PROCESS UNDER R.A. 10846 (2016 PDIC LAW) Atty. John A. Agbayani* Liquidation of a closed bank is one of the 3 core functions of the Insurance Corporation (PDIC). The government entities involved in this the Bangko Sentral Ng Pilipinas (BSP), PDIC and the Liquidation Court. To give ‘this function, the new law has provided for a new section on Liquidation in 716 thereof. Once ordered closed by the Monetary Board (MB) of the BSP, PDIC to liquidate the bank and distribute its assets to creditors in accordance with ‘on Concurrence and Preference of Credits because the new law prohibits once a bank is ordered closed. Likewise, Conventional Liquidation , and the ‘ofassets and Assumption of its liabilities of a closed bank by another insured snow be undertaken by PDIC, as other modes of liquidation, without the need for a liquidation court to improve the chances of recovery by claimants on the ‘The power to close banks is vested in the Monetary Board (MB) of MB orders the closure of banks, it designates PDIC as Receiver. Once a d, PDIC takes over and liquidates the bank. And, if bank is ordered be rehabilitated.” CLOSURE OF BANKS- The MB may forbid a bank from doing business ‘receivership without prior notice and hearing if it finds that the covered ac Je to pay its liabilities as they become due in the ordinary course of realizable assets to meet liabilities; doing business without involving probable losses to its creditors; and Desist Order (CDO) that has become final involving acts amounting to fraud or a dissipation of assets of the announces a bank holiday, or suspends for more than 30 days ‘Admitted to the Bar (1979, 18" Place). ‘School of Law; Angeles University ‘the Corporation shall be designated as ‘in accordance with this Act. For ‘upon report of the head this shallconducts an unsound business practice under section 56 of the General Banking Law (GBL)* : NOW HEAR LATER DOCTRINE CONSTITUTIONAL- The manner of closure is and without need of a hearing. The “Close Now Hear Later Doctrine” was upheld ipreme Court as valid and constitutional.» ~The MB, under R.A. No. 7653, has been d_more power to close banks and place them under receivership for insolvency or dity, or because the bank's continuance in business would probably result in the loss depositors or creditors. In the case of Bangko Sentral Ng Pilipinas Monetary Board v. n. Antonio-Valenzuela,* the Court reiterated the doctrine of "close now, hear later,” stating that it was justified as a measure for the protection of the public interest. 7 The insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or cannot continue in business without involving probable losses to its depositors or creditors; or ‘has wilfully violated @ cease and desist order under Section 37 that has become final, involving acts or 15 which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary summarily and without need for prior hearing forbid the institution from doing business in the es and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution Ly Business in an Unsafe or Unsound Manner. - in determining whether a particular act or ‘not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the shall consider any ofthe following circumstances: 4. The act or omission has resulted or may result in materi! loss or damage, or abnormal risk or the safety, stability liquidity or solvency ofthe institution; The act or omission has resulted or may result in material loss or damage or abnormal risk to the depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general; ‘The act or omission has caused any undue injury, or has given any unwanted benefits, advantage or the bank or any party in the discharge by the director or officer of his duties and responsibilities partiality, evident bad faith or gross inexcusable negligence; or | The act or omission involves entering into any contract or transaction manifestly and grossly ‘to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit bank, quastbank or trust entity persists in conducting its business in an unsafe or unsound Board may, without prejudice to the administrative sanctions provided in Section 37 of the ‘action under Section 30 of the same Act and/or immediately exclude the erring bank has already been justified as a measure for the protection of the ‘of the BSP when it finds that a bank is in dire straits. Unless ‘government against distressed and mismanaged banks, public prejudice of the national economy itself, not to mention { stockholders, who all deserve the protection of the 2|Paged on practical and legal considerations to obviate unwarranted bank’s assets and as a valid exercise of police power to protect the ti ‘stockholders, and the general public.”