FIFTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES —)
Second Regular Session )

HOUSE OF REPRESENTATIVES

introduced by Representative Rufus B. Rodriquez and
Representative Maximo B. Rodriguez, Jr.

House Bill No. 6157
EXPLANATORY NOTE

Where bank closure is imminent or unavoidable, especially so during financial
distress, an effective liquidation framework for failed banks is indispensable. As an
essential tool of the country’s financial safety net, it not only protects the interests of all
parties affected by a bank closure but also allows for the resolution of the failed bank in
an efficient and prompt manner with minimum negative impact on the stability of the
banking industry and the country's economic system

The domestic financial landscape, significantly altered by recent economic crises,
reveals the current bank liquidation process as inadequate to respond to challenges
posed by actual bank closures. Unable to carry out a quick, responsive and effective
resolution of closed banks, its ability to protect bank depositors, creditors, and other
affected parties is severely hampered. What results is a protracted and costly endeavor
inhibiting maximum recovery by diminishing the value of bank assets and unnecessarily
straining government coffers.

The bill at hand institutes much needed reforms to the current bank liquidation
regime. It addresses the problems and concerns that continue to plague the system
currently in place. The salient points of this measure include:

+ Seamless Transition from Bank Closure to Liquidation. The bill removes the
mandatory 90-day receivership period prior to liquidation to allow for a
seamless transition from closure to liquidation. Experience has shown that
rehabilitation ts no longer feasible after the Monetary Board has closed a
bank, mainly because of the latter’s dismal financial condition at the time of its
closure. Coupled with the bank's eraded franchise value, it virtually negates
the chances of a successful recovery.

+ Altemative Modes of Liquidation. The bill authorizes the statutory liquidator of
closed banks to implement altemative bank liquidation methods, namely:
Purchase of Assets and Assumption of Liabilities transaction and Bridge
Banking. Both methods are widely used in other jurisdictions and are deemed
less costly for the government and less disruptive to the financial system.


+ Enhanced Liquidation Process. The bill introduces significant reforms which
address the limitations of existing Jaws on bank liquidation:

1. Clear procedures for the takeover of closed banks and for the filing of the
Petition for Assistance in the Liquidation of closed banks (PAL):

2. Termination of the bank's corporate existence as weil as the powers and
functions of its stockholders, directors, and officers upon the bank's
closure minimizes unnecessary interference and delay in the liquidation
process resulting from unwarranted suits brought about by stockholders of
the closed bank,

3. Explicit authority of the bank liquidator to determine the liquidation price of
the closed bank's assets based on generally-accepted valuation principles
and internationally-accepted valuation standards and practices. and

4. Explicit authority of the bank liquidator to avail of various modes of
disposing real and personal properties of closed banks.

+ Winding-Up Phase. The bill prescribes a one-year period within which the
closed bank's creditors and stockholders are paid their claims against the
bank, to be reckoned from the publication of the notice of the approval by the
fiquidation court of the final distribution of the assets of the closed bank.
Ciaims that remain unclaimed after the lapse of the said period shall be
turned over to the government.

On the whole, this bill represents an opportunity to advance and apply the
lessons learned from previous bank closure experiences, highlighted no less by the
recent global economic recession. What it ultimately seeks to accomplish is ensure a
healthy and resilient banking system upon which the nation’s financial sector relies
heavily on. In so doing, it not only lends itself to the country’s economic roadmap but
also aligns the country's deposit insurance system with international best practices and
standards.

In view of the foregoing, immediate passage of this bill is eamestly requested.

<

RuFYS B. ROD! EZ

would, Loaves JR.


FIFTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES —)
Second Regular Session )

HOUSE OF REPRESENTATIVES

~ Introduced by Representative Rufus B, Rodriguez and
_ Representative Maximo B. Rodriguez, Jr. _

Bill No, _ 8157

Hou:

AN ACT
PROVIDING FOR THE TAKEOVER, LIQUIDATION AND WINDING UP OF A
CLOSED BANKING INSTITUTION

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembied:

CHAPTER |
GENERAL PROVISIONS

Section 1. Title and Coverage. - This Act shall be known as the “Closed Bank
Liquidation Act of 2012.”

Section 2. Declaration of Policy. - It is the policy of the State to promote the efficient
and orderly Liquidation of the assets, and the settlement of the obligations, of Banks
which have been ordered closed by the Monetary Board. In so doing, the State shall
protect and recognize the rights of creditors, respect the priority of claims. and ensure
equitable treatment of creditors who are simifarly situated

Section 3. Definition of Terms. — As used in this Act, the term:

{a} “Asset” is anything of value either in the form of money, amount owed,
movable or fixed assets, including, among others, assets over which the
Closed Bank has equitable interest.

{b) “Bank” shall refer to an entity engaged in the lending of funds obtained in the
form of deposits. This shall include universal banks, commercial banks,
savings banks, mortgage banks, rural banks, development banks,
cooperative banks, stock savings and loan associations, branches in the
Philippines of foreign banks, and ail other corporations authorized to perform
banking functions in the Philippines.

{c) ‘Closed Bank" shali refer to a Bank placed under liquidation by the Monetary
Board pursuant to law.


