Beruflich Dokumente
Kultur Dokumente
4 Manresa 2014
SPECIAL LAWS
It reorganized the SEC. It placed the SEC under the jurisdiction or oversight
of the Presidents office. Now, it has been brought back by executive order to
the Secretary of Finance.
What is more, the jurisdiction of the SEC over cases listed under section 5
has been transferred to the regular courts (special Sala of the court that is
designated as having jurisdiction over Intracorporate cases). Now, there is a
new ruling as to intracorporate cases.
But you have to prove, you have to add the proviso that in these instances,
the law that is used to solve the dispute must be the corporation code or the
SEC law. Because if the law to be used is some other law, then it is not an
intracorporate dispute.
It must still be under the jurisdiction of RTC but not the intracorporate court.
In other words, pagfilemadalanasa ordinary raffling but if it intracorporate,
only one sala will handle it.
The court has jurisdiction. The law states that the Supreme Court shall
designate the sala. Remember: Is it the court or the law that grants
jurisdiction? It is the law.The SC only designates the particular Sala. That
requires clear inkling of remedial law.
Alright, what are these cases in Section 5 that are now transferred by the
SEC RA 8799 specifically section 5.2 from the SEC to regular courts:
What is the short hand term even for this: pyramiding scheme
In networking, the system is direct selling. You yourself will sell the
product and from the proceeds is where you get the commission, if you
get somebody to sell the product, he will get a commission, you will
also get an overriding commission and so on, down the line.
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Normally, the BSP immediately comes in and wants to get all the
records.
If you file a complaint alleging that you have been unjustly denied and
therefore you filed a mandamus, you filed it before the regular courts,
the special intracorporate court. What is the madamus? An order
mandating the SEC to register you as a corporation.
I will just recite to you the grounds for the denial, cancellation or
suspension of a certificate of incorporation.
5. Failure to file its bylaws within 1 month after receipt of the notice
of the issuance of the certificate of incorporation by the SEC
If it is the appointment of officers by the BOD, you examine the actions of the
board. Remember I told you there is this list of cases that the NLRC cannot
intervene. You have been serving as treasurer but that is a board
appointment. After serving for 10 years, you are not reappointed. Can you
sue illegal dismissal? No you cannot because your position is provided in the
bylaws.
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The NLRC has no jurisdiction to look into the actions of the board.
Remember there are 2 exceptions:
New decision
Zuellig filed a petition with SEC to change their articles and bylaws. After that
was approved, they called the workers. Bag o naning bylaws. Pang
resignnamo,tagaanmogkwarat. There was one who disagreed. The
corporation made that argument. This is what the SC said. The corporation
code defined and delineated the different modes of dissolving a corporation,
and amendment of the articles and bylaws was not one of those modes.
Is that correct? Amendment of the articles is not one of the modes? take a
look at section 120. Is it not that you can dissolve the corporation by
amending the term of the corporation? Sayopcla. They should have said. The
amendment of the articles to introduce a new name is not one of the modes.
But when you say amendment is not one of the mode, you are mistaken
because amending the term is a mode resulting in dissolution.
They are now with the regular courts. Not just the regular courts, they
are now transferred not to the special intracorporate court but to the
FRIA court under the Financial Rehabiliation and Insolvency Act of
2010. That same law mandates that the SC designates a special sala
that can only entertain proceedings covered by the FRIA law. Such as
voluntary insolvency, involuntary solvency, liquidation, suspension of
payments.These now cover individual and juridical persons and all
other pre agreed proceedings. They must be field with the FRIA courts.
Watch out for devises and schemes, Ponzi schemes, intra-corporate disputes,
election controversies and suspension of payments of a corporation.
So the beneficiary is the investing public. There are many who say that
they are money public whether he likes it or not is really an investor because
indirectly you are putting your money and the banks that hold your money
are investing either in the money market or in the futures market. Example,
just by being a member of the SSS or GSIS you are really an investor of the
different kinds of markets. Why? Because the SSS has to invest the money
and they put it in the bank market or in the equities market according to
guidelines of the charter of the SSS or GSIS.
So when you say investing public, it is very broad. It is almost like the
public itself whether investing directly or indirectly, is the beneficiary of a
blue sky law, because you are an indirect participant of the investment
market.
Basically they are classified into Equities and Credit Markets. Credit
markets are classified into two:
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1. Money markets, IOUs that have a term not exceeding one year and
bonds in excess of ___.
Come that date, 6 months later, the actual price is higher than the
price that you pre-agreed, the latter would prevail. But if the price is lower
than that you have agreed upon, you will just tear that contract. You will not
make the issuer sell you at that price because the price in the open market is
lower. Gision nalng na nmu kay mamalit nalang ka sa gawas.
In the Equities market, You forgot to raise capital. You sell shares. In
exchange for the money of other people, you surrender a certain part of
control of your business. You let them in to your business. Now, if they get
the majority, they will displace you. You who are selling shares of stock. Now,
if you dont let them come in, you just cede part of your control (wa jud ko
kasabot). When you say part, you just need one share in order to exercise
the rights of a shareholder (such a right to inspection of your books). Now
how many business men enjoys people looking at their shoulders as they
conduct business? No one likes to do that. You are granting that right by
selling shares.
If you dont want to, you raise your own capital. How? Borrow from the
bank. What is that? Thats the credit market, thats not the equity. If your
cash flow is so fast that you can envision you can pay the money you borrow
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within one year, then you go to the money market. If not, then you go to the
bond market. There is this short term bond, medium term bond, and long
term bond.
Now, what is the purpose for going into the IOU(ambot) market? You
go to the credit market to raise capital without surrendering any of your
prerogatives as a businessman. In exchange for that, you pay interest. You
go to the equities market shares of stock, you get other peoples money
without paying interest. What do you pay? You pay dividends but you can
decide whether you will distribute dividends or not for as long as you are
within the law and the law says for as long as your unrestricted retained
earnings or your surplus profits does not exceed 100% of paid-up capital,
you can postpone the granting of dividends.
So that is the duty of equities market. You do not have to pay interest.
You are using other peoples money but you surrender in return part of the
control of the corporation because they have the right of a stockholder.
What is the basic policy with respect to the Securities market? The policy is
declared in section 2 of RA 8799:
They are the first to cry out insider tradings supposed to be. They
investigate the irregularities in the trading. Only when they fail does the SEC
comes in because the SRC has this policy of Self-Regualtion. Again,
encourage the widest participation of ownership in enterprises. They
encourage Corporations to sell shares of stocks to the public to widen ways
of ownership. How do they do that? By reducing to the bare minimum the
capital gains tax.
If you sell or buy capital gains tax, what is the capital gains tax rate? If
above 100k 10%. If below, 5%. In the stock market it is only of 1%. That is
how they encourage you to sell shares of stocks in the stock market, because
the CGT is only of 1%.
In our Jurisdiction its really lower than that because, they are already
engaged in so called in Scriptless trading (double check lang sa term).
