Apex Bancrights Holdings, Inc. vs. Bangko Sentral ng Pilipinas

The Monetary Board need not make an independent factual determination of a bank's viability before ordering its liquidation; upon the receiver's (PDIC's) determination that rehabilitation is no longer feasible, the Monetary Board is obligated only to notify the bank's board of directors in writing and direct the receiver to proceed with liquidation.

Export and Industry Bank (EIB) entered into a three-way merger with Urban Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) in July 2001 in an attempt to rehabilitate UBI, which was then under receivership. EIB itself subsequently encountered financial difficulties, prompting the Philippine Deposit Insurance Corporation (PDIC) to extend financial assistance, including additional aid in May 2005 conditioned upon the infusion of additional capital by EIB's stockholders whenever the bank's adjusted Risk Based Capital Adequacy Ratio fell below 12.5%. The case is governed by Section 30 of Republic Act No. 7653 ("The New Central Bank Act"), which prescribes the proceedings for the receivership and liquidation of banks and quasi-banks and vests the Monetary Board with the authority to close banks and order their liquidation.

Sometime in July 2001, Export and Industry Bank (EIB) entered into a three-way merger with Urban Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) in an attempt to rehabilitate UBI, which was then under receivership. In September 2001, following the merger, EIB itself encountered financial difficulties, prompting the Philippine Deposit Insurance Corporation (PDIC) to extend financial assistance. EIB still failed to overcome its financial problems, leading PDIC to release additional financial assistance in May 2005, conditioned upon the infusion by EIB's stockholders of additional capital whenever EIB's adjusted Risk Based Capital Adequacy Ratio fell below 12.5%. Despite this, EIB failed to comply with the BSP's capital requirements, causing its stockholders to commence the process of selling the bank.

Banco de Oro (BDO) initially expressed interest in acquiring EIB. However, certain issues derailed the acquisition, including BDO's unwillingness to assume certain liabilities of EIB, particularly the claim of the Pacific Rehouse Group against it. BDO's acquisition ultimately did not proceed, and EIB's financial condition worsened. In a letter dated April 26, 2012, EIB's president and chairman voluntarily turned over full control of EIB to the BSP and informed it that the bank would declare a holiday on April 27, 2012.

On the same day, the BSP, through the Monetary Board, issued Resolution No. 686 prohibiting EIB from doing business in the Philippines and placing it under the receivership of PDIC, in accordance with Section 30 of RA 7653. PDIC took over EIB and submitted its initial receivership report to the Monetary Board, finding that EIB could be rehabilitated or permitted to resume business, provided that a bidding for its rehabilitation would be conducted and that the following conditions would be met: (a) there are qualified interested banks that will comply with the parameters for rehabilitation of a closed bank, capital strengthening, liquidity, sustainability and viability of operations, and strengthening of bank governance; and (b) all parties, including creditors and stockholders, agree to the rehabilitation and the revised payment terms and conditions of outstanding liabilities. The Monetary Board issued Resolution No. 1317 on August 9, 2012, noting PDIC's initial report and granting its request to extend the period for final determination.

Pursuant to the rehabilitation efforts, PDIC scheduled a public bidding on October 18, 2012, but it failed as no bid was submitted. A re-bidding was set on March 20, 2013, which likewise did not materialize as no bids were submitted. On April 1, 2013, PDIC informed BSP that EIB could hardly be rehabilitated. Based on PDIC's report that EIB was insolvent, the Monetary Board passed Resolution No. 571 on April 4, 2013, directing PDIC to proceed with the liquidation of EIB. On April 29, 2013, petitioners, who are stockholders representing the majority stock of EIB, filed a petition for certiorari before the CA challenging Resolution No. 571.

• PDIC's Fault for Failed Rehabilitation: Petitioners blamed PDIC for the failure to rehabilitate EIB, contending that PDIC imposed unreasonable and oppressive conditions which delayed or frustrated the transaction between BDO and EIB.
• Frustration of Liquidity Efforts: Petitioners argued that PDIC frustrated EIB's efforts to increase its liquidity when it disapproved EIB's proposal to sell its MRT bonds to a private third party and instead required EIB to sell the same to government entities.
• Oppressive Bidding Requirements: Petitioners maintained that PDIC imposed impossible and unnecessary bidding requirements and delayed the public bidding, which dampened investors' interest.
• Required Independent Determination: Petitioners insisted that the Monetary Board must first make its own independent finding that the bank could no longer be rehabilitated, rather than merely relying on the findings of PDIC, before ordering the liquidation of a bank.

• Estoppel: PDIC countered that petitioners were already estopped from assailing the placement of EIB under receivership and its eventual liquidation since they had already surrendered full control of the bank to the BSP as early as April 26, 2012.
• Ample Legal and Factual Bases: BSP maintained that it had ample factual and legal bases to order EIB's liquidation.

• Grave Abuse of Discretion: Whether the CA correctly ruled that the Monetary Board did not gravely abuse its discretion in issuing Resolution No. 571 directing PDIC to proceed with the liquidation of EIB.
• Independent Factual Determination: Whether the Monetary Board must make its own independent factual determination of a bank's viability before ordering its liquidation, or whether it may rely on the receiver's (PDIC's) determination that rehabilitation is no longer feasible.

• Grave Abuse of Discretion: No. The Monetary Board's issuance of Resolution No. 571 was amply supported by the factual circumstances and made in accordance with prevailing law and jurisprudence; no convincing proof of arbitrariness or bad faith was shown.
• Independent Factual Determination: No. Section 30 of RA 7653 does not require the Monetary Board to make an independent determination of whether a bank may still be rehabilitated; once the receiver determines that rehabilitation is no longer feasible, the Monetary Board is obligated only to notify the board of directors in writing and direct the receiver to proceed with liquidation.

• Grave Abuse of Discretion: The power and authority of the Monetary Board to close banks and liquidate them is an exercise of police power, which is subject to judicial inquiry and may be set aside if exercised arbitrarily, capriciously, or in a manner tantamount to a denial of due process. The actions of the Monetary Board under Section 30 of RA 7653 are declared final and executory and may not be restrained or set aside except on petition for certiorari on the ground of grave abuse of discretion amounting to lack or excess of jurisdiction. Grave abuse of discretion exists when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or when the judgment is not based on law and evidence but on caprice, whim, and despotism. Here, the conditions for EIB's rehabilitation were not met because the bidding and re-bidding were aborted since none of the pre-qualified Strategic Third Party Investors submitted a letter of interest to participate. PDIC's finding of insolvency was amply supported, and the Monetary Board acted on that finding in issuing Resolution No. 571. No convincing proof that the action was plainly arbitrary and made in bad faith was presented.

• Independent Factual Determination: Section 30 of RA 7653 expressly provides that "[i]f the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed with the liquidation of the institution." Nothing in the provision requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still be rehabilitated. The law imposes only two duties on the Monetary Board: (a) to notify in writing the bank's board of directors of the receiver's findings, and (b) to direct the PDIC to proceed with liquidation. Had the law intended a separate and distinct factual determination by the Monetary Board, there would have been a provision to that effect. The BSP, as government regulator of banks, and the PDIC, as statutory receiver, are the principal agencies mandated by law to determine the financial viability of banks and facilitate the receivership and liquidation of closed financial institutions. Applying the maxim verba legis non est recedendum — "from the words of a statute there should be no departure" — the clear, plain, and unambiguous language of Section 30 must be given its literal meaning without attempted interpretation.

• Police Power in Bank Closure and Liquidation — The power and authority of the Monetary Board to close banks and liquidate them when public interest so requires is an exercise of the police power of the State. Such power is subject to judicial inquiry and may not be exercised arbitrarily or unreasonably; it may be set aside if it is capricious, discriminatory, whimsical, arbitrary, unjust, or tantamount to a denial of due process and equal protection. In this case, the Court found no such arbitrariness or bad faith in the Monetary Board's issuance of Resolution No. 571, the action having been supported by PDIC's finding of insolvency and the failure of two rehabilitation biddings.

• Finality of Monetary Board Actions in Insolvency Proceedings — Actions of the Monetary Board taken under Section 30 (and Section 29) of RA 7653 are explicitly declared by law to be final and executory. They may not be set aside, restrained, or enjoined by the courts except upon petition for certiorari on the ground that the action was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction, and upon convincing proof that the action is plainly arbitrary and made in bad faith. The Court found no such proof in this case.

• Verba Legis Non Est Recedendum — "From the words of a statute there should be no departure." A statute that is clear, plain, and free from ambiguity must be given its literal meaning and applied without any attempted interpretation. The Court applied this maxim to Section 30 of RA 7653, holding that because the provision does not require the Monetary Board to make an independent factual determination before ordering liquidation, no such requirement should be read into it.

• "Nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an independent determination of whether a bank may still be rehabilitated or not. As expressly stated in the afore-cited provision, once the receiver determines that rehabilitation is no longer feasible, the Monetary Board is simply obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with liquidation." — This passage articulates the ratio decidendi: the statutory scheme of Section 30 places the determination of rehabilitability on the receiver (PDIC), not the Monetary Board, and the Monetary Board's role upon such determination is purely ministerial.

• "Suffice it to say that if the law had indeed intended that the Monetary Board make a separate and distinct factual determination before it can order the liquidation of a bank or quasi-bank, then there should have been a provision to that effect. There being none, it can safely be concluded that the Monetary Board is not so required when the PDIC has already made such determination." — This passage reinforces the Court's textualist reading of Section 30 and is the key holding on the independent-determination issue.

• "The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution." — This passage defines the scope and limits of the Monetary Board's police power in bank closure proceedings and is frequently cited in banking law jurisprudence.

• Miranda vs. PDIC, 532 Phil. 723 (2006) — Controlling precedent cited for the proposition that the Monetary Board's power to close and liquidate banks is an exercise of police power subject to judicial inquiry, and that Monetary Board actions in insolvency proceedings are final and executory and may not be set aside except upon convincing proof of arbitrariness and bad faith. Followed in this case.
• Banco Filipino Savings and Mortgage Bank vs. Monetary Board, G.R. Nos. 70054, 68878, 77255-58, 78766, 78767, 78894, 81303, 81304, 90473, December 11, 1991, 204 SCRA 767 — Cited through Miranda vs. PDIC for the principle that the Monetary Board's police power in bank closure is subject to judicial review.
• City of General Santos vs. Commission on Audit, 733 Phil. 687 (2014) — Cited for the definition of grave abuse of discretion as the evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or when the judgment is not based on law and evidence but on caprice, whim, and despotism.
• Bolos vs. Bolos, 648 Phil. 630 (2010) — Cited for the maxim verba legis non est recedendum, the principle that a clear, plain, and unambiguous statute must be given its literal meaning without attempted interpretation.
• Central Bank of the Philippines vs. De la Cruz, 269 Phil. 365 (1990) — Cited through Miranda vs. PDIC for the principle that Monetary Board actions in insolvency proceedings may not be set aside except upon convincing proof that the action is plainly arbitrary and made in bad faith.

• Section 30, Republic Act No. 7653 (The New Central Bank Act) — Governs the proceedings in the receivership and liquidation of banks and quasi-banks. The provision authorizes the Monetary Board to summarily forbid a bank from doing business and designate PDIC as receiver upon finding that the bank is unable to pay its liabilities, has insufficient realizable assets, cannot continue in business without probable losses to depositors or creditors, or has willfully violated a final cease and desist order. It further provides that if the receiver determines that the institution cannot be rehabilitated or permitted to resume business, the Monetary Board shall notify the board of directors in writing and direct the receiver to proceed with liquidation. The provision declares Monetary Board actions final and executory, subject to certiorari only on grounds of excess of jurisdiction or grave abuse of discretion, and limits the petition to stockholders of record representing the majority of capital stock within ten days from receipt of the order. The Court applied this provision to hold that the Monetary Board was not required to make an independent factual determination of EIB's viability before ordering its liquidation.

Carpio, Peralta, Caguioa, and Reyes, Jr., JJ., concurred.