‘d} “Creditor’ shall refer to any holder of a Valid Claim against the assets of the
Closed Bank.

fe] “Disputed Claim” shall refer to a claim or suit against the assets of a Closed
Bank, or for specific performance, or breach of contract, or damages, and of
whatever nature or character, whether for money or otherwise, liquidated or
unliquidated, fixed or contingent. matured or unmatured. Claims denied by the
Liquidator are also classified as Disputed Claims.

“Distribution Pian” (DP) shall refer to the plan of distribution of the assets of a
Closed Bank as of the cut-off date of the Statement of Affairs (SOA) of the
Closed Bank, in accordance with the rules on concurrence and preference of
credits under the Civil Code or other laws. The DP specifies in detail the total
amount of assets available for distribution, and the amount and kind of
payment for the settlement of the liabilities of the Closed Bank.

ADP may be partial (Partial Distribution Plan or PDP), when it pertains to the
distribution of a portion or some of the assets of the Closed Bank, or final
{Final Distribution Plan or FDP), when it pertains to the distribution of all the
assets of the Closed Bank

{9} “Liquidation” shail refer to the proceedings under this Act.

{h) “Liquidation Court” shall refer to the Regional Trial Court of general
jurisdiction where the Petition for Assistance in the Liquidation of a Closed
Bank is filed and given due course.

“Liquidator” shall refer to the Philippine Deposit Insurance Corporation or any
of its agents acting as tiquidator of a Closed Bank

(

{}) "Payout" shall refer to the payment of vatid claims for insured deposits.

{k} “Petition for Assistance in the Liquidation of a Closed Bank” (PAL) shalt refer
to the petition filed by the Liquidator with the Regional Trial Court (RTC) in
accordance with Section 16 of this Act

(i) “Principal Obligation” shalt refer to the outstanding obligation including

interest as of date of closure of the Bank as validated by the Liquidator.

(m} “Records” shall include ai! documents, titles, papers and electronic data of
the Closed Bank, including those pertaining to deposit accounts of and with
the Closed Bank, and its assets, transactions and corporate affairs.

1) “Residual Assets” shall refer to the Closed Bank assets remaining after
payment in full of Liquidation costs. fees and expenses, and the Valid Claims
and Surplus Dividends to the Creditors, which shall be turned over to the



stockholders of record of the Closed Bank as of date of closure in proportion
to their interest.

{o} “Statement of Affairs” (SOA) shail refer to a report of financial condition at a
given date, showing the: 1) estimated realizable value of assets; 2)
classification of credits; and 3} total estimated tiabilities to be settled.

(p) “Surplus Dividend” represents the share of each creditor in the remaining
assets of the Closed Bank after payment in full of all the Liquidation costs,
fees and expenses, and Valid Claims, in accordance with the rules on
concurrence and preference of credits and such other laws defining the legal
priorities. The Surplus Dividend is computed at the legal rate of interest from
the date of takeover to cut-off date of the distribution plan.

{q) "Takeover’ shall refer to the act of physically taking possession and control of
a Closed Bank for purposes of Liquidation.

(r) “Valid Claim” is the claim recognized by the Liquidator or allowed by the
Liquidation Court, which shall be in an amount including interest as of date of
closure.

{s) “Winding Up Period” shall refer to the period provided in Chapter Vill of this
Act,

Section 4. Bank Closure and Liquidation. —

(a) Banking is @ public trust. As such, the closure of a Bank is an exercise of
police power of the State.

{b) The authority to forbid a Bank from doing business in the Philippines and
direct its Liquidation under this Act is vested exclusively with the Monetary
Board, consistent with existing laws

(c) The actions of the Monetary Board taken under this Act shall be final and
executory, and may not be restrained or set aside except on petition for
certiorari filed with the Court of Appeals on the ground and upon a finding
after due hearing 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 bank of the resolution or order directing the
closure, Takeover and Liquidation of the Bank


CHAPTER li
APPOINTMENT OF A BANK LIQUIDATOR AND ACTIVITIES PRIOR TO CLOSURE

Section &. Appointment of a Bank Liquidator. — (a) Whenever a Bank is ordered
closed by the Monetary Board, the Philippine Deposit Insurance Corporation (PDIC)
shall be designated as Liquidator and proceed with the Takeover and Liquidation of the
Closed Bank. For this purpose, the following clause in Section 30 of Republic Act No.
7653, as amended, shall not be applicable to Banks:

“The receiver shall determine, as soon as possible, but not later than ninety (90)
days from take-over. whether the institution may be rehabilitated or otherwise
placed in such a condition so that it may be permitted to resume business with
safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to
prior approval of the Monetary Board.”

{b) The PDIC shall serve to the Board of Directors of the Closed Bank a copy of the
Monetary Board resolution or order placing the Bank under Liquidation. The ten (10)-
day period within which the stockholders of record representing the majority of the
capital stock may file the petition for certiorari referred to under Section 4 (c) of this Act
shall be reckoned from service of the Monetary Board resolution or order.

Section 6, Modes of Liquidation. - Whenever a Bank is ordered closed by the
Monetary Board, the Liquidator is authorized to adopt any or a combination of the
following modes of Liquidation:

(a) Conventional Liquidation
(b) Purchase of Assets and Assumption of Liabilities
(c} Bridge Banking

Section 7. Conduct of Due Diligence Prior to Closure. — The PDIC or its agents may
conduct in coordination with the Bangko Sentral ng Pilipinas (BSP), a due diligence
audit on a Bank in danger of closing for the purpose of determining its financial
condition, the appropriate mode of Liquidation in the event of closure, and to establish a
deposit profile of the Bank such as, but not limited to, the number of deposit accounts
and total insured deposits.

