Court allows CAP to pay P270M to Sobrepeña firms

By Benjamin B. Pulta

08/24/2010

A Court of Appeals (CA) ruling in favor of a petition filed by cash-strapped pre-need firm College Assurance Plan (CAP) to set aside $6 million or about P270 million proceeds from the sale of the firm’s holdings in Mass Rail Transit (MRT) III bonds last year is expected to further dim prospects among millions of policy holders of the firm of ever recovering their investments.

Plan holders have been opposing the use of the proceeds of the MRT III bonds to pay for CAP’s obligations to its affiliate creditors Smart Share Investments Ltd. and Fil-Estate Management Inc. (FEMI) as they insisted that the money should only be used to pay the 700,000 plan holders.

The company had asked the appellate court to put off the fate of the sum pending the resolution of its petition questioning a lower court’s decision disapproving payment of its obligations to two other companies also owned by pre-need firm’s owners, the Sobrepeñas.

In an eight-page resolution by Associate Justice Rosmari Carandang, the CA’s Ninth Division said the setting aside of the $6 million is necessary in order not to render its petition moot in case the appellate court eventually decides to allow it to pay its obligations to amounting to some $10.68 million.

The amount represents the unpaid balance of the purchase price of bonds issued by the Metro Rail Transit Corp., which operates the MRT III.

“Thus, as prayed for by petitioner CAP, and so as not to render the petition moot and nugatory, the Philippine Veterans Bank, as trustee and the receiver is hereby directed to set aside $6 million from the proceeds of the sale of the MRT III bonds pending the resolution of the instant petition,” the CA said ruled.

The CA also gave the Securities and Exchange Commission (SEC) and the group of unidentified plan holders represented by the Syquia and Syquia Law Officers 10 days to file their respective comment to CAP’s petition.

The appellate court also directed them to show cause why the order to set aside $6 million issued should be lifted. On the other hand, it gave CAP five days to reply to SEC and the plan holders’ comment to lift the order.

It can be recalled that CAP incurred a trust fund deficiency of P3.179 million and suffered difficulties in 2005, prompting their plan holders to terminate their contracts and demand the return of their money.

In compliance with the directive of SEC to submit a funding scheme to correct deficiency, CAP, among others, proposed to purchase MRT III bonds and assign the same to the trust fund.

Thus, on Aug. 6, 2002, CAP purchased MRT III bonds on installment, with a present value then of $14 million, from Smart and FEMI, and assigned the same to the trust fund. The purchase price was to be paid by CAP in 60 monthly installments payable over five years.

In 2003, after having paid $6.54 million of the total purchase price, CAP was ordered by the SEC oversight board to stop paying Smart and FEMI due its perceived inadequacy of CAP’s funds. In August 2005, CAP filed a petition for rehabilitation which was given due course by the Makati court.

Under the rehabilitation plan, CAP intended to sell in 2009, the MRT bonds at 60 percent of their face value of $81.9 million.

However, while the negotiations for the sale of the MRT bonds, Smart Share demanded that CAP pay its balance obligations amounting to $10,680,045 and warned that, should CAP insist on holding on to the MRT III bonds instead of selling them, it would demand the immediate return of the MRT III bonds as full and final settlement of CAP’s outstanding obligation.

The MRT III bonds were later sold at $21.50 million to Development Bank of the Philippines and Land Bank with the approval of Smart Share and FEMI on the condition that CAP will settle its outstanding obligation to them.

Due to the failure of CAP to settle of obligations to Smart Share and FEMI, CAP received summons from the high court of Hong Kong Special Administrative Region, Court of First Instance, directing CAP to either satisfy the claim of Smart Share and FEMI, or to return the “acknowledgment of service,” stating whether it intends to contest the proceedings or to make an admission.

With the said development, CAP was compelled to file a motion with the regional trial court (RTC) of Makati City for approval to pay Smart and FEMI’s claims, since the institution of the action in Hong Kong presented a real threat that the buyers would rescind their contract with CAP and demand a return of the purchase price of $21,501,760.

On Jan. 18, 2010, the Makati RTC denied CAP’s motion with the principle of “equality is equity” in rehabilitation proceedings.

CAP, thus filed a petition for before the CA seeking the nullification of the order issued by the Makati RTC on the ground of grave abuse of discretion amounting to lack or excess of jurisdiction in denying the payment of its obligations to Smart Share and FEMI.

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