a. Conservatorship

Banks in Distress –R.A. No. 7653, as amended, Sections 29-30

> SEC. 29. Appointment of Conservator.¹ Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with such powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the management thereof, reorganize the management, collect all monies and debts due said institution, and exercise all powers necessary to restore its viability. The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. The conservator should be competent and knowledgeable in bank operations and management. The conservatorship shall not exceed one (1) year. The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in twelve (12) equal monthly payments: Provided, That, if at any time within the one-year period, the conservatorship is terminated on the ground that the institution can operate on its own, the conservator shall receive the balance of the remuneration which he would have received up to the end of the year; but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining balance. The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which case he shall not be entitled to receive any remuneration or emolument from the Bangko Sentral during the conservatorship. The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned. The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case the provisions of Section 30² shall apply.

> SEC. 30. Proceedings in Receivership and Liquidation. Whenever, upon report of the head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank: (a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; (b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or (c) cannot continue in business without involving probable losses to its depositors or creditors; or (d) has willfully violated a cease and desist order under Section 37³ 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. For a quasi-bank, any person of recognized competence in banking or finance may be designated as receiver. The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court⁴ but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution in nonspeculative investments. The receiver shall determine as soon as possible, but not later than ninety (90) days from take-over, whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided, That any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. (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. (2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines⁵ and he may, in the name of the institution, and with the assistance of counsel as he may retain, institute such actions as may be necessary to collect and recover accounts and assets of, or defend any action against, the institution. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. The 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 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. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

Conservatorship

A tool in restoring the viability of a bank or quasi-bank through measures to address its state of illiquidity. For this purpose, the Monetary Board may appoint a conservator. (Sec. 29)⁷

Appointment of Conservator

A conservator is appointed based on a report submitted to the Monetary Board by the appropriate supervising or examining department when the Monetary Board finds that the bank or quasi-bank is in a state of continuing inability or unwillingness to maintain liquidity adequate to protect the interest of depositors and creditors. (Id.)

Qualifications of a Conservator

The conservator should be competent and knowledgeable in bank operations and management. (Id.)

The Monetary Board has exclusive power to designate the conservator. (Koruga v. Arcenas, G.R. No. 168332, 19 June 2009)⁸

Duration of Conservatorship

Shall not exceed 1 year. (Sec. 29)⁹

Powers of a Conservator:

• To take charge of the assets, liabilities, and the management thereof;
• Reorganize the management;
• Collect all monies and debts due said institution;
• Exercise all powers necessary to restore its viability;
• Report and be responsible to the Monetary Board; and
• Where necessary, overrule or revoke the actions of the previous management and board of directors of the bank or quasibank. (Id.)

A bank conservator appointed by the BSP has no power to unilaterally rescind contracts entered into by the previous management. The power to revoke cannot extend to post-facto repudiation of perfected transactions otherwise they would infringe against the non-impairment clause of the Constitution. The law merely gives the conservator the power to file court actions to revoke contracts that are defective – void, voidable, unenforceable, or rescissible. (Producers Bank of the Philippines v. NLRC, G.R. No. 118069, 26 July 1999¹⁰; First Philippine International Bank v. Court of Appeals, G.R. No. 115849, 24 January 1996¹¹)

Remuneration of a Conservator

General Rule: The conservator shall receive remuneration in an amount not to exceed 2/3 of the salary of the president of the institution (i.e. the bank under conservatorship) in 1 year, payable in 12 equal monthly payments.

If the Monetary Board appoints a conservator connected with the BSP, that conservator is not entitled to remuneration or emoluments from the Bangko Sentral during the conservatorship. (Sec. 29)¹²

Note: If at any time within one-year period, the conservatorship is terminated on the ground that the institution can operate on its own, the conservator shall receive the balance of the remuneration which he would have received up to the end of the year; but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining balance. (Id.)

Expenses

The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned. (Id.)

Termination of Conservatorship

• When the Monetary Board is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary;
• When the Monetary Board determines that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case, proceedings for receivership and liquidation shall be pursued. (Id.)