The cost of trading shares of stock has gone down because theres no more
paper. The evidences of trading are already electronic. So, wa nay stock
certificate, recording nalang, Electronic Signatures, etc. So The Capital gains
tax, the commission of the brokers is even lower, because the cost of the
transaction is very much lower, because its already digitalized. That is
SCRIPTLESS TRADING. That is the dream of the Phil. Stock Exchange, the
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emphasis is DREAM (haha). (story napud kay all big markets scriptless
trading na daw)
Many businessmen do not tell the true status of their business. If you
are in the stock market, you are required to maintain a state of financial
records that is comparable to that of other jurisdiction so that there will be
more accurate records of income, surplus profits that you should share with
your stockholders. That is the idea behind disclosure. So make sure that you
have something to say about this policy. I am not joking ahhhh
In one bar examination, the question was asked. What is the Howie
Test? The Howie test was enunciated by the US Supreme Court in the
celebrated case of Securities and Exchange Commission vs. WJ Howie Inc. in
1946. The Securities Act in the US used an all embracing phrase to lump
together securities that were neither equities, nor notes nor bonds into that
particular phrase of investment contracts. So, the question is asked,
Howie and Co. had a very big farm in Florida, raising oranges. Howie
decided to subdivided his farm into two hectare lots and each two hectare
lots were sold with the option that upon selling you can give it back to Howie,
let him handle it and you will just receive a portion of the profits of that farm,
the two hectares. If you decide, you can yourself work in the farm. But you
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can alsodecide to buy it and sign the papers turning it over to Howie. The
issue is, Howie did not register to the SEC before they began to subdivide
and sell it. Why? Because they say this is not a security. The SEC says it is. It
is an investment contract because:
What do you have to do before you can float a security or sell any securities,
whether it is shares of stock? The technical term is ISSUE. Before you can
issue a security, which means stock dividend is covered, you cannot issue a
stock dividend without registering with the SEC.
Of course, the naked owner could no longer play but they have separated
their playing rights and sell it to others. That is the security of the
membership. The club cannot issue it without registering it with the SEC. Can
a non stock non profit issue a security? Yes, they can issue a security. They
can issue playing rights. They can issue membership certificate. They can
issue bonds. So not only stock corporation can issue securities.
What is your right? Your right is you can buy 100 shares of PLDT at a price of
P2, 000. That is your right. How much do you have to pay for that right? You
only paid P1, 000 for the right to purchase 100 shares of PLDT. Suppose at
2015, the price of that PLDT shares is only P3,000, and you have the right to
purchase at P2,000. That option can be very expensive. That will not just be
P10 per share option but you only paid a fraction of the value. What is the
security? The security is the right to purchase another security. Mind you the
derivatives market is the biggest market in the world. The problem is it is
unregulated. How much is the value of the derivatives market in the world? It
is 600 Trillion USD. What is the size of the world's bonds market? It is 3 times
the size of equities market, it is about 150 Trillion USD. What is the size of all
the stock market in the world? It is only about 50 Trillion USD.
I told you about the registration statement of PCCW ( Pacific Century Central
Works, Inc.), formed and organized in HK. They put down one of their key
officers is Richard Lee. They said having graduated from Stanford University
with a bachelors degree in Mechanical Engineering. He was not able to
graduate. He attended the entire 4 years but on the last 2 months even after
he took some of the final examinations, by the way he did not fail any of the
subjects, all of a sudden he said that he did not need a degree and he went
to Canada. (Story about engineering, accounting and calculus)
What are the so-called material facts that you have to be faithful to in the
registration statement? The material facts are such that would influence a
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If that particular fact that you don't disclose or that you falsify influences the
investor in his decision to invest or not, then you will be guilty of fraud. Let
us say instead of putting the date subscribed and sworn to this 23rd day of
January instead of 24th, nasayop ka ug butang didto, are you guilty of fraud?
Of course not, that is NOT MATERIAL as to whether or not the investor will
invest. Kung nasayop ka ug butang Sa edad sa chairman, 48, human iyang
edad jud kay 84. Subscribed and sworn to. Naa pa jud verification: That I am
the president of this company. That I caused the following so and so. That I
have read through the same. That all that is written here is true and correct
to the best of my personal knowledge.
2. 45 days after the filing of the registration statement, what happens to the
security? The security is considered as effective unless the SEC returns the
registration statement as rejected. The SEC does not approve the registration
statement.
Why? Because it might be considered that the SEC is endorsing to the public
to buy the security. It merely becomes effective, which means that
subsequently if there are irregularities associated with the particular security
and it is later on discovered, the SEC can order the suspension or revocation
of the authority to sell this particular security that is covered by the
registration.
3. After 45 days lapsed and the security is considered effective, the issuer
can now engage in the production of prospectus. What is a prospectus? A
prospectus is a simplified form of advertisement of the security based on the
registration. The registration is the legal document. The prospectus is the
marketing document. It now contains pictures of the proposed project; it
now contains pictures of the men behind the project; and, it shows graphs,
etc. to illustrate in popular understanding the merits of the particular
security.
Subdivision, real estate company, unya ilang prospectus kay airline na. The
prospectus cannot appreciably depart from what is contained in the
registration statement.
If Davao City issues bond, Davao City need not register. It is exempt.
The government, every Monday, they auction treasury bills. The
treasury bills need not be registered.
(d) Any security or its derivatives the sale or transfer of which, by law,
is under the supervision and regulation of the Office of the Insurance
Commission, Housing and Land Use Rule Regulatory Board, or the
Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
You might think that there is an estate, there is an executor. The estate
because the deceased owns certain securities, shares of stock and he
sells and therefore it is exempt. NO. That is not the security that we are
talking about. The executor precisely creates a security ti generate
funds to meet the expenses of the estate. When he issues a security
and sells it to the people who are investors, let us say a bank, so that
he can have cash to pay for the workers that are needed in
maintaining the estate, that is exempt. Why? Because the court must
look into the issuance of the security. It is the court that approves the
issuance of the security. There is already a scrutiny from the court.
That is why it is an exempt security.
(c) An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner therefore, or by his representative for
the owners account, such sale or offer for sale or offer for sale, subscription
or delivery not being made in the course of repeated and successive
transaction of a like character by such owner, or on his account by such
representative and such owner or representative not being the underwriter of
such security.
(f) The issuance of bonds or notes secured by mortgage upon real estate or
tangible personal property, when the entire mortgage together with all the
bonds or notes secured thereby are sold to a single purchaser at a single
sale.
(g) The issue and delivery of any security in exchange for any other security
of the same issuer pursuant to a right of conversion entitling the holder of
the security surrendered in exchange to make such conversion: Provided,
That the security so surrendered has been registered under this Code or was,
when sold, exempt from the provision of this Code, and that the security
issued and delivered in exchange, if sold at the conversion price, would at
the time of such conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion the par value of the
security surrendered in such exchange shall be deemed the price at which
the securities issued and delivered in such exchange are sold.
(i) Subscriptions for shares of the capitals stocks of a corporation prior to the
incorporation thereof or in pursuance of an increase in its authorized capital
stocks under the Corporation Code, when no expense is incurred, or no
commission, compensation or remuneration is paid or given in connection
with the sale or disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscription is to comply with the
requirements of such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can be registered and duly
incorporated, or its authorized, capital increase.