Notwithstanding the provisions of Republic Act No. 1405, as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other laws on confidentiality of Bank
deposits, the PDIC's conduct of due diligence audit on the assets and liabilities of the
Bank shall include the audit, inquiry into or examination of all the deposit accounts and
Records of the Bank: Provided, That. the information on individual accounts obtained
through such audit shall not be disclosed or released to any third party except upon
order of the court.


CHAPTER Ill
SERVICE OF NOTICE OF CLOSURE AND TAKEOVER ACTIVITIES

Section 8. Service of Notice of Closure. — Upon its designation as Liquidator of a
Closed Bank as referred to in Section 5. the Liquidator shall serve a notice of closure to
the highest-ranking officer of the Bank present in the Bank premises, or in the absence
of such officer, post the notice of closure in the Bank premises or on its main entrance
The closure of the Bank shall be deemed effective upon the service of the notice of
closure. Thereafter, the Liquidator shall Takeover the Bank and exercise the powers of
the Liquidator as provided in this Act.

Section 9. Authority to Force Open. - The Liquidator shall have authority to use
reasonable force, including the authority to force open the premises of the Bank. and
exercise such acts necessary to take actual physical possession and custody of the
Bank and ail its assets, records, documents, and take charge of its affairs upon the
service of the notice of closure under Section 8 of this Act

Section 10. Obligations of Directors, Officers, Employees or Agents of the Closed
Bank. — Directors, officers, employees or agents of the Bank hold money and other
assets of the Bank in trust or administration by them for the Bank in their fiduciary
capacity. Upon service of the notice of closure to the Bank as provided in Section 8 of
this Act, all directors, officers, employees or agents of the Closed Bank shail have the
duty to immediately account for, surrender or turn over to the Liquidator, and provide
information relative to, the assets, Records, and affairs of the Closed Bank in their
possession or custody.

Section 11. Assistance of Local Government and the Law Enforcement Agencies.
— When the circumstances so warrant, the local government unit and law enforcement
agencies concerned shall, upon request, immediately provide assistance to the
Liquidator during the service of notice of closure and actual Takeover operations to
ensure the orderly conduct thereof and the security and safety of the personnel of the
Liquidator.

In case of the absence of Bank employees and officers, at least one representative of

the local government unit concerned shall act as witness to the inventory taking of the
assets and Records of the Closed Bank.

CHAPTER IV
CONVENTIONAL LIQUIDATION

Section 12. Authority of the Liquidator. — The Liquidator is empowered to:

(a) Represent and act for and in behalf of the Closed Bank;


(b) Gather and take charge of all the assets, Records and affairs of the Closed
Bank, and administer the same for the benefit of its creditors:

(c) Collect loans and other claims of the Closed Bank, and for this purpose.
modify, compromise, condone or restructure the terms and conditions of such
loans or claims as may be deemed advantageous to the interest of the
creditors of the Closed Bank,

(d) Convert the assets of the Closed Bank to money, as far as practicable;

(e) Appoint and hire persons or entities to perform powers and functions of the
Liquidator or assist in the performance thereof;

() Bring suits to enforce tiabilities of the directors, officers, employees, agents of
the Closed Bank and other entities related or connected to the Closed Bank
or to collect, recover, and preserve all assets, including assets over which the
Bank has equitable interest:

(g) Hire or retain private counsel as may be necessary;

{h} Pay utilities, rentals and salaries of personnel of the Closed Bank incurred for
a period not exceeding three (3) months prior to closure of the Bank, from the
available funds of the Closed Bank;

(i) Utilize revenues and earnings realized by the Liquidator to pay for reasonable
costs, fees and expenses in the Liquidation of the Closed Bank,

() Borrow or obtain a loan, or mortgage. pledge or encumber any asset of the
Closed Bank, when necessary, to preserve or prevent dissipation of assets,
or to redeem foreclosed assets of the Closed Bank, or to minimize losses to
the depositors and creditors and pay from available funds of the Closed Bank,

(k) Distribute the available assets of the Closed Bank, in cash or in kind, to its
creditors in accordance with the provisions of the Civil Code on Concurrence
and Preference of Credits,

{) Dispose records of the Closed Bank that are no longer needed in the
Liquidation, notwithstanding the laws on archival period and disposal of
records;

(m)Reduce the interest rate to a reasonable rate if the stipulated interest on
deposits is unusually high compared with the prevailing applicable interest
rate; Provided, That, any modification or reduction shall apply to earned and
unpaid interest,

{n) Adopt modes of Liquidation as provided in this Act; and


(0) Exercise such other powers as are necessary for the effective discharge of
the duties of the Liquidator.

