New Procedure: How to Liquidate a Closed Bank in the Philippines

How to Liquidate a Closed Bank-nicolas and de vega law offices image

The Supreme Court enacts New Rules of Procedure on Liquidation of Closed Banks 

The Supreme Court recently enacted new rules of procedure for the liquidation of closed banks in the Philippines.

Scheduled to take effect on April 16, 2020, A.M. No.19-12-02-SC governs the Rules on Liquidation of Closed Banks (Rules). The Rules apply to local banks closed and placed under liquidation by the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP).

However, the Rules do not apply to foreign bank branches, but only to foreign banks which mode of entry in the Philippines was by acquisition of ownership of an existing bank or creation of a subsidiary.

What are the different classifications of banks covered by the new Rules?

Banks are classified into:

(1) universal banks;

(2) commercial banks;

(3) thrift banks composed of savings and mortgage banks, stock savings and loan associations, and private development banks;

(4) rural banks;

(5) cooperative banks; and

(6) other classifications of banks as determined by the MB.

What is the nature of the Petition for Assistance in the Liquidation (PAL) of a closed bank?

The liquidation of closed banks is a proceeding in rem. In such case, jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the order setting the PAL for initial hearing in any newspaper of general circulation in the Philippines.

It is also classified as a special proceeding since it declares the concomitant rights of the creditors and the order of payment of their valid claims in the disposition of the assets of the closed bank.

How is the liquidation of a closed bank initiated?

The Receiver shall file the Petition for Assistance in the Liquidation (PAL) of a closed bank not later than one hundred eighty (180) days from the date of publication of notice of the bank’s closure. The Receiver may, on motion, request for additional time of not more than thirty (30) days but only for compelling reasons.  The Receiver shall pay to the Clerk of Court a docket fee and other lawful fees in the amount of Five Thousand Philippine Pesos (P5,000.00).

Which court has exclusive jurisdiction over the Petition for Assistance in the Liquidation (PAL) of a closed bank?

Under the Rules, the Liquidation Court has exclusive jurisdiction to adjudicate disputed claims against the closed bank, assist in the enforcement of individual liabilities of the stockholders, directors, and officers, and decide on all other issues as may be material to implement the Master Liquidation Plan.

A Liquidation Court (LC) refers to the Regional Trial Court designated by the Supreme Court as Special Commercial Court (SCC), where the Petition for Assistance in the Liquidation (PAL) of a closed bank is filed and given due course.

Where should the petition be filed?

The PAL shall be filed in the SCC which has jurisdiction over the principal office of the closed bank or the principal office of the Receiver, at the option of the latter.

What should the PAL contain?

The Petition for Assistance in the Liquidation (PAL) should be under oath, and filed simultaneously in three (3) printed copies and one (1) digitized copy (in PDF format) contained in a compact disc, flash drive, or other compatible Information and Communications Technology media.

The PAL must contain the following information:

  1. The name of the closed bank;
  2. The MB Resolution ordering the closure and directing the PDIC, as Receiver, to proceed with the takeover and liquidate the bank;
  3. The grounds for closure as stated in the MB Resolution;
  4. The date of publication of notice of closure giving creditors sixty (60) days to file their claims before the Receiver;
  5. The financial condition of the bank as of date of closure showing the estimated realizable value of its assets; and
  6. An attachment showing the names and addresses of creditors with valid claims, those with claims filed but yet to be found valid, those with claims that have been denied and the reason/s for denial, as well those with claims that have been disallowed.

What documents must be filed together with the petition?

Certified true copies of the following documents must be attached to the PAL:

  1. MB Resolution ordering the closure and liquidation of the closed bank;
  2. Takeover Report;
  3. Publisher’s affidavit of publication of the notice of closure to creditors;
  4. Master Liquidation Plan; and
  5. Financial statements of the bank together with an inventory of its assets.

What happens after the PAL is filed?

Within ten (10) days from receipt of the Petition for Assistance in the Liquidation (PAL), the Liquidation Court (LC) will issue an Order. The court sheriff or process server shall post the Order in the bulletin boards of the LC and of the municipal or city hall where the principal office of the closed bank is located, at the expense of the Receiver. Within a period of five (5) days from receipt of the Order, the Receiver must cause the one-time publication of the Order in a newspaper of general circulation in the Philippines.

