SUMMARY
means for the execution of the
FRIA
I.SC RULING: MIRANDA vs PDIC
Regular courts do not have jurisdiction over
actions filed by claimants against an insolvent
bank, unless there is a clear showing that the
action taken by the BSP, through the Monetary
Board in the closure of financial institutions was
in excess of jurisdiction, or with grave abuse of
discretion.
"Disputed claims" refer to all claims, whether
they be against the assets of the insolvent bank,
for specific performance, breach of contract,
damages, or whatever.
Solidary liability cannot attach to the BSP, in its
capacity as government regulator of banks, and
the PDIC as statutory receiver because they are
the principal government agencies mandated by
law to determine the financial viability of banks
and quasi-banks, and facilitate receivership and
liquidation of closed financial institutions, upon
a factual determination of the latter's
insolvency.
II. SC RULING: BPI vs St., Michael Medical
Center Inc.
Restoration is the central idea behind the
remedy of corporate rehabilitation. In
common parlance, to "restore" means "to
bring back to or put back into a former or
original state.
Case law explains that corporate rehabilitation
contemplates a continuance of corporate life
and activities in an effort to restore and
reinstate the corporation to its former position
of successful operation and solvency, the
purpose being to enable the company to gain a
new lease on life and allow its creditors to be
paid their claims out of its earnings.
In other words, rehabilitation assumes that the
corporation has been operational but for some
reasons like economic crisis or
mismanagement had become distressed or
insolvent, i.e., that it is generally unable to pay
its debts as they fall due in the ordinary course
of business or has liability that are greater than
its assets.
SEC. 18. Rehabilitation Plan.
1. targets or goals and the duration and
coverage of the rehabilitation
2. the terms and conditions
3. the material financial commitments to
support the rehabilitation plan
4.
rehabilitation plan
5. a liquidation analysis setting out for
each creditor that the present value of
payments it would receive under the
plan is more than that which it would
receive if the assets of the debtor were
sold by a liquidator within a six-month
period from the estimated date of
filing of the petition
6. relevant information to enable a
reasonable investor to make an
informed decision on the feasibility of
the rehabilitation plan
III. SC RULING: PBCOM vs BASIC POLY
PRINTERS AND PACKAGING CORP
Rehabilitation is the process of restoring “the
debtor to a position of successful operation and
solvency, if it is shown that its continuance of
operation is economically feasible and its
creditors can recover by way of the present
value of payments projected in the plan more if
the corporation continues as a going concern
that if it is immediately liquidated.”
Liquidity was not an issue in a petition for
rehabilitation. The basic issues in rehabilitation
proceedings concern the viability and
desirability of continuing the business
operations of the petitioning corporation. The
determination of such issues was to be carried
out by the court-appointed rehabilitation
receiver.
Corporate debtor Insolvent as a corporation
duly organized and existing under Philippine
laws that has become insolvent.
The term insolvent is defined in Republic Act
No. 10142 as “the financial condition of a debtor
that is generally unable to pay its or his
liabilities as they fall due in the ordinary course
of business or has liabilities that are greater
than its or his asset.
A material financial commitment may include
1. undertakings of the stockholders or the
would-be investors of the debtor
2. indicating their readiness, willingness
and ability to contribute funds or
property
3. to guarantee the continued successful
operation of the debtor corporation
during the period of rehabilitation
Rehabilitation plan would spell the future not
only for itself but also for its creditors and the
public in general. The contents and execution of
the rehabilitation plan could not be taken
lightly.
IV. SC RULING: ASIATRUST DEVELOPMENT
BANK INC VS FIRST AIKKA DEVELOPMENT INC
Rehabilitation proceedings in our jurisdiction
have equitable and rehabilitative purposes.
1. On the one hand, they attempt to
provide for the efficient and equitable
distribution of an insolvent debtor’s
remaining assets to its creditors.
2. To provide debtors with a "fresh start"
by relieving them of the weight of their
outstanding debts and permitting them
to reorganize their affairs. The purpose
of rehabilitation proceedings is to
enable the company to gain a new
Lease on life and thereby allow
creditors to be paid their claims from its
earnings.
Banks are entities engaged in the lending of
funds obtained through deposits from the
public. Banks, therefore, redistribute wealth in
the economy by channeling idle savings to
profitable investments. Banks operate (and earn
income) by extending credit facilities financed
primarily by deposits from the public. They
plough back the bulk of said deposits into the
economy in the form of loans. Since banks deal
with the public’s money, their viability depends
largely on their ability to return those deposits
on demand. For this reason, banking is
undeniably imbued with public interest.
Consequently, much importance is given to
sound lending practices and good corporate
governance.