° In Rui ral Bank of Buhi, inc. v. Is, ® the Court also wrote that “x x x due process does not necessarily require a ‘a hearing or an opportunity to be heard may be subsequent to the closure. One ine the dire consequences of a prior hearing: bank runs would be the order of the in panic and hysteria, In the process, fortunes may be wiped out and will run the gamut of the entire banking community. “ TICE OF CLOSURE BY PDIC- PDIC Issues a CDO and directs the President and ‘of the closed bank to turn-over the state of affairs of the bank to PDIC. It serves a ‘closure to the highest-ranking officer of the bank present in the bank premises, or absence of such officer, posts the notice of closure in the bank premises or on its ntrance. The closure of the bank becomes effective upon the service of the notice of “Thereafter, the receiver takes over the bank and exercises the powers of the 8 PDIC notifies the public of the closure and payment of claims on insured OF ASSETS AS STATUTORY LIQUIDATOR- When PDIC assumes its liquidator, it pays the insured deposit first and preserves its assets. capital and ordinary assets in the name of the bank and the cash on hand as ables and collectibles (Current Loans, Non-Performing Loans and Aquired Of asset preservation, it manages its loans including collection, legal foreclosure of mortgage. It can use reasonable force, including the authority to premises of the bank, take-over on all its assets and take charge of its affairs ¢e of the notice of closure. And, all directors, officers, employees or agents bank shall, upon service of notice of closure, immediately account for, ‘turn over to PDIC and provide information relative to, the assets, records, ‘of the closed bank in their possession, custody, administration or activities in preserving the assets of the closed bank includes the to use reasonable force, including the authority to force open the ‘to take actual physical possession and custody of the bank ofits affairs upon the service of the notice of closure. hhold money and other assets of the bank in trust or under fiduciary capacity. ctors, officers, employees or agents of the closed bank ‘tum over to the receiver, and provide information dosed bank in their possession, custody, administration or emment unit and law enforcement agencies concerned receiver during the service of notice of closure and[take charge ofall the assets and liabilities of the bank- Secure Documents and Vault; b. Conduct Cash count; Close accounts with depository bank; - d. Send notices to Register of Deeds , Borrowers, clients and Creditors; e, Inventory and takeover of all assets ; f, Accountall liabilities. . Conduct Regular Receivership activities a, Administer bank assets and liabilities b, Exercise general powers of a Receiver and Liquidator PAYMENT OF INSURED DEPOSIT- PDIC pays out the insured deposit "'and becomes ito the rights of the depositor to the extent of the amount paid up to a maximum 00,000 per deposit account in the same rights and capacity. When subrogated, the DIC becomes the creditor of the bank asa preferred credit under Art. 2244 (9) in the same public funds.1? \TMENT OF THE UNPAID INSURED DEPOSIT- It is a preferred credit under Art. in the same rank as public funds. "3 The new law has elevated the preference from credit to a preferred credit in the same rank as PDIC. This improved the chances or to recover his unpaid uninsured deposit. 43), RA. 10846- “) The term insured deposit means the amount due to any bonafide depositor for d inn insured bank as of the date of closure but not to exceed Five hundred thousand pesos | Such amount shall be determined according to such regulations as the Board of Directors may “In determining such arnount due to any depositor, there shall be added together all deposits in the bank in the same right and capacity for his or her benefit either in his or her own name or in the name of ‘account regardless of whether the conjunction ‘and’, ‘or, ‘and/or is used, shall be insured any individually-owned deposit account: Provided, That (1) ifthe account is held jointly by two or ons, or by two or more juridical persons or entities, the maximum insured deposit shall be nto as many equal shares as there are individuals, juridical persons or entities, unless a different sharin is ‘of deposit, and (2) ifthe account is held by a juridical person or entity jointly with one ‘the maximum insured deposit shall be presumed to belong entirely to such juridical r That the aggregate of the interest of each co-owner over several joint accounts, by the same or different combinations of individuals, juridical persons or entities, shall likewise be Insured deposit of Five hundred thousand pesos (P500,000.00): Provided, furthermore, ‘contrary notwithstanding, no owner/holder of any passbook, certificate of shall be recognized as a depositor entitled to the rights provided in this Act or other evidence of deposit is determined by the Corporation to be an Provided, finally, That in case of a condition that threatens the ‘system that may have systemic consequences, as defined in Section Board, the maximum