Also, within sixty (60) days from receipt of the PAL, the initial hearing will be set. All claimants whose claims were denied or disallowed by the Receiver shall file their claims with the LC within sixty (60) days from date of receipt of final notice of denial or disallowance of their claims or within twenty (20) days from date of publication of the Order, whichever is later.

Upon the publication of the Order setting the PAL for initial hearing, the Liquidation Court will acquire exclusive jurisdiction over all persons affected by the proceedings and over all matters covered by the PAL.

During the initial hearing, the Receiver will present proof of posting and publication and mark the documents in support of the PAL. After formally offering these documents into evidence, the PAL shall be submitted for resolution.

After being satisfied that the jurisdictional requirements have been complied with, the court shall, within a period of not more than ten (10) days from the date of the Order submitting the PAL for resolution, issue an Order giving due course to the PAL and constituting itself as the Liquidation Court of the closed bank, with authority to receive and pass upon claims against the assets of the bank, monitor the timely reports of the Receiver, and approve the Asset Distribution Plan (ADP).

The Asset Distribution Plan or ADP refers to the plan of distribution of the assets of a closed bank to its creditors, based on its estimated realizable value as of a certain cut-off date, prepared in accordance with the rules on concurrence and preference of credits under the Civil Code or other laws. The ADP may be partial when it pertains to the distribution of a portion or some of the assets of the closed bank, or final when it pertains to the distribution of all the assets of the closed bank.

What pleadings and motions are prohibited during the liquidation proceedings?

The following pleadings and motions shall neither be allowed nor acted upon by the Liquidation Court:

  1. Motion for a bill of particulars;
  2. Motion for new trial;
  3. Motion to dismiss; and
  4. Petition for relief from judgment.

What is a liquidation report?

After the Liquidation Court has given due course to the petition, the Receiver shall file with the Liquidation Court an annual Liquidation Report on the closed bank not later than the end of the third quarter of the succeeding year or as may be required by the Liquidation Court. The Liquidation Report shall include the following information on the closed bank: a) Statement of Affairs; b) Plan of action for the succeeding fiscal year; c) Significant developments and/or financial highlights; d) Comparative statement of condition; and e) Other information material to assist the Liquidation Court in the liquidation of the closed bank, including the status of implementation of the approved Partial ADP, if any.

What is a motion for approval of the Partial or Final ADP?

A motion for approval of a Partial ADP may be filed at any time after the submission of the first Liquidation Report. The Receiver shall file a motion for approval of a Final ADP within five (5) years from the date of bank closure, which may be extended for compelling reasons but not beyond seven (7) years from such closure.

The motion for approval of the Partial or Final ADP shall contain the following:

a) The assets of the closed bank to be distributed and their valuation as of the ADP’s cut-off date; and

b) The names of creditors with valid claims who will receive payment under the ADP in accordance with the rules on concurrence and preference of credits under the Civil Code or other laws.

On the basis of the pleadings submitted and without need of a full-blown trial, the LC may approve or disapprove the motion, in whole or in part, or order the amendment of the Partial or Final ADP within forty-five (45) days from submission of the motion for resolution.

How will the liquidation proceedings be terminated?

The finality of the Resolution approving the Final ADP shall usher in the winding-up phase of the closed bank under liquidation and subject of the proceedings, according to the PDIC Charter and the termination of the liquidation proceeding.

Upon finality of the Resolution approving the Final ADP, the PAL shall, for all intents and purposes, be considered closed and terminated without prejudice to any assistance the Liquidation Court may extend in the implementation of the Final ADP. The Receiver shall submit a final report on the implementation of the approved Final ADP to the MB and the Securities and Exchange Commission after the expiration of the winding-up period and serve a copy thereof to the Liquidation Court.

About Nicolas and De Vega Law Offices

If you need assistance in the liquidation of closed banks, rehabilitation, liquidation, insolvency or other commercial law related issues, we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.

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