SEC En Banc Case No. 02-18-438 In Re: Petition for Rehabilitation and for Declaration in a State of Suspension of Payments - STANDFORD RESOURCES AND DEVELOPMENT CORPORATION

PICC Secretariat Building, PICC Complex, Pasay City Securities and Exchange Commission Republic of the Philippines Department of Finance

COMMISSION EN BANC

IN REHABILITATION AND DECLARATION IN A STATE OF RE: PETITION FOR FOR SEC EB Case No. 02-18-438 SUSPENSION OF PAYMENTS STANDFORD RESOURCES AND SHP-1's Dismissal of Petition due to Lack of Jurisdiction

DEVELOPMENT CORP. Appellant,

DECISION

January 2018 of the Commission's SPECIAL HEARING PANEL 1 (SHP-1), where Appellant STANDFORD RESOURCES AND DEVELOPMENT CORP. (STANDFORD)'s Petition for Rehabilitation and for Declaration in a State of Suspension of Payments This resolves the Appeal of the Orders dated 18 October 2017 and 29

was dismissed for lack of jurisdiction.

RELEVANT FACTS

PART 1 - PROCEEDINGS FROM 1999-2002

Declaration in a State of Suspension of Payments with the Commission. On 3 March 1999, STANDFORD filed its Petition for Rehabilitation and for

actions pending against STANDFORD before "any court, tribunal, office, board, body, and/or commission" until further notice (SUSPENSION ORDER) On 9 March 1999, the Commission En Banc issued an Order suspending all

suspension of all pending actions against STANDFORD. On 14 April 1999, the Commission En Banc issued an Order extending the

On 8 August 2000, the Securities Regulation Code of 2000 (SRC), which Was signed into law on 19 July 2000, became effective. Section 5.2 of the SRC Payments to the regular courts, with the exception of pending cases as of 30 June transferred jurisdiction over Petitions for Rehabilitation and Suspension of 2000, viz.

enumerated under Section 5 of Presidential Decree No The Commission's jurisdiction 902-A is hereby transferred to the Courts of general over all cases

jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its

branches that shall exercise jurisdiction over the cases. authority may designate the Regional Trial Court

SEC EB Case No. 02-18-438 STANDFORD v. SHP-1 Page 2 of 9

payment/rehabilitation cases filed as of 30 June 2000 cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain_jurisdiction over pending_suspension of until finally disposed. (Emphasis supplied) The Commission shall retain jurisdiction over pending

instead, placed the corporation under Liquidation, viz. STANDFORD "technically insolvent," thus precluding corporate rehabilitation. The Commission consequently dismissed the Petition for Rehabilitation and, On 13 October 2000, the Commission En Banc issued an Order declaring

It appearing from the records of this case that the inability of petitioner [STANDFORD] to pay, although year from the filing of this Petition, petitioner insolvent, therefore this Petition is hereby DISMISSED temporary, will last for a period longer than one (1) corporation [STANDFORD] is considered technically (Sec. 3-12 Rules on Corporate Recovery)

Accordingly, petitioner corporation [STANDFORD] is Atty. MANUEL D. YNGSON, Jr. Receivers and [STANDFORD] XXX now considered for liquidation with the appointment of Liquidators, Inc. xxx as the liquidator of the corporation

that "Commission-supervised Liquidation is no longer necessary," viz. On 18 December 2001, the Commission En Banc issued an Order declaring

act on his part from such date onward on behalf of the already terminated as early as May 31, 2001. Hence, any [T]he services of the SEC-Appointed Liquidator was

liquidating itself, until and unless a new liquidator is appointed and qualified. Hence, the petitioner through the approval of this Commission, enter into negotiations and agreements with the creditors, as long as their acts would not be prejudicial to the corporation, its creditors, and [its] stockholders. the absence of a Liquidator, the corporation (or its board of directors) would assume the obligation of its corporate officers may, from May 31, 2001, subject to corporation would be coated with legal uncertainties. In

Considering that all major creditors [have] already restructuring of loan, and considering further that conformity to such arrangements would be more beneficial agreed to dacion en pago settlement and/or and advantageous to the petitioner corporation [STANDFORD] as well as the creditors, the Commission rules that a Commission-supervised Liquidation is no longer necessary. (Emphasis supplied)

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SEC Revised Rules of Procedure, viz. PROSPERITY's Motion was denied under the then-prevailing Section 16-11 of 2000 (PROSPERITY), a creditor of STANDFORD, filed a Motion for Reconsideration before the Commission En Banc, assailing the Order dated 18 December 2001. On 15 February 2002, PR0SPERITY CREDIT RESOURCES, IC

No motion for reconsideration of the Order or Decision of the Commission En Banc shall be entertained.1

PART 2 - PR0CEEDINGS FROM 2002-2018

delegated to the Commission's Special Hearing Panel 1 (SHP-1). and 18 December 2001, the Liquidation of STANDF0RD.continued. In turn. the Commission continued to supervise the Liquidation. The matter was eventually Despite the Orders of the Commission En Banc dated 13 October 2000

PART 3 - PR0CEEDINGS FR0M 2016-2018

"technically insolvent," the Insolvency Law2 should have been applied, pursuant to which jurisdiction over Liquidation is vested in the regular courts. Proceedings and to Dismiss the Petition (for Rehabilitation and Suspension of Payments] with the SHP-1. It argued that since STANDFORD was declared On 19 February 2016, PROSPERITY filed a Motion to Terminate

Was pending as of 30 June 2000. that the Commission has jurisdiction, since this case was filed on 3 March 1999 and On 15 March 2016, the Liquidator filed a Comment/0pposition, arguing

STANDFORD, PROSPERITY, the Liquidator, and the creditors to a Conference, but not all of the Creditors attended. creditors to file their separate Comment/Opposition to PROSPERITY's Motion to Terminate, but none of them filed such with the Commission. The SHP-1 also called Between March and October 2017, the SHP-1 directed all of STANDF0RD's

Petition due to lack of jurisdiction, viz. On 18 October 2017, the SHP-1 issued an Order dismissing STANDFORD's

March 1999. 0n 9 March 1999, the Commission granted the Petition for Suspension of [STANDFORD]. In such manner, the action was pending as of 30 June 2000 and the Commission retained jurisdiction over such Petition for Suspension. Petition for Rehabilitation and for Declaration in a State of Suspension of Payments with the Commission on 3 As borne by the records of this case, STANDFORD filed al

However, on 13 0ctober 2000, the Commission issued an Order dismissing the Petition. xxx

1 This rule has been retained. SEC. 3-12 of RULE III of the 2016 SEC Rules of Procedure explicitly states: "No motion for reconsideration of the Decision of the Commission En Banc shall be 2 Repealed by R.A. 10142, the Financial Rehabilitation and Insolvency Act of 2010 (FRIA). entertained

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Commission issued the Order declaring STANDFORD technically insolvent and placed the corporation under Liquidation, the case was deemed finally disposed. For its part, PROSPERITY contends that when the

We agree with the contention of [PROSPERITY].

In the case of Consuelo Metal Corporation VS

the Supreme Court heid that: Planters Development Bank [Consuelo Metal case],3

However, the SEC's jurisdiction does not extend to the liquidation of a corporation.

jurisdiction over the liquidation now pertains to the appropriate regional trial the liquidation of the corporation, While the SEC has jurisdiction to order

courts.4

XXX XXX XXX

for Extension of Suspension Order [which] was granted on 14 April 1999 until 9 May 1999. When the is undeniable from the time the Commission issued Commission no longer had jurisdiction to supervise the Liquidation proceedings of [STANDFORD]. xxx [I]t is clear that [STANDFORD] filed its Petition for 1999. Likewise, [STANDFORD] filed an Urgent Motion Commission [discovered] [STANDFORD]'s inability to pay, it then considered the corporation as technically insolvent. [Hence, the Commission] dismissed the Petition and placed [STANDFORD] under Liquidation. It the questioned 0rder dated 13 October 2000, the Rehabilitation and Suspension of Payments on 3 March

Further, the Order of the Commission dated 18 December 2001 xxx clearly states:

We have noted that in the Order dated October 13, 2000, the hearing officer declared the petitioner corporation [STANDFORD] "technically insolvent" xxx

rehabilitation plan is now irrelevant. Hence, the issue on the propriety of a

XXX XXX XXX

xxx [T]he Commission rules that a Commission supervised liquidation is no longer necessary.

