2. Banks in Distress

The New Central Bank Act

• Banks in Distress –R.A. No. 7653, as amended, Sections 29-30¹
• Remedy of Closed Banks - R.A. No. 7653, as amended, Section 30²

Conservatorship, Receivership, and Liquidation

A bank placed under conservatorship remains open but under the management and control of the conservator. On the other hand, when a bank is ordered closed by the Monetary Board, it is taken over by the PDIC as statutory “receiver”, and the PDIC is directed to proceed with the liquidation. (R.A. No. 7653, Sec. 30³; New PDIC Charter, Sec. 12⁴)

Before the amendments to the PDIC Charter and NCBA by R.A. No. 10846⁵ (2016), there was a 90-day period of receivership after closure and before a final order of liquidation by the Monetary Board to determine whether the bank can still be rehabilitated. The 90-day period was removed. PDIC now takes over the assets of the closed bank for purposes of liquidation and thereafter files a petition for court assisted liquidation. (A.M. No. 19-12-02-SC⁶ Rules on Liquidation of Closed Banks, February 18, 2020)

Liquidity

Ability to pay off obligations when they fall due.

An institution which fails to pay its matured obligations or meet the normal demands of withdrawals for deposits due to insufficient cash, or resorts to intermittent/staggered payments or withdrawals may be considered as suffering from liquidity problems.

Insolvency

There are two tests for insolvency:

• Balance sheet test. It is where the realizable assets of the bank is insufficient to meet its liabilities (Sec.30[b])⁷
• Equity test. The bank’s inability to pay its liabilities as they become due in the ordinary course of business (Sec. 30[a])⁸

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Either condition may justify closure, except that inability to pay caused by extraordinary demands induced by financial panic in the banking community is excluded under Sec. 30(a).

Judicial Remedy from the decision of the Monetary Board of BSP placing a bank under conservatorship, receivership, or liquidation

Final and Executory. The action of the Monetary Board in placing a bank under conservatorship or placing it under receivership or liquidation shall be final and executory and, as a general rule, may not be restrained or set aside by the court.

Nature of Action

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.

Petitioner

Petition is 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 or liquidation. (Sec. 30)⁹

Court of Appeals

A petition for certiorari under Rule 65¹⁰ may be filed with the CA or the proper RTC; direct resort to the SC requires a special reason justifying departure from the hierarchy of courts. (Vivas v. Monetary Board of the Bangko Sentral NG Pilipinas and the Philippine Deposit Ins, G.R. No. 191424, 7 August 2013)¹¹

Note: Other decisions of the Monetary Board acting as a quasi-judicial body can be elevated to the Court of Appeals by way of a petition for review under Rule 43¹², where applicable.

Involuntary dissolution and liquidation

(In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod v. BIR, G.R. No. 158261, 18 December 2006¹³)