Section 13. Liquidation Costs, Fees and Expenses. — Before any distribution of the
assets of the Closed Bank is undertaken in accordance with the preference established
by law, the Liquidator shall charge and collect against said assets reasonable
Liquidation costs, fees and expenses, including loans, advances and interest thereon
for the preservation of assets of the Closed Bank, incurred by the Liquidator as part of
the cost of Liquidation proceedings. Liquidation costs, fees and expenses shall include
salaries of such personnel whose employment is rendered necessary in, as well as
such other costs, fees and expenses incurred or arising out of or in connection with, the
Liquidation of the Closed Bank

Section 14. Status of Employees. - The officers, employees and agents of the
Liquidator shall have no liability and shall not be subject to any action, claim or demand
in connection with any act done or omitted to be done by them in good faith in
connection with the exercise of their powers and functions under this Act or other
actions duly approved by the court.

Section 15. Effect of Placement of a Bank under Liquidation. —
{a) On the corporate franchise or existence

The corporate franchise or existence of a Bank shall be terminated upon its
closure by the Monetary Board. Nevertheless, the Bank shall be continued
as a body corporate until the termination ‘of the Winding Up Period under
Chapter Vill of this Act. Such continuation as a body corporate shall only be
for the purpose of liquidating, settling and closing its affairs and the disposal.
conveyance or distribution of its assets pursuant to this Act, including
prosecuting and defending suits by or against it, The Liquidator shall
represent the Closed Bank in all cases by or against the Closed Bank. In no
case shall the Bank be reopened and permitted to resume banking business
after being placed under Liquidation

(b) On the powers and functions of its Directors, Officers and Stockholders

The powers, functions and duties. as well as the allowances. remuneration
and perquisites of the directors, officers. and stockholders of such Bank are
terminated upon its closure. As such, the directors, officers. and
stockholders shall be barred from interfering in any way with the assets,
records, and affairs of the Bank.

(c) On the assets


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All the assets of the Closed Bank are deemed in custodia legis in the hands
of the Liquidator. These assets shall not be subject to attachment,
garnishment, execution, levy, or any other court processes. A judge, officer
‘of the court or any person who shall issue order, process, or cause the
issuance or implementation of the writ of garnishment, tevy, attachment. or
execution shall be tiable under Section 21 of R.A. 3591, as amended

Any preliminary attachment or garnishment on any of the assets of the
Closed Bank existing at the time of closure shall not give any preference to
the attaching or garnishing party. Upon motion of the Liquidator, the
preliminary attachment or garnishment shall be lifted and/or discharged.

On labor relations

Notwithstanding the provisions of the Labor Code, the employer-employee
relationship between the Closed Bank and its employees shall be deemed
terminated upon service of the notice of closure of the Bank in accordance
with this Act. Payment of separation pay or benefits shall be made from
available assets of the Bank, pursuant to a Distribution Plan of assets
approved by the Liquidation Court

Contractual obligations

The Liquidator may cancel, terminate, rescind or repudiate any contract of
the Closed Bank that is not necessary for the orderly liquidation of the Bank,
‘or is grossly disadvantageous to the closed Bank, or for any ground provided
by law.

On Interest Payments

The liability of a Bank to pay interest on deposits and all other obligations
shail cease upon its closure by the Monetary Board.

Liability for penalties and surcharges for late payment and non-payment of
taxes

From the time of closure, the Closed Bank shall not be liable for the payment
of penalties and surcharges arising from the late payment or nonpayrnent of
real property tax, capital gains tax, transfer tax and similar charges.

Bank charges and fees on services

The Liquidator, in behalf of the Closed Bank, may continue to impose the
usual Bank charges and fees for services rendered after Bank closure, such
as, but not limited to, the execution of pertinent deeds and certifications

Actions pending for of against the Closed Bank


Actions pending for or against the Closed Bank in any court of quasi-judicial
body shall, upon motion of the Liquidator, be suspended for a period not
exceeding one hundred eighty (180) days and referred to mandatory
mediation; Provided, That: this shall not apply to actions pending before the
Supreme Court. The case shall be referred back to the court or quasi-judicial
body for further proceedings upon termination of the mediation.

(j) Final decisions against the Closed Bank

The execution and enforcement of a final decision of a court other than the
Liquidation Court against the assets of a Closed Bank shalt be stayed. The
prevailing party shail file the final decision as a claim with the Liquidation
Court which shall be settled in accordance with the rules on Concurrence
and Preference of Credits, such other laws defining the legal priorities and
rules as may be prescribed by the Supreme Court

(k

Docket and other court fees

Payment of docket and other court fees relating to all cases or actions filed
by the Liquidator with any judicial or quasi-judicial bodies shail be deferred.
Any such fees shail constitute as a first lien on any judgment in favor of the
Closed Bank or in case of unfavorable judgment, such fees shall be paid as
Liquidation costs and expenses during the distribution of the assets of the
Closed Bank.

Section 16. Petition for Assistance in the Liquidation (PAL) of a Closed Bank. —
(a) Nature of PAL of a Closed Bank

4) Any proceeding initiated under this Section shall be considered in rem.
Jurisdiction over all persons affected by the proceeding shall be
considered as acquired upon publication of the Order setting the case
for initial hearing in any newspaper of general circulation in the
Philippines.

2) APALis a special proceeding for Liquidation of a Closed Bank which
includes the declaration of the concomitant right of its Creditors and
the order of payment of their Valid Claims in the disposition of the
assets of the Closed Bank.

