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Cessation of Banking Business: Nature of A Liquidation Proceeding
Cessation of Banking Business: Nature of A Liquidation Proceeding
The second phase involves the approval by the Court of the distribution plan prepared by
the duly appointed liquidator. The distribution plan specifies in detail the total amount available
for distribution to creditors whose claims were earlier allowed. The Order finally disposes of the
issue of how much property is available for disposal. Moreover, it ushers in the final phase of the
liquidation proceeding - payment of all allowed claims in accordance with the order of legal
priority and the approved distribution plan.1
(d) has willfully violated a cease and desist order under Section 37
that has become final, involving acts or transactions which amount
to fraud or a dissipation of the assets of the institution; in which
cases, the Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution.
(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for
assistance in the liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine Deposit Insurance
Corporation for general application to all closed banks. In case of
quasi-banks, the liquidation plan shall be adopted by the Monetary
Board. Upon acquiring jurisdiction, the court shall, upon motion by
the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the
stockholders, directors and officers, and decide on other issues as
may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the
institution.
On the strength of these provisions, it is the Monetary Board that exercises exclusive
jurisdiction over proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the appointment of a receiver under
this section shall be vested exclusively with the Monetary Board. The term exclusively connotes
that only the Monetary Board can resolve the issue of whether a bank is to be placed under
receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is
further affirmed by the fact that the law allows the Monetary Board to take action summarily and
without need for prior hearing.
And, as a clincher, the law explicitly provides that actions of the Monetary Board taken
under this section or under Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on a petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.2
There is no doubt that the Central Bank Act vests authority upon the Central Bank and
Monetary Board to take charge and administer the monetary and banking system of the country
and this authority includes the power to examine and determine the financial condition of banks
for purposes provided for by law, such as for the purpose of closure on the ground of insolvency
stated in Section 29 of the Central Bank Act. But express grants of power to public officers
should be subjected to a strict interpretation, and will be construed as conferring those powers
which are expressly imposed or necessarily implied (Floyd Mechem, Treatise on the Law of
Public Offices and Officers, p. 335).3
2
Ana Maria A. Koruga vs. Teodoro O. Arcenas, Jr., et al., GR Nos. 168332 and 169053, June 19, 2009.
3
Banco Filipino Savings and Mortgage Bank, supra.
cases, the Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business in the
Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution.
The Court, in several cases, upheld the power of the MB to take over banks without need
for prior hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation and
determination of whether any or all of the statutory grounds for the closure and receivership of
the erring bank are present. The MB, under R.A. No. 7653, has been invested with more power
of closure and placement of a bank under receivership for insolvency or illiquidity, or because
the bank’s continuance in business would probably result in the loss to depositors or creditors. In
the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. 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. Thus:
The "close now, hear later" doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when it finds
that a bank is in dire straits. Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by
the bank depositors, creditors, and stockholders, who all deserve the protection of the
government.
Due process does not necessarily require a prior hearing; a hearing or an opportunity to
be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior
hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment will run the gamut of the entire banking
community.
Concept of insolvency:
4
Alfeo D. Vivas vs. The Monetary Board of the BSP, et al. G.R. No. 191424, August 7, 2013 (citations omitted).
In Banco Filipino Savings and Mortgage Bank case, supra, the Supreme Court held:
Liquidation under the Corporation Code and New Central Bank Act:
Section 30 of the New Central Bank Act lays down the proceedings for receivership and
liquidation of a bank. The said provision is silent as regards the securing of a tax clearance from
the BIR. The omission, nonetheless, cannot apply by analogy the tax clearance requirement of
the SEC, as stated in Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1,
since, again, the dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP.
It should be noted that there are substantial differences in the procedure for involuntary
dissolution and liquidation of a corporation under the Corporation Code, and that of a banking
corporation under the New Central Bank Act, so that the requirements in one cannot simply be
imposed in the other.
Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of
a verified complaint and after proper notice and hearing, on grounds provided by existing laws,
rules, and regulations. Upon receipt by the corporation of the order of suspension from the SEC,
it is required to notify and submit a copy of the said order, together with its final tax return, to the
BIR.The SEC is also required to furnish the BIR a copy of its order of suspension. The BIR is
supposed to issue a tax clearance to the corporation within 30 days from receipt of the foregoing
documentary requirements. The SEC shall issue the final order of dissolution only after the
corporation has submitted its tax clearance; or in case of involuntary dissolution, the SEC may
proceed with the dissolution after 30 days from receipt by the BIR of the documentary
requirements without a tax clearance having been issued. The corporation is allowed to continue
as a body corporate for three years after its dissolution, for the purpose of prosecuting and
defending suits by or against it, to settle and close its affairs, and to dispose of and convey its
property and distribute its assets, but not for the purpose of continuing its business. The
corporation may undertake its own liquidation, or at any time during the said three years, it may
convey all of its property to trustees for the benefit of its stockholders, members, creditors, and
other persons in interest.
