THE camp of former Health Secretary Alfredo Bengzon has lost its grip on The Medical City (TMC) after the Court of Appeals set aside the decision issued by the Securities and Exchange Commission (SEC), which nullified the majority company shares acquired by rival shareholders.
In a 43-page decision issued last February 1, 2020, the CA’s Special Fifteenth Division partly granted the consolidated petitions filed by Fountel Corporation and Felicitas Antoinette, Inc. (FAI), led by the family of Jose Xavier Gonzales, and Viva Holdings (Philippines) Pre. Ltd., Viva Healthcare Ltd. seeking the reversal of the SEC’s August 13, 2020 decision.
The appellate court gave merit to the argument of the petitioners that the supposed fraudulent practices committed against the board of directors of Professional Services Inc. (PSI), the operator of The Medical City (TMC), is an intra-corporate dispute that falls outside the SEC’s jurisdiction.
The SEC, in its August 13 decision, declared that all shares that had been issued to and paid for by both Gonzales and Viva Holdings, a foreign investment fund, way back in 2013 were null and void, and that all shares that Gonzales and Viva had subsequently acquired from other shareholders or subscribed to from the company had to be returned as treasury shares.
These shares could then be sold to “any person who intends to buy the same.”
“This Court finds that the complaint of respondent Bengzon and other stockholders in PSI with the SEC alleging fraud in the acquisition of shares by petitioners, who are also stockholders of PSI and seeking the nullification of said acquisition in the nature of intra-corporate dispute and falls within the jurisdiction of the Regional Trial Court,” the CA said in setting aside the SEC’s decision.
The appellate court noted that Section 5.2 of the Securities Regulation Code (SRC) has transferred to RTC the jurisdiction to decide cases involving devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation.
Furthermore, the CA ruled that the SEC does not have the power to declare the increase of the shares of Fountel, FAI and Viva as null and void, or to divest persons of their property by mere administrative action.
While under Section 5.1 of the SRC gives SEC jurisdiction and supervision over all corporations, associations and partnerships which have been granted franchises and permits to operate by the government, it does not mean that it has the power to nullify private transactions including purchases of shares in a corporation.
Consequently, the CA said SEC erred in declaring null and void the share acquisitions of Fountel, FAI and Viva beginning August 1, 2013 as well as their subscriptions from increases in authorized capital stock and issuance of the unissued shares.
Likewise, the CA nullified the SEC decision that cancels petitioners’ PSI shares from the stock and transfer book and allocation of the same for any person who intends to buy the same.
However, while the CA declared that the case constitutes intra-corporate dispute which belongs to the trial court, it held that the SEC still has administrative and regulatory jurisdiction in determining if there are administrative violations committing and imposing fines and penalties provided by the SRC.
Thus, it said the SEC was correct in holding that Fountel, FAI and Viva were administratively liable for violation of Section 18 or SRC-Implementing Rules and Regulations (IRR) which covers reportorial obligation to be filed by any person who acquires the beneficial ownership of more than five percent of securities.
Thus, the CA imposed on the petitioners to pay a fine of 2 percent of the amount of each transaction or P20,000 per transaction whichever is higher plus P200 per day of delay from August 1, 2013 until fully paid.
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