(b} Exclusive Jurisdiction of the Liquidation Court
The Liquidation Court shall have exclusive jurisdiction to adjudicate Disputed

Claims against the Closed Banks, assist in the enforcement of individual liabilities of the
stockholders, directors and officers and decide on all other issues as may be material to


implement the distribution plan adopted by the PDIC for general application to all
Closed Banks.

(c) Non-applicability of the Securities Regulation Code and the Rules of
Procedure on Corporate Rehabilitation

The provisions of Republic Act No. 8799, otherwise known as “The Securities
Regulation Code,” and Supreme Court Administrative Matter No. 00-8-10-SC, entitled.
“The Rules of Procedure on Corporate Rehabilitation,” shall not be applicable to the
PAL of the Closed Bank.

{d) Venue

The PAL shail be filed in the Regional Trial Court which has jurisdiction over the
principal office of the Closed Bank or the principal office of the Liquidator, at the option
of the latter,

{e) Time to File Petition

The PAL shail be filed ex parte within a reasonable period from receipt of the
Monetary Board resolution placing the Bank under Liquidation.

(1) Period for Filing Claims

Ail claimants shall file their claims with the Liquidator within sixty (60) days from
date of publication of the order setting the PAL for initia! hearing. Claims filed outside
the prescribed period shall be disallowed

(g) Filing of Liquidation Report

The Liquidator shall submit annually to the Liquidation Court the Liquidation
Report of the Closed Bank for the immediately preceding year.

{h) Contents of the Liquidation Report

The Liquidation Report may include the following information on the Closed
Bank:

1) Inventory of assets;

2) List of recognized liabilities:

3) Comparative statement of affairs;

4) Collections of receivables and disposals of assets;
5) Costs, fees and expenses incurred:

6) List of pending cases,

7) Plan of action for the succeeding period; and


8) Other information material to assist the Liquidation Court in the
Liquidation of the Closed Bank.

(j) Status Report

The Liquidator shall submit to the Liquidation Court a status report on the
implementation of the approved partial distribution plan (PDP) within sixty (60) days
from finality of the order approving the PDP.

() Contingent Claims

Claims the validity of which have not been determined with finality at the time of
the submission of the final distribution plan (FDP), either by reason of a pending suit or
for whatever reason, shall be considered as contingent claim and shall not be paid
under the proposed FDP. Nonetheless, the said contingent claim shalt be given
valuation based on the principal amount of the ciaim.

{k) Termination of Liquidation Proceeding and Discharge of the Liquidator

The order of the Liquidation Court approving the FDP shall become final thirty
(30) days after receipt thereof by the creditors. Upon finality of the order approving the
FDP, the PAL shall henceforth be, for all intents and purposes, considered closed and
terminated and the Liquidator, its officers, employees or agents, are forever discharged
from any and all claims and/or tiability arising from or in connection with the Liquidation
of the Closed Bank.

() Final Report

The Liquidator shall submit a final report on the implementation of the approved
FOP to the Liquidation Court, the Monetary Board and the Securities and Exchange
Commission (SEC) within one hundred eighty (180) days after the expiration of the
Winding Up Period provided in Chapter VIII of this Act.

(m)Rules of Procedure

The Supreme Court shall promulgate the appropriate procedural rules to
implement this Section

CHAPTER V
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES

Section 17. Definition. - A purchase and assumption (P&A) transaction is one in which
a qualified Bank. as determined by PDIC, purchases some or all of the assets, and
assumes some or all of the liabilities, of the Closed Bank.


Section 18. Adoption of a Purchase and Assumption Transaction. - The
Liquidator of the Closed Bank may adopt a P&A transaction as a mode of liquidating a
Closed Bank if it would aid in the expeditious disposition of the assets and prompt
settlement of the claims of the creditors of the Closed Bank, subject to the approval of
the Liquidation Court.

Upon the effectivity of the P&A transaction, the acquiring Bank shail give the Closed
Bank's depositors the option of either withdrawing their deposits or maintaining the
funds with the acquirer under a new account. The Rules on Concurrence and
Preference of Credits under the Civil Code shall not apply to the transfer or assumption
of Deposit liabilities in the Closed Bank by an acquirer.

Section 19. Bank License. - The Liquidator may include the license of the Closed
Bank in the P&A transaction, subject to approval by the BSP.

CHAPTER Vi
BRIDGE BANKING

Section 20. Definition. — A “Bridge Bank” shall refer to a bridge corporation that is
licensed by the BSP as a temporary Bank, established and operated to acquire assets
and assume liabilities of a Closed Bank, for the purpose of facilitating the Liquidation of
a Closed Bank. in issuing a Bridge Bank license, the BSP is authorized to waive the
minimum capitalization and other requirements for establishing a Bank under existing
laws.

Section 21. Formation, Establishment or Organization of a Bridge Bank. — The
PDIC may form, establish, organize. operate. and/or contract to operate corporations
whose primary purpose is to operate as a Bridge Bank and which shail hereafter be
referred to as a “bridge corporation.” in issuing the corporate license for the bridge
corporation, the Securities and Exchange Commission (SEC) is authorized {o waive the
minimum capitalization and other requirements for establishing a corporation under
existing laws.

Section 22. When Adopted. - A Bridge Bank mode of Liquidation may be adopted only
if the PDIC determines that:

fa} !t would be less disruptive compared to Payout, and would aid in the
expeditious disposition of the assets and prompt settlement of the claims of
the creditors of the Closed Bank; and

{b) The preservation of critical banking functions is in the best interest of the
depositors and the public.

Section 23. Authority. — The Bridge Bank shall.


{co} Have the authority to purchase assets, assume deposits and other liabilities
of the Closed Bank which the Liquidator may determine to be appropriate;
and

(b} Perform such banking functions as may be authorized under law.

Section 24. Additional Powers of the Liquidator. — To carry out its authority under
this Chapter, the Liquidator, in addition to the authorities enumerated under this Act.
shail have the power to:

{a} Sell, assign, transfer, or convey its shareholdings in its bridge corporation to
the Closed Bank;

(b) Transfer such assets and deposit liabilities of a Closed Bank to the Bridge
Bank, as the Liquidator may deem appropriate. All transfers of assets under
this subsection shall

1) Not be subject to any taxes, such as capital gains tax, income tax,
value added tax and documentary stamp tax, and other taxes, as may
be applicable;

2) Be effective without any consent from the stockholders and creditors of
the Closed Bank, notwithstanding any provision of law to the contrary.

{c] Make advances to the Bridge Bank for the Bridge Bank to operate, upon such
terms and conditions and in such form and amounts as the Liquidator may
prescribe. Advances made by the Liquidator to the Bridge Bank shall be
booked as a liability of the Bridge Bank and shall be paid immediately by the
Bridge Bank as soon as it is able to generate sufficient funds.

In the event that the Bridge Bank is terminated pursuant to Section 28,
paragraphs (d) and (e) of this Act, the advances made to the Bridge Bank
shall partake of the nature of public funds and as such, must be considered a
preferred credit similar to taxes due to the national government in the order of
preference under Article 2242 of the New Civil Code; and

{ci} Appoint, install, designate. and/or remove the directors, officers and other
personnel of a Bridge Bank and fix their compensation

The provisions of existing laws notwithstanding, the officers and employees
of the PDIC may be assigned as directors, officers or other personnel of a
Bridge Bank under such terms and conditions as the PDIC Board of Directors
may prescribe

Section 25, Term of Existence. — The Bridge Bank shall automatically terminate at the
‘end of two (2) years following the date it was granted a banking license, subject to the


provisions of Section 26 of this Act: Provided. That the Liquidator, with the consent of
the BSP, may extend the status of the Bridge Bank if deemed necessary to conclude
pending negotiations for the merger or consolidation, sale, or acquisition of the Bridge
Bank by an acquirer: Provided, finally. that the maximum extension shall be one (1)
year.

Section 26. Termination. — The Bridge Bank shall terminate upon the earliest of any of
the following occurrences:

{a] The merger or consolidation of the Bridge Bank with another Bank that is not
a Bridge Bank; or

{b! The sale of the Bridge Bank to a qualified buyer, as may be determined by
the Liquidator; or

tc) The purchase of all or substantially all of the assets and assumption of all or
substantially all of the deposits and other liabilities of the Bridge Bank by a

qualified third party; or
(d} The expiration of the period provided in Section 25; or

{e) The determination by the Liquidator that the operation of the Bridge Bank is
no longer viable, notwithstanding any other provision of taw to the contrary.

Section 27. Effects of Termination Events. ~

{a) Merger or Consalidation. ~ The merger or consolidation of a Bridge Bank with
another Bank as provided in Section 26(a) of this Act shall be conducted in
accordance with, and shall have the effect provided in, the provisions of
applicable laws. Any proceeds from such transaction shall form part of the
assets of the Closed Bank available for distribution to the Creditors of the
Closed Bank in accordance with the rules on Concurrence and Preference of

Credits.

{b) Safe to 2 Qualified Buyer. — Foltowing the sale of a Bridge Bank as provided
in Section 26(b} of this Act, the BSP shall terminate the license of the Bridge
Bank and the proceeds from such sale shall form part of the assets of the
Closed Bank available for distribution to the Creditors of the Closed Bank in
accordance with the rules on Concurrence and Preference of Credits.

{c) Purchase of Assets and Assumption of Liabilities. ~ Following the purchase
of all or substantially all of the assets, and assumption of all or substantially
ail of the deposits and other liabilities, of a Bridge Bank by a qualified third
party as provided in Section 26(c) of this Act, the proceeds and the remaining
assets and liabilities, if any, shall form part of the assets and liabilities of the


Closed Bank available for distribution to the Creditors of the Closed Bank in
accordance with the rules on Concurrence and Preference of Credits.

{d) Term Expiration or Early Termination Due to Non-Viability. - Once the term of
a Bridge Bank has expired as provided in Section 26(d) or is terminated or
dissolved earlier by the Liquidator pursuant to Section 26(e), PDIC may
conduct Payout operations on the insured deposits of the Bridge Bank subject
to its right to subrogation under Section 15 of Republic Act No. 3591, as
amended. The assets of the Bridge Bank shall form part of the assets of the
Closed Bank available for distribution to the creditors of the Closed Bank in
accordance with the rules on Concurrence and Preference of Credits.

in all the foregoing cases, the Liquidator shall have all the rights, powers, and privileges,
and shail perform the duties related to the exercise of such rights, powers, or privileges,
granted by this Act to the Liquidator of a Closed Bank.

CHAPTER Vil
ASSET MANAGEMENT AND CONVERSION

Section 28. Asset Management. - The assets gathered by the Liquidator shall be
evaluated and verified as to their existence, ownership and other factors to determine
their realizable value. To the extent possible and provided that the Ciosed Bank has
sufficient funds, the Liquidator shall endeavor to preserve the assets of the Closed Bank
and maximize recovery.

Section 29. Conversion of Assets. ~ The conversion of the assets of the Closed Bank
shall be carried out in a fair and transparent manner in accordance with the rules and
procedure as may be determined by the Liquidator.

Section 30. Actions of the Liquidator. — In the management and/or conversion of the
assets of the Closed Bank, the Liquidator shal! have the authority to:

(a) Represent the Closed Bank before the Land Registration Authority (LRA),
Bureau of Lands, Register of Deeds. the Land Transportation Office (LTO)
the Assessor's Office or other appropriate office of the local government unit,
the Securities and Exchange Commission (SEC), or such other similar
government agencies or private entities in —-

1} Verifying the authenticity of ownership documents;

2) Registering the interest of the Closed Bank on a specific property;

3) Consolidating ownership over an asset of the Closed Sank:

4] Securing certified true copies of documents held by the foregoing
agencies/entities in relation to an asset of the Closed Bank;

5} Securing the appropriate certification from the foregoing
agencies/entities in relation to an asset of the Ciosed Bank; and

6) Performing other related activities:


(b) Conduct a physical or ocular inspection of the properties owned by, or
mortgaged to, the Closed Bank, to determine their existence and present
condition:

{c) Determine the disposal price of assets in accordance with generally accepted
valuation principles and internationally-accepted standards and practices,
subject to such guidelines as the Liquidator may determine;

(d) Dispose real or personal properties of the Closed Bank through bidding
negotiated sale or any other mode. whether by piece or by lot, such as lease
with option to purchase or bulk sale, as may be reasonably determined by the
Liquidator, and

(e) Engage third parties to manage and/or dispose the assets of the Closed Bank
to qualified individuals or entities, as may be determined by the Liquidator.

Section 31. Special Provisions. ~ Notwithstanding any provision of law to the contrary,
the following rules shail apply to the management and/or conversion by the Liquidator of
the assets of the Closed Bank.

(a) Upon notification of the closure of a Bank, the LRA, Bureau of Lands,
Register of Deeds, the LTO. the Assessor's Office or other appropriate office
of the local government unit, the SEC or such other similar government
agencies or private entities shall not allow any transaction affecting the assets
of the Closed Bank without the consent of the Liquidator,

(b) Upon issuance by the Monetary Board of the resolution ordering the closure
of a Bank, all persons or entities in possession of any asset of the Closed
Bank, including deposit accounts belonging to the Closed Bank, shall hold the
said assets in trust for the Liquidator. As such, the persons or entities in
possession of such asset shall not allow, authorize or cause the withdrawal,
transfer, disposition, removal. conversion, concealment, or other transaction
involving or relating to the subject asset

(c) Any person or entity in possession of assets of the Closed Bank. including,
but not limited to, deposit accounts and land titles, shall, upon closure of a
Bank, immediately turn over custody of said assets to the Liquidator.

Section 32. Administration of Funds. — The Liquidator shail have the authority to
invest funds received from the conversion of the assets of the Closed Bank in
government securities and other government-guaranteed marketable securities. Any
provision to the contrary notwithstanding, Liquidation costs, fees and expenses
advanced and incurred by the Liquidator in the Liquidation of a Closed Bank may be
immediately charged against available funds of said Closed Bank.


Section 33. Disposal of Banking Franchise. — The BSP may, if public interest so
requires, award to an institution, upon such terms and conditions as the Monetary Board
may approve, the banking franchise of a Closed Bank to operate in the area where said
Bank or its branches were previously operating: Provided, That whatever proceeds may
be realized from such award shall be for the benefit of the creditors of the Closed Bank
which shall be distributed in accordance wilh this Act and the rules on Concurrence and
Preference of Credits.

CHAPTER Vill
WINDING UP

Section 34. Period. — The period to wind-up the affairs of the Closed Bank shall be
three (3) years from the date of publication of notice of the approval by the Liquidation
Court of the final distribution of assets of the Closed Bank.

Section 35. Payment of the Principal Obligations and Surplus Dividends of the
Creditors. — The Creditors shall have a period of one (1) year from date of publication
‘of notice of the approval by the court of the final distribution plan (FDP) of the Closed
Bank within which to claim payment of the Principal Obligations and Surpius Dividends
During this one-year period, the Liquidator shall hold as trustee the assets allocated in
the FDP for said Creditors.

Failure by the Creditor to comply with the documentary requirements within the
prescribed period and/or refusal to accept the asset as payment shall be deemed as
abandonment or waiver of his right to payment.

Section 36. Period for Claiming Residual Assets. - The individual stockholders of
record or their duly-authorized representative or the court-appointed stockholders’
representative shall have a period of one (1) year from publication of notice of the
approval by the court of the FDP of the Closed Bank within which to claim the Residual
Assets. During this one-year period, the Liquidator shat! hold as trustee the assets
allocated in the FDP for said stockholders of record.

Failure by the individual stockholders of record or their duly-authorized representative or
the court-appointed stockholders’ representative to comply with the documentary
requirements within the prescribed period and/or refusal to accept the Residual Assets
in kind shall be deemed as abandonment or waiver of right to receive the Residual
Assets.

Section 37. Turnover of Unclaimed Payments. — Within two (2) years after the lapse
of the one-year period provided in Sections 35 and 36 of this Act, all payments which
remain unciaimed by the Creditors and/or stockholders of record shall be turned over to
the Bureau of Treasury

Section 38. Disposal of Records. - The Liquidator shall continue to keep all the
pertinent records of the Closed Bank for a period of three (3) years from date of



publication of the approval of the FDP. After the lapse of said period, and in the
absence of any controversy arising from the PAL, the Liquidator is authorized to dispose
of the same in accordance with the applicable laws, rules and regulations.

CHAPTER IX
MISCELLANEOUS PROVISIONS

Section 39. Penalties. - The penalty of prision mayor or a fine of not less than Fifty
thousand pesos (P50,000.00) but not more than Two million pesos (P2,000,000.00), or
both, at the discretion of the court, shall be imposed:

(a) Upon a director, officer. employee or agent of a Closed Bank for —-

1) Refusing to allow the Liquidator to take over a Bank placed under
Liquidation or obstructing such action of the Liquidator;

2} Refusing to receive the notice of closure:
3} Refusing to turn over. or destroying or tampering Bank records;

4) Fraudulently disposing, transferring, assigning, or concealing any
asset, property or liability of the Closed Bank;

5) Wilfully making a false statement or entry in any Bank report or
document required by the Liquidator;

6) Violating or causing any person to violate, the exemption from
gamishment, levy, attachment or execution provided under this Act
and the New Central Bank Act; or

7) Willfully violating any provision of this Act;

() Upon any person or entity for —~

1} Refusing to disclose information, records or data pertaining to the Bank
accounts of a Closed Bank to the Liquidator;

2) Refusing to turn over possession or custody of the asset of the Closed
Bank to the Liquidator:

3) Refusing or delaying the:
a. Verification of authenticity of the ownership documents:

b. Registration of interest of the Closed Bank on a specific property,
c. Consolidation of ownership over an asset of the Closed Bank:


d. Act of securing certified true copies of documents in relation to an
asset of the closed Bank:

e. Act of securing the appropriate certification from the agencies or
entities stated in Chapter VII of this Act in relation to an asset of
the Closed Bank;

{Conduct of a physical or ocular inspection of the properties owned
by, or mortgaged to, the Closed Bank, to determine their existence
and present condition; or

g. Other related activities of the Liquidator; or

4) Willfully violating any provision of this Act;

(c) Upon any law enforcement officer who refuses or fails to assist the Liquidator
in the service of the notice of closure as provided for under Section 11 of this
Act.

The penalty herein imposed is without prejudice to any administrative action that
may be filed against erring law enforcement officers, directors, officers, employees or
agents of a Closed Bank, or other persons and entities of government agencies or
instrumentalities.

Section 40. Presumption of ownership. — All assets, records, and documents in the
possession of the Closed Bank at the time of its closure are presumed held by the Bank
in the concept of an owner.

Section 41. Presumption of regularity. — The exercise of authority, functions, and
duties by the Liquidator under this Act is presumed regularly performed.

Section 42. Finality of actions. - The actions of the Liquidator under this Act shall be
final and executory, and may not be set aside by any court, except on petition for
certiorari with the Court of Appeals on the ground and upon due hearing that the action
was taken in excess of jurisdiction or with grave abuse of discretion as to amount to a
lack or excess of jurisdiction

No court, except the Court of Appeals, shall issue any temporary restraining order,
preliminary injunction or preliminary mandatory injunction against the Liquidator for any
action under this Act. This prohibition shall apply in all cases, disputes or controversies
instituted by a private party, the Closed Bank, or any shareholder of the Closed Bank.

Section 43. Visitorial Audit. — Assets and documents of the Closed Bank shall retain
their private nature even if administered by the Liquidator. Matters relating to the
exercise by the Liquidator of the functions under this Act shall be subject to visitorial
audit only

Section 44. Implementing Rules. — The PDIC shall prescribe the rules and regulations
necessary to implement the provisions of this Act



CHAPTER X
TRANSITORY PROVISIONS

Section 48. Application to Pending Actions, Petitions and Claims. —

(a) This Act shall govern all actions, petitions and claims filed against a Closed
Bank after this Act has taken effect.

{b) This Act shall apply to all actions, petitions, and claims against the Closed
Bank pending at the time of the effectivity of, and insofar as consistent with.
this Act

(c) In the event a new enactment or regulation is issued decreasing the rights
and authorities hereunder granted, such new enactment or regulation shail
not apply to this Act except in a suppietory manner.

CHAPTER XI
FINAL PROVISIONS

Section 46. Repealing Clause. — All acts or parts of acts and executive orders,
administrative orders, or parts thereof which are inconsistent with the provisions of this
Act are hereby repealed or modified accordingly.

Section 47, Separability Clause. - if any provision or section of this Act or the
apptication thereof to any person or circumstances is held invalid, the other provisions
or sections of this Act, in the application of such provision or section to other persons or
circumstances, shall not be affected thereby.

Section 48. Effectivity. - This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) newspapers of general
circulation.

Approved,