In contrast, the Monetary Board may summarily and without need for prior hearing,
forbid the banking corporation from doing business in the Philippines, for causes enumerated in
Section 30 of the New Central Bank Act; and appoint the PDIC as receiver of the bank. PDIC
shall immediately gather and take charge of all the assets and liabilities of the closed bank and
administer the same for the benefit of its creditors. The summary nature of the procedure for the
involuntary closure of a bank is especially stressed in Section 30 of the New Central Bank Act,
which explicitly states that the actions of the Monetary Board under the said Section or Section
29 shall be final and executory, and may not be restrained or set aside by the court except on a
Petition for Certiorari filed by the stockholders of record of the bank representing a majority of
the capital stock. PDIC, as the appointed receiver, shall file ex parte with the proper RTC, and
without requirement of prior notice or any other action, a petition for assistance in the
liquidation of the bank. The bank is not given the option to undertake its own liquidation.5
It was also ruled that Section 52(C) of the Tax Code of 1997 is not applicable to banks
ordered placed under liquidation by the Monetary Board, and a tax clearance is not a
prerequisite to the approval of the project of distribution of the assets of a bank under
liquidation by the PDIC.6
5
In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc. Philippine Deposit
Insurance Corporation vs. Bureau of Internal Revenue, GR No. 158261, December 18, 2006, 540 Phil. 142
(2006).
D. LIQUIDATION -from the determination of receiver if institution cannot be rehabilitated or permitted
to resume business
(1) File ex parted with the RTC a petition for assistance in the liquidation of the institution pursuant
to a liquidation plan adopted by the PDIC for banks, and by MB for quasi-banks
(2) Upon motion by receiver, upon RTC’s acquisition of jurisdiction, RTC shall assist enforcement of
the individual liabilities of the stockholders, directors, and officers and decide on other issues as
may be material to the liquidation plan adopted
(3) Receiver shall convert the assets to money and proceeds shall be applied in paying the debts of
the institution in accordance with rules on concurrence and preference of credit
(4) Receiver shall institute such actions as may be necessary
The assets under receivership or liquidation deemed in custodia legis, in the hands of the
receiver and shall be exempt from any order of garnishment, levy, attachment or execution
(a) all money claims against the bank are required to be filed with the liquidation court
(b) phase may end with the declaration by the court whether claim is with basis or not; if with basis,
classified whether ordinary or preferred
(c) order by court is final and may be appealed by the party aggrieved
Second: Approval by the court of the distribution plan prepared by the duly appointed liquidator
(a) order disposes of the issue of how much property is available for disposal
(b) (b) payment of all allowed claims
LIQUIDATION- Is a winding up of 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
(a) After payment of the cost of the proceedings, including reasonable expenses and fees of the
receiver to be allowed by the court, the receiver shall pay the debts of such institution, under
order of the court, in accordance with the rules on concurrence and preference of credit as
provided in the Civil Code. (Sec. 31)
(b) All revenues and earnings realized by the receiver in winding up the affairs and administering
the assets of any bank or quasi-bank within the purview of this Act shall be used to pay the
costs, fees and expenses mentioned in the preceding section, salaries of such personnel whose
employment is rendered necessary in the discharge of the liquidation together with the other
additional expenses caused thereby. (Sec.32)
The balance of revenues and earnings, after the payment of all said expenses, shall form part of
the assets available for payment of creditors
Although the claims are litigated in the same proceeding, the treatment is individual. And the Order
issued relative to a particular claim applies only to said claim, leaving the other claims unaffected, as
each claim is considered separate and distinct from the others
The exclusive jurisdiction of the liquidation courts pertains only to the adjudication of claims against the
bank, and does not cover the reverse situation where it is the bank which files a claim against another
person. (Manalo vs. CA, 366 SCRA 752)
The actions of the MB under Sec. 29 (appointing a conservator) and Sec. 30 (closing a bank) are final and
executory and may not be restrained or set aside by a court