103917, which was reviewing the trial court’s dismissal of the rehabilitation petition. The Court wanted to avoid conflicting rulings with the CA’s decision in that case.

The Lexber v. Dalman case offers key insights into the procedural aspects of corporate rehabilitation in the Philippines. It clarified that HLURB’s explicit request is not mandatory to kick off rehabilitation, and time extensions can be flexible. These clarifications foster a supportive approach to corporate rehabilitation, allowing businesses a fair chance at financial recovery without undue regulatory obstacles.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: LEXBER, INC. VS. CAESAR M. AND CONCHITA B. DALMAN, G.R. No. 183587, April 20, 2015