(j) The exchange of securities by the issuer with the existing security holders
exclusively, where no commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
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(k) The sale of securities by an issuer to fewer than twenty (20) persons in
the Philippines during any twelve- month period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government of
the Philippines or any political subdivision thereof or manage by a bank
or other persons authorized by the Bangko Sentral to engage in trust
functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by determine as
qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and
business matters, or amount of assets under management.
(v) Has failed to comply with any requirements that the Commission
may impose as a condition for registration of the security for which the
registration statement has been filed; or
(c) The issuer, any officer, director or controlling person performing similar
functions, or any under writer has been convicted, by a competent judicial or
administrative body, upon plea of guilty, or otherwise, of an offense involving
moral turpitude and /or fraud or is enjoined or restrained by the Commission
or other competent or administrative body for violations of securities,
commodities, and other related laws.
These are the grounds either for rejection of the registration or revocation of
the registration of the security.
1. The moment that there is an order for the suspension of the registration of
the security, the issuer, underwriter, dealer and broker is immediately
notified and no further offer or sale of any security shall be made.
Reportorial Requirements:
2. When the person intends to acquire 15% or more of the equity shares of a
public company, pursuant to an agreement made between or among the
person and one or more sellers, then that person must make a tender offer.
He must inform them that he is willing to purchase 15% so that the other
stockholders will have the same chance to put the price the person is willing
to purchase. That is the protection of ______. Sa ato pa, the buyer cannot
just go to the stockholder and buy his shares, and if it is already 15%, you
cannot purchase it right away, he must make a tender offer: I am willing to
buy 15%. Kung daghan gani mo, proportionate. If you are 10% of the
outstanding capital stock, the 10% lang imong mapalit sa 15% na gusto nimu
so that the others can have the chance. That is the result of a tender offer.
Proxy Rules
You know of course that a proxy cannot be denied in a stock corporation. You
cannot provide in your by- laws denying proxy voting. In the by- law, if there
is specific form of proxy, then that form must be followed. If there is no
requirement as to the form, then what is needed is that the proxy must be in
WRITING, it need NOT BE IN A PUBLIC INSTRUMENT.
If there is another faction in the corporation that is against that and would
like also to conduct a proxy campaign and solicit proxy vote, then the
corporation must grant access to the other faction as to its list of
stockholders, their addresses so that they can, at their own expense,
circulate their own proxy statement.
Who has jurisdiction over sufficiency and validity of a proxy? Is it the SEC or
the regular courts?
This issue was raised in the case of Winston Garcia v. Anthony Rosete,
Secretay of Manila Electric Company.
This happened during the annual meeting of MERALCO, when there was a
proxy hike between Garcia, the president and general manager of GSIS and
the Lopez controlling interest of MERALCO. You know MERALCO's ownership
and control was tenderously held by Lopez. Lopez had only very slightly
higher than 20% of MERALCO's outstanding capital stock. It aligns itself with
the electric power company in Spain that also had 15%. Together with that
they have also other proxies in the Philippines who sided with them. That is
why they always have the majority control and on that basis they were able
to install a boar according to their majority choice. You know Board meeting,
not all stockholders will be present. It's always about 80% are made up of
physically present or represented by proxy. If you have 45%, unsa mana, na
80% lang man jud ang present. Since there was hike for control because
originally there are certain people who want to take over the Lopez group
and Garcia was the solvent of this group that is why Garcia questioned the
proxy at that time. The problem is he raised the question during the day of
the meeting. The by-laws of MERALCO provided that your proxies must be
entered in the transfer book with the stock and transfer agent and the
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In the afternoon, he produced a TRO which was signed by just one of the
commissioners of the SEC. There is an issue as to the validity of the TRO
coming from the SEC signed only by one of the SEC commissioner. Later on,
Garcia defended that this one signature is the signature of the majority. Four
commissioners and one chairman. But the signature is equivalent to 3 since
he has the authorization of 2 more.
Can the SEC on the basis of the filing of the proxy question retrain the
corporation from conducting an election of the BOD?
The Rosete group and Lopez group position no different to me. Section 6 of
the Securities Regulation Code transferred the section 5 cases to regular
courts. According to Rosete, the SEC no longer has jurisdiction to stop the
election . Garcia's stand is that the SEC has jurisdiction because this is not
an issue of election, this is an issue of proxies. Garcia said that the SEC has
the sole and exclusive power to determine the sufficiency and validity of
proxies. So who is correct?
The SC said that it is true that the SEC has the sole and exclusive power to
determine the sufficiency and validity of proxies if the issue is just proxy.
However, when it comes to proxy in an election of BOD, the jurisdiction
shifts, it is now the regular courts. The TRO by the SEC is ultra vires, beyond
its powers. It cannot issue a TRO to stop an election on the basis of irregular
proxies or a thorough examination of the question of proxies.
To summarize the ruling, if the issue is JUST PROXIES AND NOTHING ELSE, it
is the SEC that will look into it and NOT the regular courts. If it is an
ELECTION AND THERE IS AN ISSUE OF PROXIES, the SEC is HANDS OFF and it
is already the REGULAR COURTS that will determine the sufficiency and
validity of proxies.
Before we leave tender offer I would like to bring your attention to this,
_______v National Light Insurance Co. of the Phil. 529 S 355 (2007). Does the
ruling on mandatory tender offer apply when you do not actually file the
shares of stock of the traded company but you buy the shares of stocks of
the holding company of the corporation that is traded in this stock market.
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Why? Because if the ruling were otherwise, that it is very easy for you to
escape the tender offer rule, by the mere rubric of creating a holding
company. So, that is the ruling, the provision in this Securities Regulation
Code should be amended or should be understood as whether or not n you
are buying this percentages in the corporation directly or indirectly because
it applies now even if you do not directly file it.
The tender offer rule must be made to all holders and class of shares to be
acquired when:
If you acquire 35% or directly or indirectly of the equity shares you must
make a tender offer, you announce to everybody that you acquiring 35%. For
those who are to sell they can sell it you, they are the ones who makes the
tender offer, the buyer makes the announcement that you are tendering the
offer at the price you can buy.
When will you become a blocking minority? When you have acquire 33.33%
of the OCS of the corporation because you need for the absolute control of
the corporation 66.66%, if you do not have 66.66 then you cannot pass
those 8 instances found in section 6 in the CC because you need 2/3 of the
OCS, voting and non voting shares included. You cannot amend if you dont
have 66.66 in you control.
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Now the best way to control that is to omit, if .manita kag proxy.. If you
just acquire 35% by bits over a 12 months period, you will need to acquire
more than 5% every month, that is very noticeable, hantud mu cgeg pamalit
people will begin to notice so musaka na ang presyo in the end you will still
pay the premium.
But the law The got wants to protect the minority SH to give them a chance,
because the purpose o the tender offer rule: to protect the interest the
minority of the SH of the target family ________that dilutes the shares it
provides the minority shareholders the opportunity to withdraw or exit the
company in reasonable terms, allow them to sell their shares than those of
the majority sh.
3. if the acquisition of even less than 35% would result in the ownership of
over 51% o of the total spending equity securities in company then the
purchaser must made a general offer of all the outstanding equity securities
for the remaining sh of the said company, that is not the general offer. if your
acquisition shares reaches 51% would result in the ownership 51% that
means you are now a majority, then you must make a general offer. The 49%
if they choose to sell to you, you must buy.