V. SC RULING: SITUS DEV. CORPORATION
VS ASIATRUST BANK,
Under the FRIA, the Stay Order may now
cover third-party or accommodation
mortgages, in which the "mortgage is
necessary for the rehabilitation of the
debtor as determined by the court upon
recommendation by the rehabilitation
receiver."The FRIA likewise provides that its
provisions may be applicable to further
proceedings in pending cases, except to the
extent that, in the opinion of the court,
their application would not be feasible or
would work injustice.
***Presupposes a prospective application. The
wording of the law clearly shows that it is
applicable to all further proceedings.
VI. SC RULING: MARILYN VICTORIO-AQUINO,
vs. PACIFIC PLANS, INC
A party may file a motion for reconsideration of
any order issued by the court prior to the
approval of the rehabilitation plan. No relief can
be extended to the party aggrieved by the
court’s order on the motion through a special
civil action for certiorari under Rule 65 of the
Rules of Court. Such order can only be elevated
to the Court of Appeals as an assigned error in
the petition for review of the decision or order
approving or disapproving the rehabilitation
plan.
An order issued after the approval of the
rehabilitation plan can be reviewed only
through a special civil action for certiorari under
Rule 65 of the Rules of Court.
"cram-down" clause, this provision, which is
currently incorporated in the FRIA, is necessary
to curb the majority creditors’ natural tendency
to dictate their own terms and conditions to the
rehabilitation, absent due regard to the greater
long-term benefit of all stakeholders. Otherwise
stated, it forces the creditor’s to accept the
terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate
but incomplete recovery.
cramdown principle which "consists of two
things: (i) approval despite opposition and (ii)
binding effect of the approved plan
1. approve a rehabilitation plan even over
the opposition of creditors holding a
majority of the total liabilities of the
debtor if, in its judgment, the
rehabilitation of the debtor is feasible
and the opposition of the creditors is
manifestly unreasonable."
2. also provides that upon approval by the
court, the rehabilitation plan and its
provisions "shall be binding upon the
debtor and all persons who may be
affected by it
VII. SC RULING: BANK OF THE PHILIPPINE
ISLANDS, vs. SARABIA MANOR HOTEL
CORPORATION
Elements of manifestly unreasonable
1. Counter-proposes unrealistic payment
terms and conditions which would,
more likely than not, impede rather
than aid its rehabilitation.
2. Provides for adequate safeguards to
fulfill the majority creditor’s claims, and
yet the latter persists on speculative or
unfounded assumptions that his credit
would remain unfulfilled.
VII. SC RULING: JOSELITO HERNAND M.
BUSTOS, vs. MILLIANS SHOE, INC.
Close Corporation
1. issued stock of all classes, exclusive
of treasury shares, shall be held of
record by not more than a specified
number of persons, not exceeding
twenty (20);
2. all the issued stock of all classes shall
be subject to one or more specified
restrictions on transfer permitted by
this Title;
3. The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of any
class.
Notwithstanding the foregoing, a
corporation shall not be deemed a
close corporation when at least two-
thirds (2/3) of its voting stock or
voting rights is owned or controlled
by another corporation which is not
a close corporation within the
meaning of this Code.
Corporation has a legal personality separate
and distinct from that of people comprising
it. 19 By virtue of that doctrine, stockholders of a
corporation enjoy the principle of limited
liability: the corporate debt is not the debt of
the stockholder.20 Thus, being an officer or a
stockholder of a corporation does not make
one's property the property also of the
corporation.
In rehabilitation proceedings, claims of creditors
are limited to demands of whatever nature or
character against a debtor or its
property, whether for money or otherwise.23
In several cases,24 we have already held that
stay orders should only cover those claims
directed against corporations or their
properties, against their guarantors, or their
sureties who are not solidarily liable with them,
to the exclusion of accommodation
mortgagors.To repeat, properties merely owned
by stockholders cannot be included in the
inventory of assets of a corporation under
rehabilitation.
TIME-BAR RULE
-to file an opposition to petitions for
rehabilitation within 10 days before the initial
hearing of rehabilitation proceedings.
VIII. SC RULING: MWSS vs Judge Daway
Proceedings considered acquired upon the
publication of the notice of commencement of
proceedings in a newspaper of general
circulation and goes further to define
rehabilitation as an in rem proceeding.
Sec. 6 (b) of Rule 4 of the Interim Rules does not
enjoin the enforcement of all claims against
guarantors and sureties, but only those claims
against guarantors and sureties who are not
solidarily liable with the debtor.
IX. SC RULING: PHILIPPINE VETERANS BANK
EMPLOYEES UNION-N.U.B.E. v. BENJAMIN
VEGA
May a liquidation court continue with
liquidation proceedings when Congress had
mandated its rehabilitation and reopening?
Liquidation, in corporation law, connotes a
winding up or settling with creditors and
debtors. It is the winding up of a corporation so
that assets are distributed to those entitled to
receive them. It is the process of reducing
assets to cash, discharging liabilities and
dividing surplus or loss.
Rehabilitation contemplates a continuance of
corporate life and activities in an effort to
restore and reinstate the corporation to its
former position of successful operation and
solvency.
It is crystal clear that the concept of liquidation
is diametrically opposed or contrary to the
concept of rehabilitation, such that both cannot
be undertaken at the same time. To allow the
liquidation proceedings to continue would
seriously hinder the rehabilitation of the subject
bank.
X. SC RULING: RUBY INDUSTRIAL
CORPORATION and BENHAR INTERNATIONAL,
INC. petitioners,
vs.
COURT OF APPEALS
When a distressed company is placed under
rehabilitation, the appointment of a
management committee follows to avoid
collusion between the previous management
and creditors it might favor, to the prejudice of
the other creditors.
All assets of a corporation under rehabilitation
receivership are held in trust for the equal
benefit of all creditors to preclude one from
obtaining an advantage or preference over
another by the expediency of attachment,
execution or otherwise. As between the
creditors, the key phrase is equality in equity.
Voluntary Liquidation proceedings (both juridical & natural)
jurisdiction over all persons affected by the proceedings is
acquired by publication of the liquidation order
Involuntary Liquidation proceedings (both juridical & natural)
jurisdiction over all persons affected by the proceedings is
acquired by publication of the petition or motion
Suspension of payments proceedings (both juridical & natural)
jurisdiction over all persons affected by the proceedings is
acquired by publication of suspension of payments order
Bond-at least equal in value aggregate of their claims
Section 2 of RA 10142. Declaration of policy.
1. Encourage debtors whether juridical or
natural and creditors to collectively and
realistically resolve adjusting claims and
property rights
2. Promote timely, fair, reasonable,
efficient, effective liquidation and
rehabilitation proceedings (How to
construe rules of FRIA) (A.M 15-04-06
SC)
3. Encourage and maintain active
commercial affairs
4. Preserve the value of the assets of
debtor and recognize creditors rights
5. Respect order of priority of claims and
equitable treatment to creditors at the
same footing
6. When rehabilitation is not feasible,
facilitate speedy and orderly liquidation
proceedings
3 MAJOR SUBDIVISIONS
1. REHABILITATION
2. LIQUIDATION
3. CROSS-BORDER INSOLVENCY
A. Out of court agreements
 Liquidation of
insolvent juridical
debtors
A. Voluntary Liquidation-An insolvent
debtor may apply for liquidation by
filing a verified petition for
liquidation with the court.
B. Involuntary Liquidation. - Three
(3) or more creditors the
aggregate of whose claims is at
least either One million pesos
(Php1,000,000,00) or at least
twenty-five percent (25%) of the
subscribed capital stock or
partner's contributions of the
debtor, whichever is higher
C. INSOLVENCY OF INDIVIDUAL
DEBTORS
Suspension of Payments.
Section 94. Petition. - An individual debtor who,
possessing sufficient property to cover all his
debts but foreseeing the impossibility of
meeting them when they respectively fall due
Voluntary Liquidation.
Section 103. Application. - An individual debtor
whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five
hundred thousand pesos (Php500,000.00)
Involuntary liquidation
Section 105. Petition; Acts of Insolvency. - Any
creditor or group of creditors with a claim of, or
with claims aggregating at least Five hundred
thousand pesos (Php500, 000.00)
Notes: Proceedings covered by FRIA (FRIA
expressly repealed Insolvency Law)
The institution of corporate suspension of
payments proceedings no longer exists. Under
FRIA ONLY SUSPENSION OF PAYMENTS
PROCEEDINGS FOR INDIVIDUAL DEBTORS
B.COURT-SUPERVISED CORPORATE
REHABILITATION
Voluntary proceedings shall refer to
proceedings initiated by the insolvent debtor.
 How to initiate?
-approved by the owner in case of a sole
proprietorship, or by a majority of the partners
in case of a partnership, or in case of a
corporation, by a majority vote of the board of
directors or trustees and authorized by the vote
of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or
in case of nonstock corporation, by the vote of
at least two-thirds (2/3) of the members
-verified petition; Grounds Section 12
Involuntary Proceedings
 How to initiate?
Any creditor or group of creditors with a claim
of, or the aggregate of whose claims is, at least
One Million Pesos (Php1,000,000.00) or at least
twenty-five percent (25%) of the subscribed
capital stock or partners' contributions,
whichever is higher
DEFINITIONS:
INSOLVENCY is the financial incapacity of
debtors to pay their liabilities as they fall due in
an ordinary course of business or whenever their
liabilities are greater than their assets. (Section
5a AM 15-04-06 SC)
Insolvent-shall refer to the financial condition of
a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course
of business or has liabilities that are greater
than its or his assets.
Ordinary course of business shall refer to
transactions in the pursuit of the individual
debtor's or debtor's business operations prior
to rehabilitation or insolvency proceedings and
on ordinary business terms.
Affiliate shall refer to a corporation that directly
or indirectly, through one or more
intermediaries, is controlled by, or is under the
common control of another corporation.
Subsidiary shall refer to a corporation more
than fifty percent (50%) of the voting stock of
which is owned or controlled directly or
indirectly through one or more intermediaries
by another corporation, which thereby becomes
its parent corporation.
Claim shall refer to all claims or demands of
whatever nature or character against the
debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or
undisputed.
Creditor shall refer to a natural or juridical
person which has a claim against the debtor
that arose on or before the commencement
date.
Debtor shall refer to, unless specifically
excluded by a provision of this Act, a sole
proprietorship duly registered with the
Department of Trade and Industry (DTI), a
partnership duly registered with the Securities
and Exchange Commission (SEC), a corporation
duly organized and existing under Philippine
laws, or an individual debtor who has become
insolvent as defined herein.
*Individual debtor means a resident and a
citizen of the Philippines who become insolvent.
*Corporate debtor means a corporation duly
organized and existing under PH laws that has
become insolvent.
Exclusions. *Section 5.
1. banks, insurance companies, pre-need
companies, and national and local
government agencies or units.
(a) Bank potentially or actually subject to
conservatorship, receivership or liquidation
proceedings
(b) Insurance company shall refer to those
companies that are potentially or actually
subject to insolvency proceedings
(c) Pre-need company shall refer to any
corporation authorized/licensed to sell or offer
to sell pre-need plans.
Provided, That government financial institutions
other than banks and government-owned or
controlled corporations shall be covered by this
Act, unless their specific charter provides
otherwise.
Reasons: relevant legislation; FRIA is only
suppletory manner.
Party to the proceedings
 debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a
party with an ownership interest in
property held by the debtor, a secured
creditor, the rehabilitation receiver,
liquidator or any other juridical or
natural person who stands to be
benefited or injured by the outcome of
the proceedings and whose notice of
appearance is accepted by the court.
Rehabilitation Plan shall refer to a plan by which
the financial well-being and viability of an
insolvent debtor can be restored.
Section 3 RA 10142. Nature of Proceedings. -
The proceedings under this Act shall be in rem.
***Jurisdiction over all persons affected by the
proceedings shall be considered as acquired
upon publication of the notice of the
commencement of the proceedings in any
newspaper of general circulation in the
Philippines
***The proceedings shall be conducted in a
summary and non-adversarial manner
Court may decide matters on the basis of
affidavits, counter affidavits and other
documentary evidence, conducting clarificatory
hearing
RULE 5 AM 15-04-06 SC PROCEDURAL
REMEDIES
Any order issued by the court under the rules is
immediately executory. A Party may file MR of
any order prior to the approval of the rehab
plan. No relief can be extended on the
aggrieved party by the courts order on motion
through special civil action for certiorari under
Rule 65 of the RC.
After approval of the Rehab plan- can be
reviewed through special civil action for
certiorari under Rule 65
Review of decision or order of Rehab Plan; an
oder approving or disapproving a rehab plan
can only be reviewed through certiorari within
15 days from notice of the decision of order.
**Prohibited Pleadings (A.M 15-04-06 SC)
1. Motion to dismiss
2. Motion for a bill of particulars
3. Petition for relief
4. Reply
5. Rejoinder
6. Motion for extension
7. Intervention
8. Motion for postponement and other
motions of similar intent
9. Any pleading or motion that is similar to
or of like effect as any of the foregoing
JURISDICTION
 All petitions pursuant to FRIA shall be
filed in the RTC where the principal
address of any debtors alleged to be
insolvent as specified in AOI or DTI
(Voluntary or Involuntary)
 If registered in SEC Manila-RTC of City
of Municipality where head office is
located
Individual debtor, partners or directors and
officers of a debtor shall be liable for double the
value of the property sold, embezzled or
disposed of or double the amount of the
transaction involved, whichever is higher
(a) Dispose or cause to be disposed of
any property of the debtor other than
in the ordinary course of business or
authorize or approve any transaction in
fraud of creditors or in a manner grossly
disadvantageous to the debtor and/or
creditors; or
(b) Conceal or authorize or approve the
concealment, from the creditors, or
embezzles or misappropriates, any
property of the debtor.
Section 15. Action on the Petition. –
 If the court finds the petition for
rehabilitation to be sufficient in form
and substance, within five (5) working
days from the filing of the petition,
 -issue a Commencement Order.
 If deficient in form or substance ( within
five (5) working days from the date of
the filing of the amended or
supplemental petition or the
submission of such documents.)
 -in its discretion, give the petitioner/s a
reasonable period of time within which
to amend or supplement the petition,
or
 -to submit such documents as may be
necessary or proper to put the petition
in proper order.
Section 16.The rehabilitation proceedings shall
commence upon the issuance of the
Commencement Order:
(k) prohibit the debtor's suppliers of goods or
services from withholding the supply of goods
