EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
Second Regular Session )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus B. Rodriguez

House Bill No. 7099
EXPLANATORY NOTE

The coronavirus disease 2019 (COVID-19) first emerged in Wuhan, Hubei, China, in
December 2019. On 11 March 2020, the World Health Organization declared the outbreak a
pandemic. As a result, countries have ordered lockdowns with the Philippine government
ordering quarantines all over the country

‘As a result of these quarantines, many economic activities were halted resulting in an
economic downturn. To address this, the government must enact measures to provide support
to the economy and to different industries, including the micro, small, and medium enterprises
(MSMES).

Data from the Philippine Statistics Authority show that there are around 998, 000
MSMEs operating in the Philippines. These MSMEs generate around 5.7 million jobs. These
MSMEs were the ones most affected by the lockdown and are also the ones struggling to
recover when the restrictions were eased and the economy was slowly re-opened.

This bill aims to strengthen the capacity of the Philippine Guarantee Corporation
(PGC), the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines
(DBP) in order to provide the needed assistance to the MSMEs and other strategically
important companies affected by the lockdown.

The bill also mandates these government financial institutions to expand their credit
programs in order to assist affected MSMEs to meet their liquidity needs. In particular, LBP
and DBP are mandated to expand their credit and rediscounting facilities to affected MSMEs
in the agriculture, infrastructure and manufacturing industries and PGC to expand its credit
guarantee facilities.

This bill also authorizes LBP and DBP to create a special holding company which aims
to further reinvigorate these strategically important companies heavily affected by the
COVID-19 pandemic. Equity participation in this special holding company may be held by
qualified private sector investors. However. to ensure that the policies and objectives under
the proposed bill are effectively carried out LBP and DBP are mandated to maintain at least a
majority ownership over the special holding company until such time that they have recovered
their investment

In view of the foregoing, immediate approval of this measure is eamestly requested

RUFUS B. RODRIGUEZ


EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
Second Regular Session )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus B. Rodriguez
v

House Bill No.

AN ACT
PROVIDING FOR GOVERNMENT FINANCIAL INSTITUTIONS UNIFIED INITIATIVES TO
DISTRESSED ENTERPRISES FOR ECONOMIC RECOVERY (GUIDE), AND FOR OTHER
PURPOSES

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

Section 1. Title. - This Act shall be known as the "Goverment Financial Institutions (GFls)
Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Act"

Section 2. Declaration of Policy. - The substantial disruption of the economy due to the
community quarantine measures restricted the operation of numerous businesses.

The State recognizes the role of these businesses composed of micro, small and
medium enterprises (MSMEs) and strategically important companies in providing employment
to the Filipino people and in supporting the Philippine economy. Thus, it is essential that these
enterprises are given necessary access to credit and financial assistance. Itis hereby declared
the policy of the state to protect employment and assist distressed enterprises in order to
reinvigorate the economy.

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

(a) Agribusiness value chain refers to a set of actors/players, such as farmers, fisherfolk,
traders, suppliers, processors, and aggregators, who make up the linked sequence of
value-adding activities undergone by an agricultural product when converted from raw
material to the final form it is presented to the consumers;

(b) BIR refers to the Bureau of Internal Revenue;

(0) BSFI refers to BSP-supervised financial institutions;

(d) BSP refers to the Banako Sentral ng Pilipinas;

(e) COVID-19 refers to the Coronavirus Disease 2019;

(f) DA-ACPC refers to the Department of Agriculture — Agricultural Credit Policy Council;

(g) DBP refers to the Development Bank of the Philippines;

(h) DOF refers to the Department of Finance;

(i) LBP refers to the Land Bank of the Philippines;


() Micro, Small and Medium Enterprises (MSMEs) refer to any business activity or
enterprise engaged in industry, agribusiness and/or services, whether single
proprietorship, cooperative, partnership or corporation whose total assets, inclusive of
those arising from loans but exclusive of the land on which the particular business
entity's office, plant and equipment are situated, must have value falling under the
following categories:

micro not more than Php 3,000,000
small Php.3,000,001 — Php 15,000,000
medium Php 15,000,001 — Php 100,000,000

(k) PGC refers to the Philippine Guarantee Corporation;
() SBC refers to the Small Business Corporation;
(m)SEC refers to the Securities and Exchange Commission;

(n) Senior executive officers refer to top management officials exercising responsible and
critical roles, as may be determined in the implementing rules and regulations.