Thats why you go back to the tender offer rule, if you purchase up to 51%
the law requires you to make a tender offer, palitun na nimu ang remaining
for their sake, you will give them a chance like the 51% to be about to exit
the company at a right price. You know Ramon Tan?
In his effort to take over Meralco, he bought about 27% of Meralco but
because he was lost to the powers like .it was very easy fpr him to arrange
that, and the tender offer did not apply because .% who are those who
sold to him GSIS, SSS, Land Bank, he was able to .in a very short time.
From then, his next move was to acquire, the lower which is around 23%
he would have then 50-51% but the offices did not want to sell it so he was
.at % what was his price?
At that time MERALCO was being traded at 60-65, his price was 90 pesos per
share payable in three years in three branches, what happened? After four
years MERALCO becomes 2070 300 so gamay an gang.than..investigated
by Congress..he paid for the.three years installment, .he tender offer
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rule..did it help? Without the help of the tender offer ruleand he was
laughing all the way to the bank.
Section 20. Any purchase of shares from the unissued capital stock provided
that the acquisition will not result of a 50% or more ownership of shares by
the purchaser, so this is a question of pre emptive right it is not a question
not a buying of existing shares
PROXIES
Proxy Solicitations.
20.3. Unless otherwise provided in the proxy, it shall be valid only for the
meeting for which it is intended. No proxy shall be valid and effective for a
period longer than five (5) years at one time.
It is only good for the meeting. The intention is not expansive but
contractive.
20.5. A broker or dealer who holds or acquires the proxy for at least ten per
centum (10%) or such percentage as the Commission may prescribe of the
outstanding share of the issuer, shall submit a report identifying the
beneficial owner within ten (10) days after such acquisition, for its own
account or customer, to the issuer of the security, to the Exchange where the
security is traded and to the Commission.
The rule is 5%, if the broker obtains a security for a third party equivalent of
the 5% of the shares of stiock, the broker must disclose who the beneficial
owner is otherwise the name the one appears in the certificate of stock is
not presumed by the rule to be the owner that will benefit from the
transaction he is just the beneficial owner, the real owner still needs to be
disclosed.
23.3. It shall be unlawful for any such beneficial owner, director, or officer,
directly or indirectly, to sell any equity security of such issuer if the person
selling the security or his principal: (a) Does not own the security sold; or (b)
If owning the security, does not deliver it against such sale within twenty
(20) days thereafter, or does not within five (5) days after such sale deposit it
in the mails or other usual channels of transportation; but no person shall be
deemed to have violated this subsection if he proves that notwithstanding
the exercise of good faith he was unable to make such delivery or deposit
within such time, or that to do so would cause undue inconvenience or
expense.
So 20 days if you are a broker, and 5 days if you are principal of the broker.
24.1 It shall be unlawful for any person acting for himself or through a
dealer or broker, directly or indirectly:
(ii) By entering an order or orders for the purchase or sale of such security
with the knowledge that a simultaneous order or orders of substantially the
same size, time and price, for the sale or purchase of any such security, has
or will be entered by or for the same or different parties; or
How do you do that? Wash sale, what is that? A wash sale is a sale of
security wehn there is really no valid and true change of owner ship. You call
broker A, buy San Miguel at this price and you call broker B sell San Miguel at
this price, ikaw ran a ang nagtrade, muregister na didto, iut shows that as if
there is transaction because somebody is buying it. You are making a false
impression that the equity is actively trading.
Match Order this time you are two main actor, the buyer and the seller,
magsabot mung duha, after an hour ako na sad baligya kaw na pud palit, puli
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puli lang ta, it is a simulation to the market. (story about atong nag atik atik
sa tansan). The idea there is to simulate.
(i) Raises their price to induce the purchase of a security, whether of the
same or a different class of the same issuer or of a controlling, controlled, or
commonly controlled company by others;
How do you do that? You spread rumors, how you spread rumors? The
effective way is to tell someone, they say ayaw saba that is the best way
to spread rumors.
(ii) Depresses their price to induce the sale of a security, whether of the
same or a different class, of the same issuer or of a controlling, controlled, or
commonly controlled company by others; or
Marking the close stock tables in the newspaper, that is the last price the
last transaction is made, paubos na ang price, so you purposely purchase
shares of stock in a closing time at a higher price than the actual price, you
are marking the close para pagka following day you can sell the share at
such price.
WHAT IS AN INSIDER?
Who is an insider?
So if you are a nobody and you receive information from an insider, you
become an insider.
If you have a wife, who does not know anything, picks up your information,
she too becomes an insider. Even if she doesnt know her left arm from her
right.
Can the insider be liable even is he does not trade the security?
1. That has not been generally disclosed to the public and would likely
affect the market price of the security after being disseminated to the
public and the lapse of a reasonable time for market to absorb such
information
2. It could be considered by a reasonable person as important under any
circumstances in determining his course of action whether to buy, sell
or hold the security.
What are the acts of an insider that are prohibited? What are his duties when
he trades an insider?
Or if the person selling or buying from the insider or his agent is identified
and the insider is able to prove that he disclosed the nonpublic information
to the other party.
Or that he had reason to believe that the other party otherwise is also in
possession of nonpublic information.
Otherwise if you trade with anyone, you are an insider and it is during the
time that this material nonpublic information already exists, there is a
presumption that you are engage in insider trading. You must prove
otherwise.
If there is a material nonpublic information exist, you are an insider and you
buy sell shares of stock, then you are presumed engaged in insider trading.
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(storya storya si father about an article na makahilak daw ka. For Love of
Money)
Independent Directors
There are corporations that are required to have independent directors. What
are these?
directors, just to show that they are serious about the checking functions of
independent directors.
Now, the law defines persons who cannot be independent directors. If you
are not this you can be an independent director.
Upwards the holding company of this corporation you own 10% at least, you
cannot be. Its subsidiary, you are a stockholder of a subsidiary to the extent
of 10%, then you cannot be.
If you are a spouse, parent, child, brother, sister of such person who has at
least 10% or more of equity stocks. And you a spouse of such child, brother,
or sister of any director, officer or substantial shareholder of the corporation,
then you cannot be an independent director.
There are supposed to be the watchdog for and in behalf of the general
investing public. That no irregularities occur within the corporation, so that it
would mean that they are not worthy to be listed or to be dealt with and
trusted by the public. That is the idea of an independent director.
MARGIN TRADING
Just for your information. Normally before you can begin trading in shares of
stocks since you cannot go there and buy or sell yourself you have to avail of
the services of a broker. You must open an account with a broker. Mudeposit
ka ug kwarta sa broker.
Normally a broker, in the beginning will ask you for your reference, like the
banks, etc. Then the broker will say okay, open an account with me. From
then on you can already set orders to the broker.
Then the broker will confirm with you and they will execute the orders. Now
pagkahurot sa imong kwarta, the broker will no longer execute. That is when
the one will say pautanga ko ug kwarta nimo. Then the broker say why
should I lend you? Because I have shares of stocks with you. Kadto diay
akong gipamalit sa una. Wala man nay stock certificate, ikaw may nagagunit
ana. Mao na akong collateral nimo.