and services in the ordinary course of business
for as long as the debtor makes payments for
the services or goods supplied after the
issuance of the Commencement Order;
(q) includes Stay or Suspension Order which
shall:
(1) suspend all actions or proceedings, in court
or otherwise, for the enforcement of claims
against the debtor;
(2) suspend all actions to enforce any judgment,
attachment or other provisional remedies
against the debtor;
(3) prohibit the debtor from selling,
encumbering, transferring or disposing in any
manner any of its properties except in the
ordinary course of business; and
(4) prohibit the debtor from making any
payment of its liabilities outstanding as of the
commencement date except as may be
provided herein.
Section 17. Effects of the Commencement
Order.
(a) vest the rehabilitation with all the powers
and functions such as the right to review
and obtain records to which the debtor's
management and directors have access,
including bank accounts or whatever nature
of the debtor subject to the approval by the
court of the performance bond filed by the
rehabilitation receiver
 (b) prohibit or otherwise serve as the legal
basis rendering null and void the results
of any extrajudicial activity or process
to seize property
(c) serve as the legal basis for rendering
null and void any setoff after the
commencement date of any debt owed
to the debtor by any of the debtor's
creditors
Attempts to seek legal of other resource against
the debtor outside these proceedings shall be
sufficient to support a finding of indirect
contempt of court.
Section 18. Exceptions to the Stay or Suspension
Order.
(a) to cases already pending appeal in the
Supreme Court as of commencement
date Provided, That any final and executory
judgment arising from such appeal shall be
referred to the court for appropriate action;
(b) subject to the discretion of the court, to
cases pending or filed at a specialized court or
quasi-judicial agency which, upon
determination by the court is capable of
resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any
final and executory judgment of such court or
agency shall be referred to the court and shall
be treated as a non-disputed claim;
(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
Section 23. Effect of Failure to File Notice of
Claim. - A creditor whose claim is not listed in
the schedule of debts and liabilities and who
fails to file a notice of claim in accordance with
the Commencement Order but subsequently
files a belated claim shall not be entitled to
participate in the rehabilitation proceedings but
shall be entitled to receive distributions arising
therefrom
 dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) intended only to delay the enforcement of
the rights of the creditor/s or of any group of
creditors;
(3) contain any materially false or misleading
statements; or
(4)the debtor has committed acts of
misrepresentation or in fraud of its creditor/s or
a group of creditors
Section 93. Powers of the Securities and
Exchange Commission (SEC) in relation to PD
902-A Section 6
In order to effectively exercise such jurisdiction,
the Commission shall possess the following
powers:
a) To issue preliminary or permanent
injunctions
b) To punish for contempt
c) To compel the officers of any
corporation or association registered by
it to call meetings
d. To pass upon the validity of the
issuance and use of proxies and voting
trust agreements for absent
stockholders or members;
e. To issue subpoena duces tecum and
summon witnesses to appear in any
proceedings of the Commissio
Section 96. Actions Suspended
The suspension order shall lapse when three (3)
months shall have passed without the proposed
agreement being accepted by the creditors or
as soon as such agreement is denied.
No creditor shall sue or institute proceedings to
collect his claim from the debtor from the time
of the filing of the petition for suspension of
payments
Exceptions:
(a) those creditors having claims for
personal labor, maintenance, expense
of last illness and funeral of the wife or
children of the debtor incurred in the
sixty (60) days immediately prior to the
filing of the petition; and
(b) secured creditors.
PD 902-A
SC RULING: HEIRS OF WILSON GAMBOA vs
Secretay of Finance
Does capital in the constitution means total
outstanding capital stock (common and non
preferred) or total common shares?
The term “capital” does not refer to both
preferred and common stocks treated as the
same class of shares regardless of differences in
voting rights and privileges.
the term "capital" means the outstanding
capital stock entitled to vote (voting stock),
coupled with beneficial ownership, both of
which results to "effective control."
"Mere legal title is insufficient to meet the 60
percent Filipino owned “capital” required in the
Constitution for certain industries. Full
beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60
percent of the voting rights, is required."
SEC regulation Code
I. (Abacus Securities Corp vs Ampil)
SRC as blue sky laws
Enacted to protect the public from
unscrupulous promoters, who stake business or
venture claims which have no real basis and sell
shares or interests therein to investors who are
then left holding certificates representing
nothing more than a claim to a square of the
blue sky.
Securities transactions are impressed with
public interest and are thus subject to public
regulation. (Abacus Securities Corp vs Ampil)
II. SEC vs Prosperity.Com Inc