CHAPTER 1
Philippine Guarantee Corporation

Section 4. Loan Guarantee Expansion by PGC. - The PGC shall expand its guarantee
program for MSMEs heavily affected by the COVID-19 pandemic by increasing the maximum
loan guarantee coverage per borrower and reducing guarantee fees and other similar
schemes

The guarantee program of PGC should meet the applicable prudential standards and
regulations of the BSP.

Section 5. Additional Subscription by the National Government. - For the implementation of
Section 4, the National Government shall increase its subscription to PGC's authorized capital
stock by an additional Twenty Billion Pesos (Php 20,000,000,000.00): Provided, That

Five Billion Pesos (Php 5,000,000,000.00) of this amount shall be paid for by the National
Government upon the effectivity of this Act and the balance to be paid from succeeding
appropriation/s for this purpose.

CHAPTER 2
Development Bank of the Philippines
Section 6. DBP Loan Assistance Program. - The DBP shall expand its loan program for
qualified MSMEs affected by the COV1D-19 pandemic: Provided, That such loans shall be
granted in accordance with the following guidelines and such other conditions as may be
imposed under the implementing rules and regulations that will be issued:
(a) Eligible MSMEs should be engaged in infrastructure, services, service industry,
and/or manufacturing business; and
(b) The loans to eligible MSMEs should meet the applicable prudential standards and
regulations of the BSP.

Section 7. DBP Rediscounting and other Programs. - Subject to applicable prudential
standards and regulations of the BSP, DBP may rediscount loans and other credit
accommodations to enterprises enumerated in Section 6(a) above, granted by BSFis, SBC,
and those granted pursuant to credit programs of the DA-ACPC to MSMEs affected by the
COVID-19 pandemic engaged in infrastructure, service industry, and/or manufacturing
business.

DBP may undertake other similar activities for purposes of this Act as may be provided
under the implementing rules and regulations to be issued.


Section 8. Increase in DBP’s Authorized Capital Stock. ~ Section 7 of Executive Order
No. 81, as amended by Republic Act No. 8523, otherwise known as "The 1986 Revised
Charter of the Development Bank of the Philippines", as amended, is hereby further amended
to read as follows:
"Section 7. Authorized Capital Stock-Par Value. The capital stock of the Bank
shall be [Thirty five billion pesos (P35,000,000,000.00)] ONE HUNDRED
BILLION PESOS (PHP 100,000,000,000.00) to be divided into [Three
hundred fifty million (350,000,000)] ONE BILLION (1,000,000,000)
common shares with par value of [P] PHP 100.00 per share, which shall be
fully subscribed by the [n]National [g]Government: [Upon the effectivity of this
Charter, the National Government shall initially subscribe to One hundred
twenty five million (125,000,000) common shares of stock worth Twelve billion
five hundred million pesos (P12,500,000.00), Five billion pesos
(P5,000,000,000.00) of which shall be deemed paid for by the government
and the balance shall be paid for by the government out of stock dividends to
be declared by the Bank from its unappropriated retained earnings; Provided,
That the dividends due the national government pursuant to Republic Act No.
7656 shall first be paid] PROVIDED, THAT IN ADDITION TO THE FIVE
BILLION PAID UP CAPITAL, FIFTEEN BILLION PESOS (PHP
15,000,000,000,00) OF THE INCREASE IN CAPITALIZATION SHALL BE
FULLY PAID FOR BY THE NATIONAL GOVERNMENT UPON THE
EFFECTIVITY OF THIS AMENDATORY ACT AND THE BALANCE TO BE
PAID FROM SUCCEEDING APPROPRIATIO/S FOR THIS PURPOSE."