3 G.R. No. 152580, 26 June 2008. 4 Page 6 of SHP-1's Order dated 18 October 2017.

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Orders on 13 October 2000 and 18 December 2001.5 Records of the case prove that the Commission had Liquidation of [STANDFORD] when it issued the already lost its jurisdiction to supervise the

SHP-1 further ruled that jurisdiction is "conferred only by law" and that "estoppel does not apply. Citing the Supreme Court decision in Heirs of Del Rosario v. Del Rosario,6

With the SHP-1. On 7 November 2017, STANDFORD filed a Motion for Reconsideration

Motion for Reconsideration. On 29 January 2018, the SHP-1 issued an Order denying STANDFORD's

proceedings to commence, viz. liquidation proceedings, because it had earlier asserted its jurisdiction (to the exclusion of the regular courts) when it ordered the very same liquidation Commission En Banc. It argued that the Commission retains jurisdiction over the On 13 February 2018, STANDFORD filed its Appeal Memorandum with the

It.is.well-settled..that..oncea.court...acquires termination.of the proceedings. jurisdiction, it_does so to the exclusion of_other courts. This _jurisdiction shall continue until the

Honorable Commission dismissed the Petition [for Rehabilitation and Suspension of Payments] in its [PROSPERITY claims it its [Motion] that when this

Order dated 13 October 2000, it should have referred the liquidation proceedings to the Regional Trial Court. We again quote hereunder the dispositive portion for easy reference:

temporary, will last for a period longer It appearing from the records of this case than one (1) year from the filing of this Corporate Recovery) that [STANDFORD] Petition, [STANDFORD] is considered technically insolvent,therefore this hereby DISMISSED (Sec. 3-12 Rules on the inability petitioner to pay, of Petition corporation petitioner although is

Accordingly, liquidation with the appointment of Atty [STANDFORD] is now considered for MANUEL D. YNGSON, Jr. Receivers and petitioner corporation

5 Page 7-8 of SHP-1's Order dated 18 October 2017. 6 G.R. No. 181548, 20 June 2012.

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Liquidators, Inc. xxx as the liquidator of the corporation [STANDFORD] xxx

[STANDFORD] was technically insolvent. The second Honorable Commission has two parts. The first part involves part involves the declaration that the petitioner [STANDFORD] [was] considered for liquidation and the appointment of Atty. Yngson as liquidator. It will be noticed that the above-quoted Order of this the declaration that the appellant

In other words, this Honorable Commission took cognizance of the liguidation proceedings and did not refer it to the Regional Trial Court. (Emphasis supplied)

being a prohibited pleading under the 2016 SEC Rules of Procedure, viz. Dismissal of Appeal. It argued that the Appeal should be dismissed outright for On 22 May 2018, PR0SPERITY filed a Manifestation with Prayer for

Appeal should be dismissed [outright]. the Order dated 18 0ctober 2017 (granting the which upheld the previous order xxx then the present Considering that the Appeal taken by STANDFORD is on Motion to Terminate Proceedings on the ground of Lack of Jurisdiction), and the Order dated 29 January 2018

not appealable to the SEc En Banc. As such, the It is evident from the above-cited sections in the 2016 SEC Rules of Procedure that Orders dismissing an action on [the]_ground of absence of jurisdiction is present [Appeal] should be dismissed outright.7 (Emphasis supplied)

On 5 July 2018, PROSPERITY filed a Motion to Act on the Appeal.

Comment to the SHP-1. On 11 July 2018, the Commission En Banc issued an Order to File

no timely Comment was filed. On 13 July 2018, a copy of the Order was received by the SHP-1. However,

highlighting that this matter has been pending for 19 years to the prejudice of STANDFORD's creditors, viz. Resolution Due to Meritorious Reason on Grounds of Lack of Jurisdiction, On 28 September 2018, PROSPERITY filed a Letter-Request for Early

Petition has been_ultimately dismissed for lack of jurisdiction [by the Commission] it languished for nineteen (19) long_years through various devices The Petition for Rehabilitation and [Suspension of Payments] was filed by [STANDFORD]. While the