The Securities Regulation Code treats
investment contracts as "securities" that have
to be registered with the SEC before they can
be distributed and sold. An investment contract
is a contract, transaction, or scheme where a
person invests his money in a common
enterprise and is led to expect profits primarily
from the efforts of others.
The following elements, referred to as the
Howey test must concur: (1) a contract,
transaction, or scheme; (2) an investment of
money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5)
profits arising primarily from the efforts of
others.
III. Power Homes Unlimited vs SEC
*Same people vs Petralba
As an investment contract that is security under
R.A. No. 8799, it must be registered with public
respondent SEC, otherwise the SEC cannot
protect the investing public from fraudulent
securities. The strict regulation of securities is
founded on the premise that the capital
markets depend on the investing public’s level
of confidence in the system.
IV. Eustacio Atwel Lucia Pilpil vs
Concepcion Progressive Association
V. SPEED DISTRIBUTING CORP vs CA
Upon the enactment of RA 8799 in 2000, the
jurisdiction of the SEC over intra-corporate
controversies and other cases enumerated in
Section 5 of PD 902-A was transferred to the
courts of general jurisdiction.
to determine whether a case involves an intra-
corporate controversy to be heard and decided
by the RTC, two elements must concur:
(1) the status or relationship of the parties and
(2) the nature of the question that is subject of
their controversy.
The first element requires that the controversy
must arise out of intra-corporate or partnership
relations.
On the other hand, the second element requires
that the dispute among the parties be
intrinsically connected with the regulation of
the corporation.15 If the nature of the
controversy involves matters that are purely
civil in character, necessarily, the case does not
involve an intra-corporate controversy.
VI. SEC vs CA
The power of SEC to regulate proxies remains in
place in instances when stockholders vote on
matters other than election of directors.
***conduct of election of directors- RTC
***SEC has no jurisdiction where the validation
of proxies relates to the determination of the
existence of a quorum for the election of
directors
RTC may take cognizance of the injunction suit.
SEC’s jurisdiction does not extend to the
liquidation of a corporation but they may order
the dissolution. Liquidation requires settlement
of claims for and against the corporation which
clearly falls under the jurisdiction of the regular
courts.
 VII. ROMAN vs SEC
Under the SRC, jurisdiction on matters stated
under Section 5 of P.D. No. 902-A, which was
originally vested in the SEC, has already been
transferred to the RTC acting as a special
commercial court. Despite the said transfer,
however, the SEC still retains sufficient powers
to justify its assumption of jurisdiction over
matters concerning its supervisory,
administrative and regulatory functions
The reason is simple. The creation of a
management committee is one that is premised
on the immediate and speedy protection of the
interest not only of minority stockholders, but
also of the general public from immediate
danger of loss, wastage or destruction of assets
or the paralyzation of business of a concerned
corporation or entity. No body is more
competent to provide such a temporary relief
other than the regulatory body of these
companies - the SEC.
VIII. SEC VS SUBIC BAY GOLF &
COUNTRY CLUB
For a dispute to be "intra-corporate," it must
satisfy the relationship and nature of
controversy test: wrednad
The relationship test requires that the dispute
be between a
corporation/partnership/association and the
public; a corporation/partnership/association
and the state regarding the entity's franchise,
permit, or license to operate; a
corporation/partnership/association and its
stockholders, partners, members, or officers;
and among stockholders, partners, or associates
of the entity.ralawrednad
The nature of the controversy test requires that
the action involves the enforcement of
corporate rights and obligations.
Hence, the issue of refund should be litigated in
the appropriate Regional Trial Court. This issue
is both intra-corporate and civil in nature, which
is under the jurisdiction of the designated
Regional Trial Courts.
IX. BAVIERA VS PAGLINAWAN
Under the doctrine of primary jurisdiction,
courts will not determine a controversy
involving a question within the jurisdiction of
the administrative tribunal, where the question
demands the exercise of sound administrative
discretion requiring the specialized knowledge
and expertise of said administrative tribunal to
determine technical and intricate matters of
fact.
The Securities Regulation Code is a special law.
Its enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the
Code and its implementing rules and
regulations should be filed with the SEC. Where
the complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for
preliminary investigation and.
X. BAVIERA vs Chartered Bank
Given this latitude and authority granted by law
to the investigating prosecutor, the rule in this
jurisdiction is that courts will not interfere with
the conduct of preliminary investigations or
reinvestigations or in the determination of what
constitutes sufficient probable cause for the
filing of the corresponding information against
an offender.
Courts are not empowered to substitute their