deposit insurance cover may be adjusted in such products, as may be determined by a unanimous vote of the ‘purpose and chaired by the Secretary of Finance, subject to the Mahia 4|PageEIVER -Section 13 of the new law has provided for the ofa receiver: ‘is authorized to adopt and implement, without need of consent of board of directors, creditors or depositors of the closed bank, any or ‘the following modes of liquidation: ntional liquidation; and se of assets and/or assumption of liabilities. addition to the powers of a receiver provided under existing laws, the n, as receiver of a closed bank, is empowered to: sent and act for and on behalf of the closed bank; and take charge of all the assets, records and affairs of the closed bank, and rr the same for the benefit of its creditors; tthe assets of the closed bank to cash or other forms of liquid assets, as far g suits to enforce liabilities of the directors, officers, employees, agents of the other entities related or connected to the closed bank or to collect, all assets, including assets over which the bank has equitable e persons or entities of recognized competence in banking, finance, or remedial management, as its deputies, assistants or agents, to and functions of the Corporation as receiver of the closed bank, rons; ay acer ed utilities, rentals and salaries of personnel of the closed bank for a ding three (3) months, from available funds of the closed bank; Joans and other claims of the closed bank and for this purpose, modify, restructure the terms and conditions of such loans or claims as may be s to the interests of the creditors of the closed bank; private counsel as may be necessary; ‘obtain a loan, or mortgage, pledge or encumber any asset of the ary to preserve or prevent dissipation of the assets, or to funds generated by the receiver and expenses incurred forinsufficient funds, the Corporation is authorized to advance the and expenses, and collect payment, as and when funds become Teasonable fees for the liquidation of the bank from the assets of the d, That payment of these fees, including any unpaid advances under the tely preceding paragraph, shall be subject to approval by the liquidation te the available assets of the closed bank, in cash or in kind, to its in accordance with the Rules on Concurrence and Preference of Credits ‘the Civil Code or other laws; ce with guidelines set by the PDIC Board of Directors, notwithstanding the archival period and disposal of records; and Exercise such other powers as are inherent and necessary for the effective oftthe duties of the Corporation as receiver. d of Directors shall adopt such policies and guidelines as may be necessary ince of the above powers by personnel, deputies, assistants and agents payment of all liabilities and claims against the closed bank, the pay surplus, ifany, dividends at the legal rate of interest from date of te of distribution to creditors and claimants of the closed bank in ‘the Rules on Concurrence and Preference of Credits under the Civil ther laws before distribution to the shareholders of the closed bank. s, employees, deputies, assistants and agents of the receiver shall have and shall not be subject to any action, claim or demand in connection with ‘or omitted to be done by them in good faith in connection with the EMENT OF BANK UNDER LIQUIDATION-Section 13 of the new Wr the following effects of banks placed under liquidatior youd ofa bank under liquidation, it shall continue tion of the winding-up period under Section 16 of affairs and for the disposal, conveyance or tis Act. The receiver shall represent the closed, and prosecute and defend suits by or d gaeapaltted, to resume bankingand functions of its directors, officers and stockholders _ voting rights, functions and duties, as well as the allowances, 1and perquisites of the directors, officers, and stockholders of such bank upon its closure. Accordingly, the directors, officers, and stockholders from interfering in any way with the assets, records, and affairs of the shall exercise all authorities as may be required to facilitate the of the closed bank for the benefit of all its creditors. the assets ‘service of notice of closure as provided in Section 14 of this Act, all the assets of bank shall he deemed in custodia legis in the hands of the receiver, and as ‘these assets may not be subject to attachment, garnishment, execution, levy or ‘court processes. A’ judge, officer of the court or any person who shall issue, ‘process or cause the issuance or implementation of the garnishment order, levy, or execution, shall be liable under Section 27 of this Act: Provided, That collaterals securing the loans and advances granted by the Bangko Pilipinas shall not be included in the assets of the closed bank for ‘other creditors: Provided, further, That the proceeds in excess of the ‘shall be returned by the Bangko Sentral ng Pilipinas to the