7 Page 7 of PROSPERITY's Manifestation filed 22 May 2018.

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assets beyond their reach.* (Emphasis supplied) the claims of their creditors and put the company empIoyed by [STANDFORD] to.defeat the rights and appointed without anyone [of them] successfully getting control over the corporation. Instead, STANDFORD used the [Suspension Order] issued by the SEc [during the pendency of the case] to parry claims of its_.creditors. Three liquidators were

the 2016 SEC Rules of Procedure (2016 Rules), viz. PROSPERITY's Letter-Request invoked Section 3-1(g), Rule III, Part V of

rule implementation. Regulatory Organization, if there are (i) questions of fact, or (ii) questions of Iaw, or (iii) questions of rule implementation, or (iv) mixed questions of fact, law and resolution of a Director of an Operating Department, the members of a Special Hearing Panel or a Self SEC. 3-1. Subject of Appeal to the Commission En Banc. - A party to an action may appeal to the Commission En Banc an adverse decision, final order or

No appeal may be taken from:

XXX XXX XXX

g of absence of authority or jurisdiction of the Operating Department to act over the subject matter. (Emphasis supplied) An order dismissing an action on the ground

authority or jurisdiction of the Special Hearing Panel to act over the subject Panel, and a Self-Regulatory Organization on the same level (i.e. their Decisions are appealable to the Commission En Banc), it follows that the above provision must be deemed to include an order dismissing an action on the ground of absence of Since the 2016 Rules place an Operating Department, a Special Hearing

matter.

Hence this Appeal.

DISCUSSION

interest of substantial justice, we shall resolve this case on the merits. Although PROSPERITY has presented a valid procedural argument, in the

because (1) a Suspension Order was issued prior to 30 June 2000 and so jurisdiction the liquidation proceedings. The Consuelo Metal case is indeed applicable here, The SHP-1 correctly ruled that the Commission has no jurisdiction over

Was retained by the SEC despite the passage of the Securities Regulation Code, but

8 Page 1-2 of PROSPERITY's Letter-Request filed 28 September 2018.

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and should be liquidated instead, viz. (2) the SEC later determined that the corporation could no longer be rehabilitated

The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully rehabilitated.

However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now pertains to the appropriate.regional trial courts.This is the reason why the SEC, in its 29 November 20000mnibus 0rder, directed that the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred. This is the correct procedure because the liquidation of a corporation requires the settiement of claims for and against the corporation, which clearly falls. under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. 9

matter to the regular courts and, in the same Order, appointed a liquidator. Unlike the Consuelo Metals case, however, the Commission did not refer the

entire liguidation proceedings to the regular_courts. The Commission's liquidators beginning with Atty. Yngson, and should have instead referred the We rule that the Commission had no jurisdiction to appoint any of the

jurisdiction only extended to the termination of the Rehabilitation proceedings. As correctly pointed out by the SHP-1 in its Order dated 18 October 2017, viz.

9 Supra note 3.

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It is undeniable from the time the Commission issued the questioned Order dated 13 October 2000, the Commission no longer had jurisdiction to supervise the Liquidation proceedings of [STANDFORD].10

It was correct for the SHP-1 to dismiss this case because jurisdiction is

liquidation case which belongs within the exclusive jurisdiction of the regular conferred by law.11 The Commission cannot vest itself with powers over a

courts, regardless of the actions already taken by the liquidators and the lapse of

failed to complete a task that was never theirs to perform. time. Perhaps it is fortunate, in hindsight, that the SEC-appointed liquidators were prevented by STANDFORD from gaining control of the corporate assets and thus

that the corporation is certainly dying and cannot recover, while the other and Suspension of Payments, because the liquidation proceedings cannot be construed as an extension of the rehabilitation proceedings which ended on 13 October 2000. Liquidation is the alternative to Rehabilitation--one presupposes Moreover, the SHP-1 was correct to dismiss this Petition for Rehabilitation

presupposes that the corporation can eventually recover.

rehabilitation proceedings have long been terminated, it follows that such orders pendency of the rehabilitation case, to frustrate the efforts of its creditors. Since the Suspension 0rders dated 9 March 1999 and 4 April 1999, issued during the are no longer effective. Finally, PROSPERITY alleges that STANDFORD has been invoking the

WHEREFORE, premises considered, the Appeal is hereby DENIED.

SO ORDERED

Pasay City, Philippines; 16 November 2018.

EMILIO DuInO

Chairpefson

SAU

ANTONIETA F. IBE Commissioner EPHYRO LUIS B. AMATONG Commissioner JAVEY PAUL D. FRANCISCO Commissioner

11 Citing Del Rosario v. Del Rosario, supra note 6. 10 Supra note 5.