own judgment for that of the executive branch.
In sum, the prosecutor’s findings on the
existence of probable cause are not subject to
review by the courts, unless these are patently
shown to have been made with grave abuse of
discretion.
XI. SEC vs Oudine Santos
Jurisprudence defines an “agent” as a “business
representative, whose function is to bring
about, modify, affect, accept performance of, or
terminate contractual obligations between
principal and third persons.”
On the other hand, the Implementing Rules of
the SRC simply provides that an agent or a
“salesman” is a person employed as such or as
an agent, by the dealer, issuer or broker to buy
and sell securities.
Elements for violation of Section 28 of the
Securities Regulation Code:
(a) engaging in the business of buying or selling
securities in the Philippines as a broker or
dealer; or (b) acting as a salesman; or (c) acting
as an associated person of any broker or dealer,
unless registered as such with the SEC.
Solicitation is the act of seeking or asking for
business or information; it is not a commitment
to an agreement.
Employee of an issuer may be deemed as
salesman of such securities if giving such
information brings about the sale of the
unregistered securities.
 XII. SEC vs Interport Resources
Corporation
The mere absence of implementing rules cannot
effectively invalidate provisions of law, where a
reasonable construction that will support the
law may be given.
The provision explains in simple terms that the
insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct.
The intent of the law is the protection of
investors against fraud, committed when an
insider, using secret information, takes
advantage of an uninformed investor.
Insiders are obligated to disclose material
information to the other party or abstain from
trading the shares of his corporation.
This duty to disclose or abstain is based on two
factors: first, the existence of a relationship
giving access, directly or indirectly, to
information intended to be available only for a
corporate purpose and not for the personal
benefit of anyone; and second, the inherent
unfairness involved when a party takes
advantage of such information knowing it is
unavailable to those with whom he is dealing.
The term "insiders" now includes
 persons whose relationship or former
relationship to the issuer gives or gave
them access to a fact of special
significance about the issuer or the
security that is not generally available,
 One who learns such a fact from an
insider knowing that the person from
whom he learns the fact
 Under the law, what is required to be
disclosed is a fact of "special
significance" which may be (a) a
material fact which would be likely, on
being made generally available, to
affect the market price of a security to
a significant extent, or (b) one which a
reasonable person would consider
especially important in determining his
course of action with regard to the
shares of stock.
XIII. CEMCO HOLDINGS, INC vs
NATIONAL LIFE INSURANCE
COMPANY OF THE PHILIPPINES,
INC.,
Tender offer is a publicly announced intention
by a person acting alone or in concert with
other persons to acquire equity securities of a
public company.
A public company is defined as a corporation
which is listed on an exchange, or a corporation
with assets exceeding ₱50,000,000.00 and with
200 or more stockholders, at least 200 of them
holding not less than 100 shares of such
company.
Tender offer is in place to protect minority
shareholders against any scheme that dilutes
the share value of their investments. It gives the
minority shareholders the chance to exit the
company under reasonable terms, giving them
the opportunity to sell their shares at the same
price as those of the majority shareholders.
Under Section 19 of Republic Act No. 8799, it is
stated:
Tender Offers. 19.1. (a) Any person or group of
persons acting in concert who intends to
acquire at least fifteen percent (15%) of any
class of any equity security of a listed
corporation or of any class of any equity
security of a corporation with assets of at least
Fifty million pesos (₱50,000,000.00) and having
two hundred (200) or more stockholders with at
least one hundred (100) shares each or who
intends to acquire at least thirty percent (30%)
of such equity over a period of twelve (12)
months shall make a tender offer to
stockholders by filing with the Commission a
declaration to that effect
The legislative intent of Section 19 of the Code
is to regulate activities relating to acquisition of
control of the listed company and for the
purpose of protecting the minority stockholders
of a listed corporation.
Provisions of the Law:
Penal Sanctions:
-seven (7) years nor more than twenty-one
(21) years
"Securities" are shares, participation or
interests in a corporation or in a
commercial enterprise or profit-making
venture and evidenced by a certificate,
contract, instruments, whether written or
electronic in character.
Kinds:
(a) Shares of stocks, bonds, debentures, notes
evidences of indebtedness, asset-backed
securities;
(b) Investment contracts
3.2. "Issuer" is the originator, maker, obligor, or
creator of the security.
3.3. "Broker" is a person engaged in the
business of buying and selling securities for the
account of others.
3.4. "Dealer" means many person who buys
sells securities for his/her own account in the
ordinary course of business.
3.5. "Associated person of a broker or dealer" is
an employee therefor whom, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or