CHAPTER 3
Land Bank of the Philippines

Section 9. LBP Loan Assistance Program. - The LBP shall expand its loan program for
qualified MSMEs affected by the COV1D-19 pandemic: Provided, That such loans shall be
granted in accordance with the following guidelines and such other conditions as may be
imposed under the implementing rules and regulations that will be issued

(a) Eligible MSMEs should be engaged in activities in the agribusiness value chain;
and

(b) The loans to eligible MSMEs should meet the applicable prudential standards and
regulations of the BSP.

Section 10. LBP Rediscounting and other Programs. — Subject to applicable prudential
standards and regulations of the BSP. LBP may rediscount loans to eligible MSMEs engaged
in activities in the agribusiness value chain granted by BSFis, SBC, and those granted
pursuant to credit programs of the DA-ACPC to MSMEs affected by the COVID-19 pandemic.

LBP may undertake other similar activities for purposes of this Act as may be provided
under the implementing rules and regulations to be issued

CHAPTER 4
Special Holding Company

Section 11. Creation of Investment Vehicle. - To ensure that strategically important
companies remain solvent, LBP and DBP are hereby authorized to invest in, or enter into a
joint venture agreement to incorporate a special holding company, to be known as
‘Accelerating Recovery to Intensify Solidarity and Equity, Inc. or ARISE, that is a stock
corporation to be organized under Republic Act No. 11232, otherwise known as "The Revised
Corporation Code of the Philippines.” The establishment, administration, and operation of the
special holding company shall be governed by the following principles:


(a) The purpose of the special holding company is to rehabilitate strategically important
companies affected by the COVID-19 pandemic which are experiencing solvency
issues, such as those with considerable impact on the economy including those from
the agriculture, infrastructure, service industry, manufacturing industries, and other
industries to be identified in the implementing rules and regulations;

(b) Equity participation in the special holding company may be offered to, and held by,
qualified private sector investors, including multilateral companies and lending
institutions, as may be determined by LBP and DBP: Provided, That majority
ownership of the total outstanding capital stock in the special holding company shall
be held by LBP and DBP, until such time that they have recovered their investment in
the special holding company;

(©) LBP and DBP shall dispose of their stockholdings in the special holding company to
qualified private sector investors as they may determine. LBP and DBP shall offer
equal opportunity for equity participation in the special holding company to all qualified
investors, including multilateral companies and lending institutions. When _ private
shareholdings in the special holding company reaches fifty percent (50%) of the total
outstanding capital stock, the stockholders shall cause the adoption and registration
with the SEC of the amended articles of incorporation within three (3) months from
such transfer of ownership;

(d) The special holding company shall establish and adopt accounting and auditing
systems and standards which are consistent with the appropriate and applicable
guidelines of the Commission on Audit (COA), and which in any case shall be as
Uniform as possible and shall conform with law and with generally accepted accounting
principles and sound auditing practices: Provided, That the audit of the special holding
company by the COA shall not preclude said special holding company from engaging
the services of private auditing firms: Provided, however, that even if the services of
the latter are availed of, the audit report of the COA shall serve as the report for
purposes of compliance with audit requirements as required of government-owned
or controlled corporations under applicable law;

() The special holding company shall devise mechanisms that shall protect the
Government's investment, such as but not limited to, issuing a special class or series
of shares, and/or entering into shareholders’ or voting share agreements for that
purpose as provided in the implementing rules and regulations.

Section 12. Powers of the Investment Vehicle. - The special holding company shall have

the powers granted to a stock corporation under Republic Act No. 11232. In addition, the
special holding company shall have the authority to create subsidiaries. Equity participation in
the subsidiaries may also be offered to, and held by qualified private sector investors, including
multilateral companies and lending institutions. For as long as the majority of the total
outstanding capital stock of the subsidiaries is held by the Government directly or through its
instrumentalities, said subsidiaries shall be subject to the provisions of this Act and shall enjoy
all the incentives and exemption privileges of the special holding company under this Act

Furthermore, the power of the special holding company and its subsidiaries to invest

shall be subject to the following investment guidelines:

(a) To avoid undue risk concentration from excessive exposures, the investment of the
special holding company in an investee company and the total investment in
companies belonging to the same industry/sector shall be subject to a ceiling in relation
to its net income or capital as prescribed under the implementing rules and regulations;

(b) The special holding company can only invest in corporations engaged in strategically
important industries or sectors that are experiencing solvency issues because of the
COV1D-19 pandemic, such as those with considerable impact on the economy
including those from the agriculture, infrastructure, services, and manufacturing
industries and other industries to be identified in the implementing rules and
regulations;


(©) Such investment shall be in the form of (i) limited equity participation by subscription
‘or acquisition of shares, (ji) execution of convertible loans or purchase of convertible
bonds; and/or (iii) such other securities as may be issued by the investee corporations,
acceptable to DBP and LBP; and

(d) The investee company is eligible as provided in the requirements for the investee
company in this Section and in Section 15 of this Act

Section 13. Board of Directors of the Special Holding Company. - The powers and authority
of the special holding company shall be vested in, and exercised by a Board of Directors,
hereinafter referred to as the "Board," composed of nine (9) members, as follows:

The Secretary of Finance;

The President of LBP:

The President of DBP;

A director to be appointed by the Monetary Board of the BSP;

Two (2) independent Directors;

Three (3) directors shall be appointed by LBP, DBP, and the private equity
investor(s), if any, in proportion to the voting shares held in the special holding
company,

-eagoe

The members of the Board shall elect from among themselves the Chairperson and
the Vice-Chairperson. The ex-officio members of the Board may designate their
representatives who can exercise all the powers of a director.

Once the private shareholdings in the special holding company reaches fifty percent
(50%) of the total outstanding capital stock subject to the proviso of Chapter 4, Section 11(b)
of this Act, the company shall cease to be a government-owned and -controlled corporation,
the ex-officio directors will cease to be members of the Board, and the membership of the
Board shall be based on the election of the directors by the voting shares held by the
shareholders, pursuant to the provisions of Republic Act No. 11232

The Board shall provide for an organization and staff of officers and employees of the
special holding company and fix their remunerations and other emoluments. All positions in
the special holding company shall be govemed by the compensation, position classification
system and qualification standards approved by the Board based on a job analysis of actual
duties and responsibilities. The compensation pian shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic reviews once every
two (2) years, without prejudice to early merit or increases based on the special holding
company’s productivity and profitability. The special holding company, while considered as
government-owned and -controlled corporation, shall therefore be exempt from existing laws,
rules and regulations on compensation, position classification and qualification standard,

Section 14. Responsibility of the Board and the Employees of the Special Holding Company
and its Subsidiaries. - The Board shall set appropriate standards and corporate governance
for the investee companies that the special holding company or its subsidiaries will invest in.
The Board shall likewise institute mechanisms to oversee that such standards are followed by
the investee company.

The general rule and the exception therefrom on the liability of public officers as
provided in Sections 38 and 39 of Chapter 9, Book 1 of the Revised Administrative Code of
1987 shall apply to the members of the Board and other personnel of the special holding
company. Unless the actions or omissions of the special holding company, members of the
Board and its other personnel are finally adjudged to be in willful violation of this Act, performed
in evident had faith or with gross negligence, they are held free and harmless to the fullest
extent permitted by law from any liability, and they shall be indemnified for any and all liabilities,
losses, claims, demands, damages, deficiencies, costs and expenses of whatsoever kind and
nature that may arise in connection with the exercise of their powers
and performance of their duties and functions.


Section 15. Requirements for the Investee Company. - To be eligible, the investee company
must not have any pending tax-related cases in court for tax collection or tax evasion, must
not be a debtor in any bankruptcy proceeding prior to the enhanced community quarantine
period, and must not be insolvent and is capable of being rehabilitated as determined by the
special holding company.