You are buying shares of stock out of the credit extended to you by your own
broker. And there is a limit to that credit. Usually it is limited by the value of
your shares of stock held by the broker.
He cannot exceed that value. The issue is how is that value determined?
It is very complicated the formula. Never mind about the formula. (Haay
salamat! Haha) because they will not ask it. They will ask it only if you are
applying for a license to be a broker.
What are the transactions of brokers and dealers that are prohibited?
No brokers or dealer shall deal in or otherwise buy or sell, for its own
account or for its own account or for the account of customers, securities
listed on an Exchange issued by any corporation where any stockholders,
director, associated person or salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within the fourth civil degree of
consanguinity or affinity, is at the same time holding office in said issuer
corporation as a director, president, vice-president, manager, treasurer,
comptroller, secretary or any office trust and responsibility, or is a controlling
of the issuer.
To safeguard you. The investing public. Because you do not know the market.
There might be recent event where this particular issuer is already in trouble.
You do not know about it. Kinsa man ilang masaligan, ilang paryente. The
broker will unload to you the shares.
Unwittingly you just buy because you trust your broker, then that it the end
of you.
So the law prohibits that. Transactions like that are presumed to be irregular
because they are prohibited.
The settlement offer is a written proposal made to the SEC by a party being
investigated on any of the charges of irregularity in the Securities
Regulations Code.
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The SEC may agree to a settlement offer based on its findings that such
settlement is in the public interest. It saves the government money
prosecuting, etc.
Any agreement to settle shall have no legal effect until publicly disclosed;
such decision may be made without a determination of guilt on the part of
that person making the offer.
Under investigation ka, muingon na lang ka, no fault settlement offer aron
matiwas ni tanan, bayad ko, without admission of guilt.
1. The issuer and every person who signed the registration statement.
2. Every person who is a director or any other person performing similar
functions or a partner of the issuer at the time of the transaction.
3. Every person who is named in the registration statement as being or
about to become a director.
4. Every auditor or auditing firm named as having certified any financial
statement used in connection with the transaction.
5. Every person who with his written consent which shall __ with
registration statement, has been named as having prepared or certify
any part of the registration statement.
6. Every selling shareholder who contributed to and certified as to the
accuracy of a portion of the registration statement.
7. Every underwriter with respect to some security.
So, almost everybody who participates in the transaction can be sued. That
is how far reaching the law is.
What is the prescriptive period for the enforcement of actions under civil
liabilities on account of false registration statement or civil liabilities arising
in connection with the prospectus, communications, and reports?
Answer: 2 years after the discovery of the untrue statement or the omission,
if the action is to enforce liability created in connection with the prospectus
within 2 years after the violation upon which it is ___.
enforce a liability created under Subsection 57.1 (a), unless, brought within
two (2) yeas after the violation upon which it is based. In no event shall an
such action be brought to enforce a liability created under Section 56 or
Subsection 57.1 (a) more than five (5) years after the security was bona
fide offered to the public, or under Subsection 57.1 (b0 more than five (5)
years after the sale.
So within 2 years from discovery but not more than 5 years after the security
was offered for sale or more than 5 years after receipt.
1. Broker
2. Dealer
3. Associated person of a broker or dealer
4. Sales persons
5. Issuer
The brochures that are created out of registration statements. These are all
to be registered with SEC.
We are talking now, no longer about blue sky law. We are talking about
monetary policy.
Purchasing power of the peso and the availability of credit. Because the peso
as the legal tender is dependable, that is all embraced in monetary policy.
Then, what will be the items that the government will apply these proceeds
from revenue that is the appropriations act.
So, it is Congress that determines these sources of funds by raising tax laws.
It is Congress that determines what expenses are made to be made out of
the tax laws.
Who is in charge?
BSP, principally the Monetary Board. The Monetary Board is the one
responsible.
The Monetary Board is now under the control not so much of the
government, since the most number of members of the Board come from the
civilian sector. Only two come from the government sector.
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The governor of the BSP who is the ex-officio member of the MB and other
cabinet member, usually the Secretary of Finance but not necessarily, and all
the 5 others are taken from the private sector.
Take note that the Bangko Sentral ng Pilipinas law provides that the Central
Bank Givernor must be confirmed by the Commission on Appointment, but
this has been struck down as an invalid law because of SC has said that
those that need confirmation, under the Constitution, can no longer be
added upon by Congress, because that is a limitation of its appointing power.
None of the 7 in the Monetary Board requires confirmation. Not even the
monetary board chairperson, who is the Bangko Sentral governor.
Then, they must divest whatever interest they have in any bank, quasi-bank
other institution subject to supervision or examination by the BSP. They must
divest themselves.
After they have served their office, they cannot be hired or engaged by any
bank, quasi-bank as their consultant or officer within 2 years after expiration
of their term.
So, 1 year to divest, 2 years before they can be reconnected to any bank.
If the bar examinations will raise questions on the Monetary Board, it might
be on the issues now being discussed by Congress as to the amendment of
the Bangko Sentral Law. Because now, the amendments they are asking for
is immunity from suit, not only for the Bangko Sentral to be immuned from
suit but also the Monetary Board and all its members.
Because they say in the past years, history, so many of the Central Bankers
have to spend so much of their retirement money to defend themselves
against suits even after they have already served their terms.
Even if the law now says that they can be reimbursed for legal expenses, it
still means that you have to spend your money first before you can be
reimbursed. So you are forced to be timid in your enforcement of the Bangko
Sentral Law.
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We went through the classification of banks and I want to point out that the
general banking law has these provisions sections 40, 43, 44provisions on
MICROFINANCING.What is in many jurisdictions properly classified as not a
formal banking practice, our law seeks to formalize it. We cannot help it but
we want to always make it formal.
Again you always have this rule where the BSP does not mediate. The banks,
for the sake of its depositors and the general banking public cannot loan
money without collateral. Then here is a BSP circular which says that you!
10% of your loanable funds must be microfinance loans. What is the
definition of microfinance? NO COLLATERAL. So what is the result? The
biggest loss of banks is in microfinance! For your education, know that that is
now part of the supervision of the BSPthis microfinancing. In India and
Pakistani, this thrived because precisely, it is not supervised by the
monetary/banking authority. It is a social project there. If you insist, ibutang
na nimu into formalang kanang mga personnel sa banko, they are trained
to be formal. So ang mahitabo ana kay mamakak nalang na sila. Kay they
are so form-determined. When the whole thrust of microfinancing is other
than enterprise bid out and so on.
So you can only own 40% as a general rule if you are foreign.
In other words, what does that say? If you are a foreign banking
institution that has been long standing for at least 10 years, you have the
right to acquire and purchase up to 60% of the voting stock of a domestic
bank.
Note also that under SECTION 73 OF GENERAL BANKING LAW, the Monetary
Board may authorize a foreign bank to acquire up to one hundred percent
(100%) of the voting stock of only one (1) bank organized under the laws of
the Republic of the Philippines, Within seven (7) years from the effectivity of
this Act and subject to guidelines issued pursuant to the Foreign Banks
Liberalization Act
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You are a savings bank..why is it that you can open a demand deposit
checking account? That is by SPECIAL PERMISSION from the BSP over and
above your thrift bank license. In other words, paghatag nimu ug thrift bank
license, wala ka dayon maka-abri ug demand deposits. Tagaan ka ug special
permission because that is not part of the thrift bank business.
