In Mervic Realty, Inc. vs. China Banking Corporation, the Supreme Court ruled against the joint filing of a rehabilitation petition by two corporations under the 2000 Interim Rules of Procedure on Corporate Rehabilitation, emphasizing that each corporation must file separately and in the correct venue corresponding to its principal place of business. The Court clarified that rules allowing joint petitions could not be applied retroactively, thus highlighting the importance of adhering to procedural rules in corporate rehabilitation cases and affirming the principle of corporate separateness.

When Two Companies Aren’t Necessarily One: Venue Disputes in Corporate Rehabilitation

The case originated from a petition filed jointly by Mervic Realty, Inc. and Viccy Realty, Inc. seeking a declaration of a state of suspension of payments, along with a proposed rehabilitation plan. The China Banking Corporation, a creditor, opposed, questioning both the joint nature of the petition and the chosen venue of Malabon City. China Bank argued that the corporations, despite common ownership, were distinct legal entities and should file separate petitions in their respective principal places of business, which they claimed was Quezon City according to the Articles of Incorporation (AOI).

The Regional Trial Court (RTC) initially approved the rehabilitation plan, dismissing China Bank’s opposition. However, the Court of Appeals (CA) reversed the RTC’s decision, focusing on the issue of improper venue. The CA referenced Section 2, Rule 3 of the Interim Rules, which stipulates that rehabilitation petitions must be filed in the Regional Trial Court where the debtor’s principal office is located. The Court of Appeals, after examining the petitioners’ AOIs, determined that their principal office was in Quezon City, thus invalidating the Malabon City venue.

The petitioners appealed to the Supreme Court, arguing that they were close family corporations and that Mervic Realty, Inc. had amended its AOI to reflect Malabon City as its principal place of business, with Viccy Realty, Inc. adopting the same. They contended that filing separate petitions would be impractical. The petitioners also invoked the 2008 Rules of Procedure on Corporate Rehabilitation, which allow for joint filing by a group of companies, suggesting these rules could be applied retroactively to their case. However, the Supreme Court disagreed.

The Supreme Court emphasized that the Interim Rules, which were in effect when the rehabilitation petition was originally filed, did not allow the joint or consolidated filing of rehabilitation petitions. The Court cited Asiatrust Development Bank v. First Aikka Development, Inc. as a precedent, reinforcing the principle that even with interlocking stockholders and officers, corporations are separate entities and their assets and liabilities must be evaluated individually. The decision in Asiatrust clearly established that consolidating petitions from separate legal entities is not permissible under the Interim Rules.

Furthermore, the Supreme Court addressed the petitioners’ argument for the retroactive application of the 2008 Rules. The Court noted that Rule 9, Section 2 of the 2008 Rules allows retroactive application only if the initial hearing had not yet occurred when the 2008 Rules took effect. The initial hearing in this case occurred in January 2007, well before the 2008 Rules came into force in January 2009. Therefore, the Supreme Court found no legal basis to apply the 2008 Rules retroactively.

Even hypothetically applying the 2008 Rules, the Supreme Court highlighted the unresolved issue of venue. Determining the proper venue hinged on whether the petitioners had validly amended their AOIs to reflect a change in their principal place of business. China Bank contested the authenticity and completeness of the documents presented by the petitioners. Given the complexities of verifying these documents and the fact-finding nature of the inquiry, the Supreme Court declined to delve into the matter, as it typically does not undertake such tasks in a Rule 45 petition, which is limited to questions of law.

The Supreme Court ultimately denied the petition, affirming the Court of Appeals’ decision. The ruling underscores the importance of adhering to the procedural rules governing corporate rehabilitation and reinforces the principle of corporate separateness, particularly in the context of rehabilitation proceedings. This means that even closely related corporations must adhere to distinct legal processes, including filing separately and in the correct venue, to ensure compliance with the law.

FAQs

What was the key issue in this case?	The key issue was whether two corporations could jointly file a petition for rehabilitation under the 2000 Interim Rules and whether the petition was filed in the proper venue. The Supreme Court ruled against the joint filing and did not definitively rule on the venue due to unresolved factual questions.
Why couldn’t the corporations file a joint petition?	Under the Interim Rules in effect at the time of filing, joint petitions were not allowed. Each corporation is considered a separate legal entity and must file its own petition.
Can the 2008 Rules allowing joint petitions be applied retroactively?	No, the 2008 Rules cannot be applied retroactively in this case because the initial hearing had already occurred before the 2008 Rules took effect. The rules only allow retroactive application if the initial hearing hasn’t occurred.
What is the significance of the principal place of business?	The principal place of business, as stated in the Articles of Incorporation, determines the proper venue for filing a rehabilitation petition. The petition must be filed in the Regional Trial Court having jurisdiction over that location.
What happens if the venue is incorrect?	If the venue is incorrect, the court may dismiss the petition for improper venue, as occurred in this case. The petitioners must then refile in the correct venue.
What did China Bank argue in this case?	China Bank argued that the corporations should have filed separate petitions and that the venue was improper because the principal place of business was in Quezon City, not Malabon City. They also questioned the authenticity of the amended AOIs.
What is the effect of interlocking stockholders and officers on rehabilitation petitions?	Despite interlocking stockholders and officers, corporations are still considered separate legal entities. Each must file its own petition and have its assets and liabilities evaluated individually.
Why didn’t the Supreme Court resolve the venue issue definitively?	The Supreme Court didn’t resolve the venue issue because it would have required examining the authenticity and completeness of documents related to the amendment of the Articles of Incorporation, which is a fact-finding task not typically undertaken in a Rule 45 petition.
What is a Rule 45 petition?	A Rule 45 petition is an appeal to the Supreme Court where only questions of law may be raised, not questions of fact. This limits the Court’s ability to delve into factual disputes.

The Mervic Realty case serves as a reminder of the strict adherence required to procedural rules in corporate rehabilitation cases. The ruling emphasizes the importance of ensuring that petitions are filed correctly and in the appropriate venue, as well as the principle that related companies are treated as separate legal entities under the law.

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: Mervic Realty, Inc. vs. China Banking Corporation, G.R. No. 193748, February 03, 2016