The agreement between the special holding, company and the investee company must
contain the following minimum conditions:

{a) The investee company must not reduce the number of employees beyond the
percentage prescribed by the special holding company;

(b) The investee company shall not, without prior authority from the special holding
company, be allowed to issue stock dividends and repurchases during the term of the
investment;

(©) The investee company shall not issue cash dividends during the term of the
investment;

(d) The investee company must not increase the salaries, benefits and other forms of
remuneration of its senior executive officers and members of its board;

(e) The investee company shall not provide or grant senior executive officers and
members of its board separation pay or retirement pay: Provided, That any amount
received by the senior executive officers and members of the board which is in violation
of the foregoing shall be retumed;

() The investee company shall not incur irregular, unnecessary, excessive, extravagant
or unconscionable expenditures such as entertainment, events, office/facility
renovations, aviation/transportation services and other activities;

(g) The ownership of either LBP or DBP, or both, in the investee company shall not be
diluted and a provision protecting the value of the shares of LBP or DBP or both from
market transactions such as stock splits, mergers and other forms of reorganization
and recapitalization shall be included in the agreement; and

(h) The investment in the investee company shall be time-bound with a definite exit
mechanism

Provided, further, that additional conditions and provisions may be imposed by the special
holding company to ensure that the investment will be properly utilized and ensure the
successful rehabilitation of the investee company.

CHAPTER 5
Incentives and Exemption Privileges of DBP, LBP, and Special Holding Company

Section 16. Tax Exemptions and Fee Privileges. - Any existing law to the contrary
notwithstanding and in order to ensure the effective implementation of the purposes of this
Act, the following transactions of DBP, LBP and the special holding company, and its
subsidiaries, shall be exempt from documentary stamp tax, capital gains tax, creditable
withholding income tax, value-added tax, gross receipts tax, and such other taxes that may
be imposed under Republic Act No. 8424, as amended, or the "National Internal Revenue
Code of 1997", whichever is applicable pursuant to the regulations to be issued by the DOF,
upon the recommendation of the BIR:

(a) Loan Assistance Program, Rediscounting and other Programs of DBP and LBP under
Chapters 2 and 3 of this Act, respectively, including dation in payment (dacion en pago)
by the borrower or by a third party in favor of DBP and LBP;

(b) Transactions of the special holding company and its subsidiaries as to its:

i. subscription or acquisition of shares;
ii, execution of convertible loans or purchase of convertible bonds;
iii, such other securities as may be issued by the investee corporations,
acceptable to DBP and LBP; and
iv. acquisitions of assets of an investee company.


The abovementioned transfers shall also be subject to the following, in lieu of the applicable
fees:

{a) Fifty percent (50%) of the applicable mortgage registration and transfer fees on the
transfer of real estate mortgage and security interest to and from the special holding
company and its subsidiaries, as imposed in accordance with the existing circulars of
the Land Registration Authority (LRA);

(b) Fifty percent (50%) of the filing fees for any foreclosure initiated by DBP and LBP in
relation to Loan Assistance and Rediscounting Programs as prescribed by the Rules
of Court; and

(©) Fifty percent (50%) of the land registration fees prescribed under the existing circulars
of the LRA.

All sales or transfers of rediscounted loans/other credit accommodations, including
transfers by way of dation in payment by the borrower or by a third party to DBP, LBP and
transfer of assets to the special holding company and its subsidiaries, shall be entitled to the
privileges enumerated herein for a period of not more than three (3) years from the date of
effectivity of the applicable implementing rules and regulations or of the applicable revenue
regulations, whichever comes later: Provided, That the Secretary of Finance may extend such
period by a maximum of three (3) years

Furthermore, subsequent transfers of the foregoing from DBP, LBP, and the special
holding company and its subsidiaries to a third party shall enjoy the privileges enumerated
herein for a period of not more than three (3) years from the date of acquisition by DBP, LBP,
and the special holding company and its subsidiaries: Provided, That the Secretary of Finance
may extend such three-year period by a maximum of three (3) years.