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What are those non-financial allied enterprises? What is the significance that
these have to be established?
Now, Even if they are non-financial, the moment the BSP goes to the
universal bank to examine or inspect the books, it can also audit the non-
financial corporations with which the universal bank has engaged in. the BSP
can now go to the warehouses if the universal bank has corporation engaged
in warehousing. Nganong naa man nay warehousing ang universal bank?
That is because they are interested in financing the sugar planters and they
have decided to finance their agricultural inputs i.e. fertilizer, fungicide,
suicide! so the universal bank ends up financing letters of credit i.e.
planters association importation of potash. They import it and they
warehouse it because they make the planters sign trust receipts. So they will
have a hold of the proceeds of the farm.
In the old central bank law, BSP cannot audit a corporation that is neither a
banking or quasi-banking corporation. NOWthey CAN AUDIT if there is a
bank or quasi-bank that has equity in those corporations.
What is a single borrowers limit? All its money will lend to just 1
borrower. Is that allowed? A single borrower can only borrow up to 20% of
the net worth of the bank concerned.
So 50%. The bank must keep that limit in capital expenditures in real
property. Now what happens if the bank is already 50% in real property but
to collect a loan, the bank has to foreclose real property? And then there are
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no bidders so the bank becomes the default winner in the auction sale of
that property. Eh will be forced to take in real property in excess of 50% of
the maximum. The bank will have to report that to the BSP and the latter will
give it a time limit. It must get rid of the real property as much as possible to
bring it back to the 50% maximum.
Muingon ka--Ang kinadak-ang gold diay sa Diwalwal kay kini diayng bangko?
NO. it cannot buy!
Technically speaking, they can buy foreign exchange and gold or silver
volume. They can buy at their own risk but many will not risk that.
53.2. Act as financial agent and buy and sell, by order of and for
the account of their customers, shares, evidences of
indebtedness and all types of securities;
The bank shall perform the services permitted under Subsections 53.1,
53.2, 53.3 and 53.4 as depositary or as an agent. Accordingly, it shall
keep the funds, securities and other effects which it receives duly
separate from the bank's own assets and liabilities.
The Monetary Board may regulate the operations authorized by this
Section in order to ensure that such operations do not endanger the
interests of the depositors and other creditors of the bank.
53.3. Make collections and payments for the account of others and
perform such other services for their customers as are not
incompatible with banking business;
53.2 Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness and
all types of securities;
This is defined in section 55 and further elaborated on BSP Circular no. 268,
December 5, 2000.
1. information technology,
2. programming systems processing, etcyou can outsource that.
3. Data imaging, storage, retrieval
4. Printing of bank deposit statements
5. Credit card services
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So, tellers? The shortest possible probationary period. That is the holding of
the General banking law.
56.3. The act or omission has caused any undue injury, or has
given any unwarranted benefits, advantage or preference to the
bank or any party in the discharge by the director or officer of
his duties and responsibilities through manifest partiality,
evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or
transaction manifestly and grossly disadvantageous to the bank,
quasi-bank or trust entity, whether or not the director or officer
profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its
business in an unsafe or unsound manner, the Monetary Board may,
without prejudice to the administrative sanctions provided in Section
37 of the New Central Bank Act, take action under Section 30 of the
same Act and/or immediately exclude the erring bank from clearing,
the provisions of law to the contrary notwithstanding.
Remember: bank cannot declare dividends without prior clearance from the
Bangko Central or the Monetary board.
So, it is not exactly to help you safeguard your money. It has an economic
purposed to help the economy.
So, if you have saving account in the bank, it is covered. If you have time
deposit, it is covered.
But if you make a special placement with the bank to be in one of its funds
(sometimes they have a special fund and it is handled by a portfolio
manager) that is NOT included.
If you have a trust account with a bank, not as a bank but as a trust
company, is that included? The answer is NO. It is not included in the
Secrecy of Bank Deposits Act.
a. Savings
b. Time deposit
c. Investment with the bank in government bonds or bonds issued by any
of its political subdivisions or instrumentalities
If you put money with the bank together with the funds of the bank invested
in Land Bank bonds, that is covered.
So, we are now looking at the exceptions that are covered by law.
So, that means that they give their consent to the disclosure of these
deposits.
It does not mean that the MB really has this list. No. They just require
the banks to have a program that feeds to the database of the BSP.
And what activates there are those DOSRI loans that are xxx loans
taken in good standing. If you do not pay then, you will register there.
The list actually remains with the banks but they have a direct access
to the DOSRI list.
The issue was not his deposits covered by the Secrecy of Bank
Deposits; it was his deposits in foreign exchange.
Now, what is the purpose for the non-disclosure there in that law? The
purpose is to encourage foreigners to put their money here in the
Philippines.
But the problem with CJ Corona was that he actually waived it in open
court. He made a promise before the Senate, the judges. He said that
he had no objection and that he was willing to open up his books and
accounts and that he had nothing to hide. Subsequently, he was
opposing. That was his problem. Xxx
The court can order the disclosure, production of records, if the issue is
funds involved in bribery and dereliction of duty.
Of course, the court orders it after there has been notice and hearing
as to the issue of whether or not it should be disclosed.
Because normally, this will be under the name of somebody other than
the accused. And the allegation is always is this is a dummy account.
And so, they will want to know. Why? Because (for example) this fellow
is just a driver, and why does he have an account with several
millions?
that he transferred it for his convenience. And then he cited the case
of UP.
Time and again the SC says that it is not a violation of the Secrecy of
Bank Deposits because there is actually no disclosure.
Now, especially if the account there, the monies in that account, is the
subject matter of litigation.
E. Fifth Upon the order of the court in case of unexplained wealth under
Section 8 of the Graft and Corrupt Practices Act.
Unexplained wealth
This is the case of the wife of General Garcia. He has a bank account
with several millions. Mrs. Garcia and General Garcia just filed one tax
return. And she is listed as a housewife. How does a housewife have
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Of course, the court has to order. So, there must be a hearing. Part of
that general exception, that it is the court that can order the banks to
disclose the amounts involved that are deposited under these persons
that are the subject of anti-graft and corrupt cases.
Example: If you have this very big obituaries in the newspaper. That is
a sign to the BIR. Why is it that your obituary notice is page of the
Philippine Daily Inquirer? xxx So, the Commissioner wants to find out
your gross estate.
Now, when you have somebody who has no next of kin and he has a
sizeable bank deposit, and he is already terminal stage in the hospital.
And then, he dies, and there is a considerable bill. Whoever is left
behind who will attend to the affairs of the decedent, can he go to the
bank and say will you release money from this account for the
payment of his last illness? But the last illness stretched for about a
year. YES. The moment you do that, the BIR is not far behind. They
will come and check the account.
Now, the bank will always pay if it is the last illness. It is provided in
the NIRC that the expenses of the last illness of the decedent can be
charged with his/her estate.