receiver. attachment or garnishment on any of the assets of the closed bank time of closure shall not give any preference to the attaching or , Upon motion of the receiver, the preliminary attachment or be lifted and/or discharged. the provisions of the Labor Code, the employer-employee the closed bank and its employees shall be deemed terminated notice of closure of the bank in accordance with this Act. Payment ‘or benefits provided for by law shall be made from available assets 01 with the Rules on Concurrence and Preference of Credits other laws, rescind or repudiate any contract of the closed “orderly liquidation of the bank, or is grossly for any ground provided by law. Biot te all other obligations as of : prejudice to the ntral Bank Act): approval of the‘to assign, as payment to secured creditors, the bank assets serving Is to their respective loans up to the extent of the outstanding obligations, iterest as of date of closure of the hank, as validated by the receiver. The of the asset shall be based on the prevailing market value of the collaterals ed by an independent appraiser on an ‘as is where is’ basis. ty for penalties and surcharges for late payment and nonpayment of the time of closure, the closed bank shall not be liable for the payment of and surcharges arising from the late payment or nonpayment of real ry tax, capital gains tax, transfer tax and similar charges. charges and fees on services may impose, on behalf of the closed bank, charges and fees for services ‘bank closure, such as, but not limited to, the execution of pertinent cations. 5 pending before the Supreme Court, actions pending for or against in any court or quasi-judicial body shall, upon motion of the receiver, or a period not exceeding one hundred eighty (180) days and referred y mediation. Upon termination of the mediation, the case shall be referred ‘or quasi-judicial body for further proceedings. nst the assets of a closed bank shall be stayed. The prevailing decision as a claim with the liquidation court and settled in on Concurrence and Preference of Credits under the Civil relating to all cases or actions filed by the ial bodies shall be deferred until the action is stitute as a first Hen on any judgment judgment, such fees shall be paid distribution of the assets of the closed riexercise of authority, functions, and duties by the receiver under this Act e presumed to have been performed in the regular course of business. and documents of the closed bank shall retain their private nature even if, red by the receiver. Matters relating to the exercise by the receiver of the S under this Act shall be subject to visitorial audit only by the Commission on CONVENTIONAL LIQUIDATION This is a new provision which grants the receiver to adapt 2 modes of liquidation . First, Conventional Liquidation and Second, Aseet Sale and Purchase by another Insured Bank. Section 16 of the new law governs these modes.Thus: “PURCHASE OF ASSETS AND by ASSUMPTION OF LIABILITIES 15. (a) The receiver shalll have the authority to facilitate and implement the purchase assets of the closed bank and the assumption of its liabilities by another insured need for approval ofthe liquidation court. The exercise of this authority shall ance with the Rules on Concurrence and Preference of Credits under the Civil Jaws, subject to such terms and conditions as the Corporation may prescribe. ‘of the branch licenses and other bank licenses of the closed bank shall be of the Bangko Sentral ng Pilipinas. n of the receiver to determine whether a bank may be the subject of a CONVENTIONAL LIQUIDATION “A. ASSET MANAGEMENT AND CONVERSION ) The assets gathered by the receiver shall be evaluated and verified as to their condition, and other factors to determine their realizable value. In preservation and disposition of assets, the receiver shall be guided by tions, resources of the closed bank, and potential asset recovery, of the assets of the closed bank shall be carried out in a fair and local government unit, the Securities and Exchange ilar government agencies or private entities in: documents; ‘ona specific property; f the closed bank; / the foregoing agencies/entities in Sy8 pd related activities; a physical or ocular inspection of the i Properties owned by, or mortgaged to, to determine their existence and present condition; the disposal price of assets in accordance with generally accepted valuation ‘Standards and practices, subject to such guidelines as the receiver may se real or personal properties of the closed bank through bidding, negotiated sale y other mode including lease with option to purchase, whether by piece or by lot, as reasonably determined by the receiver based on cost-benefit considerations and to efficient distribution of assets to creditors; and }) Engage third parties to assist in the liquidation, manage and/or dispose the assets, ‘cases filed against or by the closed