ministerial.
3.8. "Insider" means (a) the issuer; (b) a director
or officer (or any person performing similar
functions) of, or a person controlling the issuer;
gives or gave him access to material information
about the issuer or the security that is not
generally available to the public; (d) A
government employee, director, or officer of an
exchange, clearing agency and/or self-
regulatory organization who has access to
material information about an issuer or a
security that is not generally available to the
public; or (e) a person who learns such
information by a communication from any
forgoing insiders.
3.13. "Salesman" is a natural person, employed
as such as an agent, by a dealer, issuer or
broker to buy and sell securities.
3.15. "Underwriter" is a person who guarantees
on a firm commitment and/or declared best
effort basis the distribution and sale of
securities of any kind by another company.
Section 9. Exempt Securities. –
(a) Any security issued or guaranteed by the
Government of the Philippines, or by any
political subdivision or agency thereof
(b) maintains diplomatic relations
(c) Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the
proper adjudicatory body.
(d) Any security or its derivatives the sale or
transfer
(e) Any security issued by a bank except its own
shares of stock.
Section 10. Exempt Transactions. –
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or
mortgagee or any of a pledge lien holder
(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 banks, registered
investment house, Insurance company,
Investment company
*** Proxies must be in writing, signed by the
stockholder or his duly authorized
representative and file before the scheduled
meeting with the corporate secretary.
***No proxy shall be valid and effective for a
period longer than five (5) years at one time.
SPAV
Section 17. Privileges of Participation FIs. –
(a) Any loss that is incurred by the financial
institutions as a result of the transfer of
NPAs shall be treated as ordinary loss:
Provided, That the accrued interest and
penalties shall not be included as loss
on said loss carry over from operations
subject to the provisions of the National
Internal Revenue Code of 1997 on net
operating loss carry-over (NOLCO),
except that the loss incurred by the FI
from the transfer of NPAs within the
two-year period from the effectivity of
the IRR may be carried over for a period
of five (5) consecutive taxable years
immediately following the year of such
loss:
Provided, further, That for the purpose
of corporate gain or loss the carry-over
shall be subject to pertinent laws:
Provided, finally, That the tax savings
derived by FIs from the NOLCO shall not
be made available for dividend
declaration but shall be retained as a
form of capital build-up.
FIA
Section 3 Foreign Investment Act
e) the term “export enterprise” shall mean an
enterprise wherein a manufacturer, processor
or service enterprise exports sixty percent
(60%) or more of its output, or wherein a
trader purchases products domestically and
exports sixty percent (60%) or more of such
purchases;
f) the term “domestic market enterprise” shall
mean an enterprise which products goods for
sale, or renders services to the domestic
market entirely or if exporting a portion of its
output fails to consistency export at least sixty
percent (60%) thereof
which at least sixty percent (60%)
of the capital stock outstanding
and entitled to vote is owned and
held by citizens of the Philippines
or
3. a corporation organized abroad
and registered as doing business
in the Philippine under the
Corporation Code of which one
hundred percent (100%) of the
capital stock outstanding and
entitled to vote is wholly owned by
Filipinos or a trustee of funds for
pension or other employee
retirement or separation benefits,
4. where the trustee is a Philippine
national and at least sixty percent
(60%) of the fund will accrue to the
benefit of Philippine nationals:

d) the phrase “doing business” shall include

1. soliciting orders, service contracts, opening

offices, whether called “liaison” offices or
branches;

2. appointing representatives or distributors

domiciled in the Philippines or who in any
calendar year stay in the country for a period
or periods totaling one hundred eighty (180)
days or more;

3. participating in the management,

supervision or control of any domestic
business, firm, entity or corporation in the
Philippines;

4. and any other act or acts that imply a

continuity of commercial dealings or
arrangements, and contemplate to that extent
the performance of acts or works, or the
exercise of some of the functions normally
incident to, and in progressive prosecution of,
commercial gain or of the purpose and object
of the business organization:

the phrase “doing business” shall not be

deemed to include

1. mere investment as a shareholder by

a foreign entity in domestic
corporations duly registered to do
business, and/or the exercise of rights
as such investor;
2. nor having a nominee director or
officer to represent its interests in such
corporation;
3. nor appointing a representative or
distributor domiciled in the Philippines
which transacts business in its own
name and for its own account;

the term “Philippine National” shall mean a

1. citizen of the Philippines or a

domestic partnership or
association wholly owned by
citizens of the Philippines;
2. or a corporation organized under
the laws of the Philippines of