The bank will issue a managers check for and in behalf of the
decedent. That is supported by receipts, charged to the account of the
decedent.
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And the BIR can determine what the gross estate is. It is gross
because the allowable expenses have to be deducted. And then, what
remains is the taxable net estate. That is the amount that which the
estate tax is levied.
So, know very well that the Revenue District Officer has power to
compromise with respect to an indigent taxpayer subject to the
approval of the Commissioner.
H. Eighth Upon order of the court in cases filed by the Ombudsman and
upon the latters authority to examine and have access to bank
accounts and records.
If for 10 years, there is an account in the bank that has not undergone
any transaction, whether deposit or withdrawal, dormant, then the
bank is obligated to make a report to the Treasurer of the Philippines.
That there is this existence of the bank accounts that have not been
moving.
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Now, technically, the bank is also paying interest. But, then it begins
to deduct a penalty.
They will as for the court to declare that these accounts are now the
right of the state to appropriate because its owner has disappeared or
has abandoned the same.
Unclaimed Balances Act 10 years and the bank has to make a report,
every year, to the treasury on the accounts that have not been moving
for the past 10 years.
Now, if your deposit is very small, the Treasurer will not bother.
But, if the amount is considerable, you can be sure that the Treasurer
will make the move. In the very least, the government, the treasury
should not use this money in the process of reclaiming the unclaimed
balances. It must be worth the while of the Republic.
There are three crimes where there is no need for any court order. Just
the order of the Anti-Money Laundering Council.
And then, you have hijacking and other violations such as destructive
arson, murder, as defined under the RPC, including those perpetuated
by terrorists against non-combatant persons and similar acts.
Now, these are the exceptions. Because of the heinous nature of these
crimes, the victims here do not want them to be hiding behind the
privilege of secrecy of bank deposits. They want them to be under a
strict basis.
If you travel now to any country, one of the questions that they will ask
you is whether you are carrying with you $10,000 or more USD or its
equivalent in other currencies.
If you say yes, then they will report you. They will not stop you, but
they will report you.
If you say no, but upon examination of your luggage they discover bills
and it is more than $10,000, that is violation of the AML Law.
It took the Philippines more than 3 years to amend the AML Law to
conform to international standards.
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Who has the obligation to disclose? The bank itself. The tellers, the
cashiers, the operations manager, the branch manager they are
trained of the AML Law to report the suspicious transactions.
This is what happened to that thing in Iligan. The pyramiding scheme was
discovered by a regular examination of the BSP. So many small accounts
were opened simultaneously. Thousands of accounts were opened in a week.
These were original depositors of the pyramiding scheme. This was how they
were getting their monthly interest payments. But then, these were
subsequently closed. The banks could not do anything to stop this because
they were still waiting for the order of the BSP. And the BSP takes a long time
to order. It was still a written order. In days of internet, dali ra kayo na Pila
lang man na magsira ug account. Binlan lang nimo 100php. Iwithdraw nimo
tanan. Asa ba na nimo pangitaa? That is the problem of the BSP. Its still
operating in the days of paper and pencil.
[Thats what I said. If our publication is still ESCRIBA, pagsuwat pa lang nimo
ana, outdated ka na. The only good thing about that is that law students will
be writing. But you can also write without having to -- for me its a useless
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The law is explicit as to who are not covered. Sec 5 precisely exempts from
coverage of FRIA:
3. Pre-need companies. They are under the special jurisdiction of the SEC
because from the Securities Regulation Code (SRC), pre need plans are
securities. They are not insurance policies. They are basically securities
by explicit provision of the SRC.
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4. GOCC when their specific charter so provides. They are under the
responsibility, many times, of the government. They are also, many
times, under the responsibility of general specific law, like the SSS. The
benefits that are supposed to be given or received under SSS are
guaranteed by the government itself. How can you go bankrupt unless
government itself is bankrupt? If SSS or GSIS runs out of money and
can no longer give benefit, the recourse is, that legislators pass laws to
enhance the financial capability of the SSS and GSIS. Government
borrows money from local sources or aboard to meet financial
obligations because it is guaranteed by the government.
The minimum requirement is: you have more liabilities than assets.
How is that met? Then the law itself will dictate how your limited
assets will be divided among your creditors. There will always be a
number of creditors that will not be satisfied as to their credits. Only
the government with respect to its sovereign claims, which are
taxes. Taxes are not credits. They are sovereign claims. The claim
arises from law, not contract. The concurrence and preference of
credits are hierarchy created by law of creditors. That means that
their claims arose from contracts. Taxes are always under what?
Whatever concurrence and preference of credits laws, they are
always number 1. They must be satisfied in full, not just most of the
taxes. The taxes must be paid in full before any other creditor is
paid.
There is a special feature in the FRIA law in that the court has power to
convert any of these proceedings into liquidation proceedings. Before, when
you file a suspension of payment proceedings and you are a corporation, you
have to file with the SEC. When it comes out that you really do not have
more than enough assets to met liabilities, or you are short of your assets to
meet liabilities, the SEC has to dismiss your case because it cannot convert it
into liquidation. It cannot convert into insolvency. So you have to re-file it
with regular court. Now, there is no problem. Only one has jurisdiction, the
regular court. You file a suspension of payments petition. The court
discovers...It just has to give an order.
Once again, just like the SRC where the SC designates an intra-corporate
court, sec 6 of the FRIA law says, "The Supreme Court shall designate the
court or courts that will hear and resolve cases brought under this Act and
shall promulgate the rules of pleading, practice and procedure to govern the
proceedings brought under this Act.
Then, it says, the SEC may promulgate rules of procedure that allow court to
join other entities affiliated with the debtor as parties in the proceedings
(Sec. 7). So, we await a possible amendment to the interim rules on
corporate rehabilitation which is now a special rule number. There are still
this and that but I think the SC is coming up with a new corporate
rehabilitation and insolvency rule following 10142.
(b) the debtor and the related enterprise have common creditors
and it will be more convenient to treat them together. So that can
be joined or aggregate petition for rehabilitation. One controlling
interest that has several corporations and theyre all in distress,
they could be joined together to file the corporate rehabilitation
proceeding. That is not alien. At least the law is open to such a
joining.
(d) The consolidation of assets and liabilities of the debtor and the
related enterprise is beneficial to all concerned and promotes the
objectives of rehabilitation.
February 6, 2014
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and
Insolvency Act (FRIA) of 2010".
xxxx
(c) Has the requisite knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training and/or experience
that may be necessary to enable him to properly discharge the duties and
obligations of a rehabilitation receiver; and
(d) Has no conflict of interest: Provided, That such conflict of interest may be
waived, expressly or impliedly, by a party who may be prejudiced thereby.
Now, it is the court who appoints the receiver. However, if the qualified
natural person or entity is nominated by more than 50% of the secured
creditors and general unsecured creditors and satisfactory evidence is
submitted, the court shall appoint the creditors nominee as the
rehabilitation receiver.
