I.

SHORT TITLE: VIVAS vs THE MONETARY BOARD

II. FULL TITLE: Alfeo D. Vivas, on his behalf and on behalf of the Shareholders of
EuroCredit Community Bank vs. The Monetary Board of the Bangko
Sentral ng Pilipinas and the Philippine Deposit Insurance Corporation –
G.R. No. 191424
August 7, 2013, J. Mendoza

III. TOPIC: New Central Bank Act – How the BSP handles Banks in Distress -
Receivership

IV. STATEMENT OF FACTS:

RBFI is a duly-registered rural banking institution with its principal office located in Cagayan.
While the corporate life of such bank expired on May 31, 2005, petitioner and his principals
acquired controlling interest in RBFI in January 2006. An internal audit found that RBFI
performed badly in its operations.

On December 2006, BSP issued a Certificate of Authority extending the corporate life of RBFI
for another 50 years. It also approved RBFI’s change of name to EuroCredit Community Bank
and its increase BOD members from 5 to 11.

Pursuant to Section 28 of RA 7653, the Integrated Supervision Department II (ISD II) of the BSP
conducted a general examination on the EuroCredit with the cut-off date of December 31, 2007.
The BSP apprised Vivas and the other members of EuroCredit’s BOD of the advance findings.

On April 2008, the examiners from the Department of Loans and Credit of the BSP arrived and
cancelled the rediscounting line of EuroCredit. The Monetary Board placed EuroCredit under
Prompt Corrective Action framework through its Resolution no. 1255 because of the serious
findings like the negative capital of P14.674 Million and the negative capital adequacy ratio of
18.42%; Capital asset management earnings liquidity composite rating of 2 with a management
component rating of 1; and serious supervisory concerns, particularly on activities deemed
unsafe or unsound.

BSP instructed the BOD to infuse fresh capital of P22.643 million; book the amount of P28.563
million representing unbooked valuation reserves on classified loans and other risks assets on or
before October 31, 2008; and take appropriate action necessary to address the
violations/exceptions noted in the examination.

Vivas moved for a reconsideration of the Resolution no. 1255 on the grounds of non-observance
of due process and arbitrariness.

Then, the BSP directed EuroCredit to explain its other apparent violations.

Another general examination was scheduled on March 31, 2009 with the cut-off date of
December 31,2008. It did not push through because it was postponed by EuroCredit on the
ground that there was a pending appeal before the Monetary Board. Vivas believed that the
actions against them was unfair because the letter of authority allegedly contained a clause
pertaining to AMLA and the Bank Secrecy Act.

The Monetary Board reported that EuroCredit unjustly refused to allow the BSP examiners from
examining and inspecting its books and records, in violation of Sections 25 and 34 of RA 7653.
BSP informed the bank that the pendency of its appeal would not prevent the BSP from
conducting another general examination as mandated by Section 28.

In view of EuroCredit’s refusal to comply with such examination, the Monetary Board imposed a
monetary penalty upon EuroCredit. Simultaneously, it referred the matter to the Office of the
Special Investigation for the filing of appropriate action. The BSP sent a letter to the bank
ordering the compliance of its directives.

Still, EuroCredit asked for another deferment due to the pendency of its appeal before the MB
and because Vivas was out of the country but this was denied and ISD II ordered the examination
to proceed as scheduled.

EuroCredit was issued a cease and desist order that enjoined it from pursuing certain acts and
transactions that were considered unsafe or unsound banking practices and from doing such other
acts constituting fraud or might result to its asset dissipation. Despite such order, the bank
seemed unfazed.

The OSI filed a complaint before the DOJ for estafa through falsification of commercial
documents against. Meanwhile, MB issued a resolution denying the bank’s appeal against
Resolution no. 1255. The scheduled general examination commenced. ISD II then warned the
bank to submit the financial audit reports.

EuroCredit filed another motion for reconsideration which was subsequently denied.

By virtue of Resolution no. 276, the Monetary Board placed EuroCredit under receivership in
accordance with the recommendation of the ISD II. Findings showed that the bank was unable to
pay its liabilities as they become due; has insufficient realizable assets; cannot continue in
business without involving probable losses to its depositors and creditors; and has willfully
violated the cease and desist order. PDIC was designated as its receiver.

V. STATEMENT OF THE CASE:

To assail Resolution no. 276, Vivas, on his behalf and on behalf of the Shareholders of
EuroCredit, filed a petition for prohibition with prayer for the issuance of a status quo ante order
or writ of preliminary injunction ordering the respondents to desist from closing EuroCredit
Community Bank, Incorporated and from pursuing receivership thereof. The petition likewise
prays that the management and operation of EuroCredit be restored to its Board of Directors and
its officers.

He contended that the respondent committed grave abuse of discretion when they erroneously
applied Section 30 of New Central Bank Act, instead of Sections 11 and 14 of the Rural Bank
Act. Petitioner also contended that the respondent exhibited manifest arbitrariness and bad faith
because of lack of due process and that the power of the BSP to place rural banks under
receiverships is unconstitutional for invasion of the powers of the Supreme Court.

VI. ISSUE:
1. Whether or not the Monetary Board incorrectly
applied Section 30 of the NCBA.

VII. RULING:

First of all, Vivas availed of the wrong remedy in assailing the receivership. Section 30 of NCBA
provides that actions taken under this section or under Section 29 shall be final and executory
and may not be restrained nor set aside by the court except on petition for certiorari filed by the
stockholders of record of the bank representing majority.

The petition should be filed before the Court of Appeals because it is already settled that the
Monetary Board is a quasi-judicial agency.

1. No. The Monetary Board committed no grave abuse of discretion.

Vivas argues that the implementation of the resolution was without due process and prior
hearing, invoking Section 11 of the Rural Bank Act which states that the BSP may take
over the management of a rural bank after due hearing.

Based on the records of this case, EuroCredit was given every opportunity to be heard
and improve on its financial standing. There were several meetings between the BSP
officials and examiners and the representatives of the bank to discuss the matters of its
findings. The bank was also reminded and warned that a failure to submit its financial
report would result to a penalty. More importantly, EuroCredit was heard on its motion
for reconsideration. The bank cannot claim that it was deprived of its right under the
Rural Bank Act.

Taking a look into Section 30 of the NCBA, the Monetary Board may forbid a bank from
doing business and place it under receivership without prior notice and hearing.

Section 30 of RA 7653 – “Whenever, upon report of the head of the supervising and
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 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of assets of the institution; in which cases, the Monetary Board
may summarily and without need of a prior hearing forbid the institution
from doing business in the Philippines and designate the PDIC as receiver of
the banking institution.

The Court has upheld in several cases, the power of the Monetary Board to take over
banks without need of prior hearing. The court reiterated the doctrine of “close now, hear
later”.

In BSP-MB vs Antonio-Valenzuela,
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.

The doctrine is founded on practical and legal considerations to obviate unwarranted

dissipation of the bank’s assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders, and the general public.

In this case, based on the recommendation of the ISD II, it found EuroCredit’s inability to
pay its liabilities as they become due in the ordinary course of its business, its assets
being less than its liabilities, and that if EuroCredit continues in its operations, it would
most probably result in the incurrence of losses to the prejudice of its depositors and
creditors.

The bank also violated the cease and desist order that was issued against them.
Furthermore, it was established that Monetary Board has given the bank enough time to
restore and improve its financial health.

Therefore, all circumstances considered in light of Section 30, the placement of the bank
under receivership was properly applied.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the petition for prohibition is DENIED.