Section 17. Exemption from the Government Procurement Reform Act. ~ In order to ensure
the expeditious implementation of their mandates under this Act, any procurement undertaken
by PGC, LBP, DBP, and the special holding company and their subsidiaries shall be exempt
from the provisions of Republic Act No. 9184 or the "Government Procurement Reform Act"
for a period of three (3) years from the effectivity of the implementing rules and regulations to
be issued under Chapter 6, Section 22 of this Act: Provided, That the exemption shall only
apply to procurement activities undertaken in light of the COVID-19 pandemic and pursuant
to their mandate and functions as defined in this Act.

Section 18. Other Exemptions of the Special Holding Company. - The special holding
company and its subsidiaries shall be exempt from the provisions of Republic Act No. 10149
or the "GOCC Governance Act of 2011"

Further, transactions by the special holding company and its subsidiaries shall be
exempt from the provisions of Republic Act No. 10667 or the "Philippine Competition Act" for
a period of three (3) years from its incorporation: Provided, That this exemption shall only
apply to acquisitions of assets of an investee company by the special holding company and
its subsidiaries pursuant to its powers under this Act

CHAPTER 6
Miscellaneous Provisions

Section 19. Ratios, Ceilings. and Limitations. — For purposes of this Act, the Monetary Board
may exempt PGC, DBP and LBP from such ratios, ceilings and limitations, provided under
Republic Act No. 8791 or the "The General Banking Law of 2000", for a period of five (5) years
from the effectivity of this Act, subject to extension of not more than five (5) years as may be
determined by the Monetary Board, subject to such conditions as may be prescribed by the
Monetary Board.


Section 20. Appropriations. —

(a) The amount of Five Billion Pesos (Php 5,000,000,000.00) is hereby appropriated as
additional paid-up capital of PGC: Provided, That this amount shall be used for the purposes
of providing loan guarantee under Chapter 1 of this Act;

(b) The amount of Fifteen Billion Pesos (Php 15,000,000,000.00) is hereby appropriated for
the implementation of Chapters 2 and 4: Provided, That this amount shall be applied as
additional paid-up capital of DBP, for the purposes of lending under the loan assistance
program to qualified MSMEs, rediscounting and other programs of DBP, and/or the creation
of the special holding company;

(©) The amount of Thirty-Five Billion Pesos (Php 35,000,000,000.00) is hereby appropriated
for the implementation of Chapters 3 and 4: Provided, That this amount shall be applied as
additional paid-up capital of LBP, for the purposes of lending under the loan assistance
program to qualified MSMEs, rediscounting and other programs of LBP, and/or the creation of
the special holding company.

Section 21. Implementing Rules and Regulations. — Within thirty (30) days from the effectivity
of this Act, the DOF, acting as chairperson, the BIR, the BSP, the SEC, the DBP, and the LBP
shall jointly promulgate the necessary rules and regulations for the effective implementation
of this Act: Provided, That the DOF may call upon any agency to provide information or
assistance in the drafting of the rules and regulations: Provided, Further, That within thirty (30)
days from the effectivity of this Act, the DOF, upon recommendation of the BIR, shall
promulgate the revenue regulations implementing the fiscal incentives under this Act

Section 22. Oversight Committee. - There is hereby created a Joint Congressional Oversight
Committee (JCOC) to oversee, monitor, and evaluate the implementation of this Act. The
JCOC shall be composed of five (5) members each from the House of Representatives and
from the Senate. The JCOC shall be co-chaired by the Chairpersons of the House Committee
‘on Banks and Financial Intermediaries and the Senate Committee on Banks, Financial
Institutions and Currencies.

The Speaker and the Senate President shall designate the other four members of the
JCOC of the House and the Senate from among the members of the House Committee on
Banks and Financial Intermediaries and the Senate Committee on Banks, Financial
Institutions, and Currencies, at least one member of which shall be from the minority,

Section 23, Separability Clause. — If any provision of this Act is held unconstitutional or
invalid, all other provisions not affected thereby shall remain valid.

Section 24. Repealing Clause. — All laws, decrees, executive orders, rules and regulations
or parts thereof, which are inconsistent with this Act, are hereby repealed, amended or
modified accordingly.

Section 25. Effectivity. - This Act shall take effect immediately upon its publication in the
Official Gazette or in a newspaper of general circulation in the Philippines.

Approved,