Examples of SECURED CREDITORS are the motagagees, pledges, and all the
GEES. (hehe.) They are all secured. Unsecured (ordinary) are those basic
suppliers of raw materials, retainer, etc. The unsecured creditors are the
most liberal in giving terms. The secured creditors are the ones who is
scoving(?) big type of giving terms because if the obligor fails in any- one or
two instalments, etc. Then, the obligee can foreclose of the mortgage,
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execute, etc. They are of little patience because, they have lots of power.
Kung gamay ka og power, pasensyoso ka.
But the list or grounds of the acts are not exclusive under section 32. If there
are more than fifty percent of the creditors, they can cause you to be
removed.
Xxxxxx on such grounds as the rules of procedure may provide which shall
include, but are not limited to, the following:
(c) Illegal acts or conduct in the performance of his duties and powers;
Pay attention! The RR is not synonymous with MC. You can appoint over and
above the RR a MC. This is true especially if the debtor is a complex business
undertaking. If it is a very specialized business undertaking, a RR that is a
natural person may not have the resources to rehabilitate and at the same
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time keep the debtor going. Remember, when there is rehabilitation, the
business is working or is on-going.
Xxxx
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being
and viability of an insolvent debtor can be restored using various means
including, but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in Section 62 hereof, or other
similar arrangements as may be approved by the court or creditors.
Rehabilitation Plan (RP) makes use of all of these remedies like dacion en
pago, reorganization, etc.
Some may involve with sale of the business (or parts of it) as a going
concern. Putlon ang imong kamot og tiil aron mabuhi. Gangrene na na imong
tiil. Kasagaran aning sakita kanang nay diabetes. Aron mabuhi ang nahibilin
pa sa imong lawas. Sale of parts of the business, they realize cash and have
more working capital because you have sold part of the business.
When does the RP first appear? A RP is attached to the petition for the
Rehabilitation. The RP plan may be approve by the creditors more than 50%
of the total claims, confirmed by the court after approval of the creditors, or
even without such approval, or even over the objection of the creditors.
Why would creditors object to a sound RP? There are some creditors that will
object even if the plan is good. Why? There are some creditors, especially
secured creditors, the most senior... let us say, kanang una pa sila
nakapautang sa debtor pero nakapetition for rehabilitation. And the
mortgage that they have secured is far, far, far more valuable than their debt
that they extended. Why? Because the real property that was mortgaged to
them has increased in value. Og ako ng byaan nga mu-enforce niini, pag
auction sale ini, way makapagtag iya.. akoa na kung ma-default... makabawi
pa kog sobra pa sa akong gipautang plus interest.. ngano musugot man ko
anang rehabilitation?
That is why under the new law, there is this CRAM DOWN rule.
So, what is this Cram down rule? The translation of this is tinal rule. Ngano
paimnon mana nimo og pugngan imong ilong unya ihulog nimo dinha aron
tunlon ang imong gipainom. That is the rough way of illustrating it. But mary
poppins will say just a little bit of sugar makes the medicine go down. That
is also cram down in a refined way. (Chos!) the court can do that the cram
down rule.
Rehabilitation confirmed by the court shall be binding upon the debtor and
all those persons who may be affected by it including the creditors, whether
or not these persons have participated in the proceedings, opposed the plan,
or whether or not the claims have been scheduled.
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor
and all persons who may be affected by it, including the creditors, whether
or not such persons have participated in the proceedings or opposed the
Rehabilitation Plan or whether or not their claims have been scheduled;
xxx
The court has crammed down. There are certain conditions that have to be
followed.
Now, what is the stay or suspension order? It means no creditor can run after
the petitioning debtor except within that forum when the petition is valid.
They cannot file another case. They cannot foreclose even if they are
secured. Stay is an American idiom or analogy - obedience rule for dogs.
Hehehe.
When is it issued? The moment you file a petition for rehabilitation and it is
received by the court, the court issues the stay or suspension order as a
matter of course for as long as the petition is sufficient in form and
substance. Make sure you have the form. Kumpleto imong attachments sa
imong petition like the schedule of creditors (technical term of list of all your
creditors), list of all your assets both realizable and assets which are about
to go into partition, and then, whatever arrangements you have made with
certain creditors in order to satisfy them or to hold them in abeyance or to
make them re-accommodations... all of them should be attached to your
petition. Mao manay lisud buhaton. The more complete, the faster the court
will come to a resolution as to whether or not a stay order should be issued.
A stay order is very important because these are the effects:
Take note - any judgment. Pildi naka sa imong kaso. Unya pag-execute,
STAY. they cannot execute because it is superior. What is the thinking behind
the law? It is the universal settlement of all the creditors so as to enable the
debtor to restart his business. This law favors the debtor. Mao nig evangelio
na paboran ang mga makasasala.
Xxx All pending actions including the execution of the judgment should be
suspended pending termination of the rehabilitation proceedings.
What is the judge to do if he has (----)? Kadawat syag stay order, unya RTC
ko, RTC sya. Pareho ra mi. Naa ba nay ing-ana? Wala. Stay!!! Ana na. Di na
mahimo. There is no defiance even if the judgment is already final. You have
filed the case, waiting for the result of the rehabilitation. Suspend na.
After the suspension order, they are supposed to go back to business. They
cannot say I lack raw materials because all his suppliers, even if they were
not paid before what is supplied to them, they cannot stop. They must
supply. Thats part of the order of the court. Now, that contemporaneous
supply he must pay only despite the suspension order. Thats the ordinary
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course of business. He must pay all his suppliers. Pero kadtong past, in
arrears to, he does not have to pay.
(4) prohibit the debtor from making any payment of its liabilities outstanding
as of the commencement date except as may be provided herein.
Now, the SC says stay mong tanan, but ako will continue to hear in its own
way the case that is already pending before them.
(c) to the enforcement of claims against sureties and other persons solidarily
liable with the debtor, and third party or accommodation mortgagors as well
as issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation
receiver;
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They are not part of the debtor. The surety is a third party. The secured
creditors can proceed against surety or solidarily persons unless they joined
with the petition for rehabilitation. If they do not join, they can be proceeded
against.
Case: Jackfrel Development Corp. Vs. Security Bank (650 scra 645; 2011)
Supreme Court says a creditor can demand payment from the surety
solidarily liable with the corporation seeking rehabilitation it being not
included in the list of stay order.
Other exceptions:
(f) the clearing and settlement of financial transactions through the facilities
of a clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions settled for the debtor;
and
(g) any criminal action against individual debtor or owner, partner, director
or officer of a debtor shall not be affected by any proceeding commend
under this Act.
Case: UMALI vs. SAB Realty Corp. (652 scra 215; 2011)
So we are finished. Read FRIA. Ill point out one particular provision. The law
says the moment it is issued order that the petitioner is insolvent and then it
goes into liquidation. After the liquidation, all the properties have gone, the
court is supposed to report to the SEC the petitioning debtor so that the SEC
can improve the corporation and those whose corporate franchise has been
cancelled. That is the constitutionality in question. The object of the law is..
sa dihang nangatangtang na tanan, settled. You are ordered relieved. You
have no more obligation. Tangtangan naman hinuon ka sa imong corporate
personality. Mura kag gipatay. You cannot start again. It does not follow.
Someday this will be brought into question because it runs against the grain
of all insolvency proceedings of other jurisdiction.
The end.