bank, subject to such guidelines as determined hstanding any provision of law to the contrary, the following rules shall apply to ent and/or conversion by the receiver of the assets of the closed bank: cation of the closure of a bank, the LRA, the Bureau of Lands, the Register of LTO, the assessor's office or other appropriate office of the local government other similar government agencies shall not allow any transaction affecting closed bank without the consent of the receiver. ce by the Monetary Board of the resolution ordering the closure of a bank, in custody or possession of assets or records of the closed bank, limited to, the closed bank’s deposit accounts, titles to real property, y notes, evidence of indebtedness or investments shall immediately of said assets and records to the receiver. Such obligation shall cover such as passbooks or certificates of deposit issued by the bank to its ‘turnover, all persons or entities in custody or possession of any asset bank shall hold the said assets or records in trust for the receiver. entities in custody or possession of such asset shall not allow, withdrawal, transfer, disposition, removal, conversion, concealment, involving or relating to the subject asset, unless otherwise directed by have the authority to invest funds received from the conversion of 9sed bank in government securities, other government-guaranteed stment-grade debt instruments. bank and branch licenses shall be for the benefit of the ‘shall be distributed in accordance with this Act and the of Credits under the Civil Code or other laws.ing initiated i : pasted fe this section shall be considered in rem. jurisdiction | yy the proceeding shall be consid ition of the order setting the case for initial nent ay vrawspat tah neral circulation in the Philippines, ee 5 re h poalation eae shall have exclusive jurisdiction to adjudicate disputed “losed banks, assist in the enforcement of individual liabilities of € stockholders, directors and officers and decide on all other issues as may be al to implement the distribution plan adopted by the Corporation for general application to all closed banks, “(i) The provisions of Republic Act No. 8799, otherwise known as ‘The Securities _ Regulation Code’, and Supreme Court Administrative Matter No. 00-8-10-SC, "entitled, ‘The Rules of Procedure on Corporate Rehabilitation’, shall not be applicable to the petition for assistance in the liquidation of the closed bank. j) The petition shall be filed in the RTC which has jurisdiction over the principal ce of the closed bank or the principal office of the receiver, at the option of the ‘petition shall be filed ex parte within a reasonable period from receipt of y Board Resolution placing the bank under liquidation. sons or entities with claims against the assets of the closed bank shall file with the receiver within sixty (60) days from the date of publication of ‘closure. Claims filed outside the foregoing prescribed period shall be by the receiver shall be filed with the liquidation court within sixty om receipt of the final notice of denial of claim. ‘whose validity has not yet been determined with finality at the time of on of the final asset distribution plan, either by reason of a pending suit xr reason, shall be considered as contingent claim and shall not be paid d final asset distribution plan. lity of the order approving the final asset distribution plan, the nce in the liquidation of a closed bank shall henceforth be, for all oses, considered closed and terminated and the rec r, its oyees or agents, are forever discharged from any and all claims and/or om or in connection with the liquidation of the closed bank. bmit a final report on the implementation of the approved yn to the Monetary Board and the SEC after the expiration vi in this Act. 0 the appropriate procedural rules tois a ‘equiring jurisdiction, the court shall upon motion of the receiver after due j a Adjudicate disputed claims against the bank E Peet in enforcing individual liabilities of stockholders, directors and officers i le on other issues material to the implementation of the liquidation plan. sR OF PAYMENT. The powers vested in the PDIC under the new law will expedite the uttered bank and payment of claims on insured deposits. The blanket ‘to appoint an agent as a receiver may however be abused and may ct of interest situation. The outsourcing of liquidation activities may and may unduly drag final distribution of assets of closed banks etent oversight function by PDIC. Receivership and Liquidation is not a -PDIC. Its main business is deposit insurance. The new PDIC law that ‘to include liquidation and regulation of banks, which under the laws (General Banking Law and the Central Bank Act), originally ‘to the Bangko Sentral Ng Pilipinas (BSP), needs to be revisited .d by BSP, to ensure that the latter does not yield the powers banks and financial institutions.