THE DISMISSAL by a Manila court of the petition of former Sen. Helena Benitez for the involuntary rehabilitation of Philippine Women’s University (PWU) was a double whammy for the school.
The court chided Benitez for allegedly using materially false and misleading representations in her effort to stop the foreclosure of PWU’s assets to satisfy its debt to STI Holdings.
In 2011, STI lent money to the Benitez family, PWU’s controlling stockholders, to stave off the school’s takeover by a bank after it failed to pay its loan obligations.
The court said PWU had been insolvent since 2000 and this fact may have been concealed from its creditors. The petition was also described as having been filed for the purpose of delaying the enforcement of the rights of the creditors.
The attribution of bad faith and fraud to Benitez is an unfortunate blot on the otherwise sterling record of public service of the 100-year-old educator and former public official.
Worse, with the petition’s dismissal, the foreclosure proceedings earlier filed by STI over PWU’s properties in Quezon City and Davao City will, unless restrained by a higher court, be a cinch.
Since the court’s action is based on the receiver’s findings of fact and recommendations, which a higher court is obliged to respect, PWU will have to muster strong legal arguments to justify a halt in the foreclosure.
Transparent
It is disturbing that inaccurate and deceptive data attended the attempt to invoke the Financial Rehabilitation and Insolvency Act (FRIA) in the resolution of the dispute between PWU and STI.
The law was enacted to, among others, ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors, with a view to maintaining certainty and predictability in commercial affairs.
Under the law, any creditor or group of creditors with a claim of at least P1 million or 25 percent of the subscribed capital stock of the subject corporation, whichever is higher, may initiate involuntary rehabilitation proceedings against the company.
This is the legal basis that Benitez, representing herself as a creditor of PWU, relied on to unsuccessfully abort the foreclosure proceedings filed against it by STI.
Her line of argument was, if the foreclosure is allowed, PWU would be prevented from paying its debts to her as they fall due or would make it insolvent.
A rehabilitation petition initiated by a creditor, as in PWU’s case, is required to be verified to prove that there is substantial likelihood that the company can be put back on its feet.
Rationale
The verification is aimed at assuring the court, under pain of prosecution for perjury, that the petition is being filed in good faith and with sincere intentions, and that the facts and figures it contains are true and correct, not speculative, exaggerated or concocted.
The Rules of Court provide that the affiant (or person making the verification) should state under oath that he has read the petition and that its contents are “true and correct of his personal knowledge or based on authentic records.”
The Rules further state that a pleading required to be verified that contains a verification based on “information and belief or upon knowledge, information and belief” shall be considered an unsigned petition. Or, as some court decisions describe it, a mere scrap of paper.
The objective of the verification requirement was not met in Benitez’s petition. The court found its allegations as neither true and correct nor based on authentic records.
The court thus dismissed the petition and even insinuated PWU was less than candid with its creditors when it entered into loan agreements.
Obviously, the former lady senator, who is not a lawyer, did not prepare the petition. She relied on her lawyers and accountants to string up the facts and figures needed to justify the filing of the petition.
Integrity
Whoever advised her to sign the verification, despite knowing the false or misleading nature of the matters to which it referred, committed a big disservice to Benitez, PWU and the business community.
The patently defective petition trivialized the objective of FRIA to provide a fair and transparent mechanism for distressed business enterprises to recover their bearings and with the least adverse consequences on their creditors, employees and other stakeholders.
Honesty, accuracy and integrity are essential in the successful rehabilitation of companies and partnerships that, for one reason or another, find themselves in serious financial trouble.
These three elements have to be present whether the court-supervised rehabilitation is voluntary (or at the instance of the company) or involuntary (or upon the creditors’ petition).
To meet the objectives of FRIA, our courts have to deal strictly with parties, and lawyers, who flaunt the rules in the filing of rehabilitation petitions.
For comments, please send your e-mail to rpalabrica@inquirer.com.ph.