Monetary Board's power to close, liquidate banks; determination of rehabilitation

Section 30 of RA 7653 provides for the proceedings in the receivership and liquidation of banks and quasi-banks, the pertinent portions of which read:

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or 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 the assets of the institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.

xxx

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court x x x[.]

If 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. The receiver shall:

x x x x

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the designation of a receiver.

It is settled that "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."[1] Otherwise stated and as culled from the above-quoted provision, the actions of the Monetary Board shall be final and executory and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.There is grave abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law and evidence but on caprice, whim and despotism.[2]

Based on the foregoing legal principles on the matter, in the case of Apex Bancrights v. BSP (G.R. No. 214866, October 02, 2017), the Supreme Court agreed with the Court of Appeals (CA) that the Monetary Board did not gravely abuse its discretion in ordering the liquidation of Export and Industry Bank (EIB) through its Resolution No. 571.

In that case of Apex Bancrights, after the Monetary Board issued Resolution No. 686 which placed EIB under the receivership of Philippine Deposit Insurance Corporation (PDIC), the latter submitted its initial findings to the Monetary Board, stating that EIB can 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:

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
All parties (including creditors and stockholders) agree to the rehabilitation and the revised payment terms and conditions of outstanding liabilities.

However, the foregoing conditions for EIB's rehabilitation "were not met because the bidding and re-bidding for the bank's rehabilitation were aborted since none of the pre-qualified Strategic Third Party Investors (STPI) submitted a letter of interest to participate in the bidding," thereby resulting in the PDIC's finding that EIB is already insolvent and must already be liquidated - a finding which eventually resulted in the Monetary Board's issuance of Resolution No. 571.

In an attempt to forestall EIB's liquidation, petitioners in that case insisted that the Monetary Board must first make its own independent finding that the bank could no longer be rehabilitated - instead of merely relying on the findings of the PDIC before ordering the liquidation of a bank. According to the High Court, such position is untenable.

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, viz.:

If 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. xxx[3]

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. It must be stressed that the BSP (the umbrella agency of the Monetary Board), in its capacity as government regulator of banks, and the PDIC, as statutory receiver of banks under RA 7653, are the principal agencies mandated by law to determine the financial viability of banks and quasi-banks, and facilitate the receivership and liquidation of closed financial institutions, upon a factual determination of the latter's insolvency.[4] Thus, following the maxim verba legis non est recedendum which means "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,[5] as in this case.

In sum, the Monetary Board's issuance of Resolution No. 571 ordering the liquidation of EIB cannot be considered to be tainted with grave abuse of discretion as it was amply supported by the factual circumstances at hand and made in accordance with prevailing law and jurisprudence. To note, the actions of the Monetary Board in proceedings on insolvency are explicitly declared by law to be final and executory. They may not be set aside, or restrained, or enjoined by the courts, except upon convincing proof that the action is plainly arbitrary and made in bad faith,[6]. These things, the Supreme Court found to be absent in the case of Apex Bancrights.

[1] Miranda v. PDIC, 532 Phil. 723, 730 (2006), citing Banco Filipino Savings and Mortgage Bank v. Monetary Board, G.R. Nos. 70054, 68878, 77255-58, 78766, 78767, 78894, 81303, 81304, 90473, December 11, 1991, 204 SCRA 767, 798.

[2] City of General Santos v. Commission on Audit, 733 Phil. 687, 697 (2014).

[3] See Section 30, RA 7653.

[4] See Miranda v. PDIC, supra note 24 at 731.

[5] See Bolos v. Bolos, 648 Phil. 630, 637 (2010), citing Padua v. People, 581 Phil. 489, 500-501 (2008).

[6] Miranda v. PDIC, supra note 24, at 731, citing Central Bank of the Philippines v. De la Cruz, 269 Phil. 365, 374 (1990).

(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 the assets of the institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution.