Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

17™ CONGRESS
FIRST REGULAR SESSION

rere, 5...
HOUSE BILL NO_2839

Introduced by Representative WES GATCHALIAN

EXPLANATORY NOTE

‘The cooperative movement in the Philippines had shown its existence as a viable
instrament for social and economic development

Since its introduction in the Philippines in the 1890°s, cooperatives have created job
opportunities, generated income and empowered the people as voluntary organization
thereby contributing to national developments.

Itis clear that cooperatives are strong social and economic force. In a study conducted
by Professor Jorge V. Sibal of the University of the Philippines, it showed that the
combined assets of operating cooperative grew rapidly from P1.05 Billion in 1985 to
P176 Billion.

‘Also, the Philippine Cooperative Code of 2008 provides among others that
cooperatives are organized with the aim of encouraging thrift and savings
mobilization among its members.

‘The same is true with other types of cooperatives, particularly Credit Cooperatives
and Financial Service Cooperative who were also authorized by law to undertake and
engage in savings and loan services.

Along this line, and in response to avow the purpose of encouraging thrifliness and
savings mobilization among its members, cooperatives opened their doors to
cooperative savings deposit, cooperative banking and financial services which
generally provide a wide range of deposit services from kiddie savers program,
regular deposits, and even time deposits. Cooperatives succeeded in this endeavour
and their stories are inspirations worthy of emulations.


Cooperatives have grown with a total assets of no less than Two Hundred Forty-
Fight Billion, One Hundred Thirty-Nine Million, Five Hundred Forty-One
Thousand, One Hundred Pesos and Eighty-three Centavos (P 248, 139, 541,
100.83) and a total volume of business transactions in the amount of Three Hundred
Thirteen Billion, Eight Hundred Thirty-Five Million, Ninety-Five Thousand,
Fighty-Three Pesos, and Four Centayos (P 313, 835, 095, 083.04) for no less than
24, 652 cooperatives registered as of 2014.

However, while the government encourages thriftiness and savings mobilizations in
all cooperatives, mechanisms are not yet in place to protect the interest of the
depositors by way of an insurance of all cooperative deposits.

ike bank depositors, cooperative depositors also need protection on their deposits in
cases of closure or its officials running away with the cooperative’s deposits, hence
this legislation.

This bill seeks to establish the Philippine Cooperative Insurance Corporation to
protect and insure cooperative deposits in the event of closures or unforeseen events.

The bill also provides mandatory receiver/liquidator of closed cooperatives with the
power to grant financial stance and assumption of liabilities to cooperatives in
danger of closing and grants an insurance coverage of not more than Php 300,000.00
per cooperative depositors.

And more importantly, the bill will also promote a sound and stable cooperative
deposit system and in so doing encourages cooperative deposits and help build public
confidence in the cooperatives sector.

Urgent approval of this bill is earnestly requested.

WES GATCHALIAN
Representative
Ist District, Valenzuela City



Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

17" Congress
First Regular Session

op
HOUSE BILL No, _ 2649

Introduced by Representatives WES GATCHALIAN

AN ACT
PROVIDING PROTECTION TO COOPERATIVE
DEPOSITORS AND ESTABLISHING THE PHILIPPINE
COOPERATIVE INSURANCE, CORPORATION,
DEFINING ITS POWER AND FUNCTION,
APPROPRIATING FUNDS THEREFORE AND FOR
OTHER PURPOSES.

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

Section 1. Short Title — This Act shall be known as the “Cooperative Depositors
Protection Act of 2013

Section 2. Declaration of Principles and Policies — Section 1, Art. XII of the 1987
Constitution declares that the state shall promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Towards this end, the government must extend all means and mechanisms necessary
for the Philippine Cooperative Deposit Insurance Corporation to effectively fulfill its
vital task of promoting and safeguarding the interests of the depositing public by way
of providing permanent and continuing insurance coverage on all insured deposits,
and in helping develop a sound and stable cooperative system at all times.

ion 3. Creation and Nature of the Corporation — There is hereby created a
Philippine Cooperative Deposit Insurance Corporation which shall have the status of a
tax-exempt government corporation attached to the Department Finance for policy
coordination and guidance.



Section 4. Powers and Functions - The Corporation shall have the following powers
and functions:
a) To provide a deposit insurance scheme for insured cooperatives and to
received, liquidate and wind up any cooperative;
b) To formulate and issue rules and regulations for the effective discharge of its
responsibilities:
©) To organize its office, fix the compensation of and appoint personnel as may be
deemed necessary upon the recommendation of the president of the
Corporation;
d) To direct the management and operation of the Corporation;
e) To receive and manage grants, donations, and other forms of assistance;
f) To sue and be sued;
g) To adopt an annual budget for, and authorize such expenditures by the
Corporation;
h) To perform such other acts as it may deem necessary for the corporation to
undertake its mandate and functions.

Section 5, The Board of Directors - The Corporation shall be governed by the Board
of Directors which shall be composed of five (5) members as follows:

a) The Secretary of Finance who shall be the ex-officio Chairman of the Board
without compensation.

b) The Chairman of the Cooperative Development Authority, who shall be ex-
officio member of the Board without compensation.

c) The President of the Corporation, who shall be appointed by the President of
the Philippines from either the Government or private sector to serve on a full-
time basis for a term of six (6) years. The President of the Corporation shall
also serve as Vice Chairman of the Board

d) Two (2) members from the private sector, to be appointed for a term of six (6)
years without reappointment by the President of the Philippines: Provided, That
of those first appointed, the first appointee shall serve for a period of two (2)
years.

No person shall be appointed as member of the Board unless he be of good
moral character and of unquestionable integrity and responsibility, and who is
of recognized competence in cooperativism, economics, banking and finance,
law, management administration or insurance, and_ shall be at least thirty-five
(35) years of age. For the duration of their tenure or term in office and for a
period of one year thereafter, the appointive members of the Board shall be
disqualified from holding any office, position or employment in any insured
cooperative

‘The Secretary of Finance may designate a representative, whose position shall
not be lower than an undersecretary or deputy governor respectively, to attend
such meetings and to vote on behalf of the principal. Whenever the Chairman
of the Board is unable to attend a meeting of the Board, or in the event of a


vacancy in the office of the Secretary of Finance, the President of the
Corporation shall act as Chairman.

The presence of three (3) members shall constitute a quorum. All decisions of
the Board of Directors shall require the concurrence of at least three (3)
members.

The Secretary of Finance shall fix the rate of per diem for every Board meeting
attended by the members of the Board of Directors.

Section 6. The President of the Corporation - The President of the Corporation shall
be the Chief Executive thereof and his salary shall be fixed by the President of the
Philippines. The sum total of the salary of the President and the allowances and other
emoluments which the Board of Directors may grant him shall be the ceiling for fixing
the salary, allowances and other emoluments of all other personnel in the
Corporation. The powers and duties of the President of the Corporation are:

a. To prepare the agenda for the meeting of the Board and to submit for the
consideration of the Board the policies and measures which he believes to be
necessary to carry out the purposes and provisions of this Act;

b. To execute and administer the policies and measures approved by the Board;

c. To direct and supervise the operations and internal administration of the
Corporation in accordance with the policies established by the Board. The
President may delegate certain of his administrative responsibilities to other
officers of the Corporation, subject to the rules and regulations of the Board;

d. To represent the Corporation, upon prior authority of the Board, in all dealings
with other offices, agencies and instrumentalities of the government and with
all other persons or entities, public or private, whether domestic, foreign or
international;

e. To authorize, with his signature, upon prior authority of the Board, contracts
entered into by the Corporation, notes and securities issued by the Corporation,
and the annual reports, balance sheets, profits and loss statements,
correspondence and other documents of the Corporation. The signature of the
President may be in facsimile wherever appropriate;

{To represent the Corporation, either personally or through counsel, in all legal
proceedings or actions;

g. To delegate, with the prior approval of the Board of Directors, his power to
represent the Corporation, as provided in subsections (d) and (f) of this Section,
to other officers of the Corporation; and

h. To exercise such other powers as may be vested in him by the Board.

The President shall be assisted by a Vice President and other officials whose
appointment and removal for cause shall be approved and whose salary shall be fixed
by the Board of Directors upon recommendation of the President of the Corporation.
During the absence or temporary incapacity of the President, or in case of vacancy or


permanent incapacity and pending the appointment of a new President of the
Corporation by the President of the Philippines, the Vice President shall act as
President and discharge the duties and responsibilities thereof.

Section 7. Definition of Terms- As used in this Act —

a.

The term “Board of Directors" means the Board of Directors of the
Corporation.
The term “Cooperative” shall be synonymous and interchangeable and shall
include other types and categories of cooperatives that encourages and accept
savings among its members and the general public.

The term “receiver” includes a receiver, commission, person or other agency
charged by law with the duty to take charge of the assets and liabilities of the
cooperative which has been forbidden from doing deposit business in the
Philippines, as well as the duty to gather, preserve and administer such assets
and liabilities for the benefit of the depositors of said cooperative, and to
continue into liquidation whenever authorized under this Act or other laws, and
to dispose of the assets and to wind up the affairs of such cooperative.

The term “insured cooperative” means any cooperative the deposits of which
are insured in accordance with the provisions of this Act.

The term “non-insured cooperative" means any cooperative the deposits of
which are not insured.

‘The term “deposit” means the unpaid balance of money or its equivalent
received by a cooperative in the usual course of savings deposit business and
for which it has given or is obliged to give credit to a savings, time or thrift
account, or issued in accordance with Cooperative Development
Authority rules and regulations, R.A.9520 and other applicable laws, together
with such other obligations of a cooperative consistent with cooperative
principles and practices, the Board of Directors shall determine and prescribe
by regulations to be deposit liabilities of the cooperative.

The Corporation shall not pay deposit insurance for the following accounts or
transactions, whether denominated, documented, recorded or booked as deposit
by the cooperative:

1, Investment products such as share capital, fix deposits, bonds and
securities, trust accounts, and other similar instruments;

2. Deposit accounts or transactions which are unfunded, or that are
fictitious or fraudulent;

3. Deposit accounts or transactions constituting, and/or emanating from,
unsafe and unsound cooperative savings transactions practice/s, as
determined by the Corporation, in consultation with the CDA, after due
notice and hearing, and publication of a cease and desist order issued by
the Corporation against such deposit accounts or transactions; and

4. Deposits that are determined to be the proceeds of an unlawful activity
as defined under Republic Act 9160, as amended.


g. The term “insured deposit” means the amount due to any bona fide depositor
for legitimate deposits in an insured cooperative net of any obligation of the
depositor to the insured cooperative as of the date of closure, but not to exceed
Three Hundred Thousand Pesos (P300,000.00). Such net amount shall be
determined according to such regulations as the Board of Directors may
prescribe. In determining such amount due to any depositor, there shall be
added together all deposits in the cooperative maintained in the same right and
capacity for his benefit either in his own name or in the name of others. A joint
account regardless of whether the conjunction "and," "or," "and/or" is used,
shall be insured separately from any individually-owned deposit account:
Provided, That (1) If the account is held jointly by two or more natural persons,
or by two or more juridical persons or entities, the maximum insured deposit
shall be divided into as many equal shares as there are individuals, juridical
persons or entities, unless a different sharing is stipulated in the document of
deposit, and (2) if the account is held by a juridical person or entity jointly with
one or more natural persons, the maximum insured deposit shall be presumed
to belong entirely to such juridical person or entity: Provided, further, That the
aggregate of the interest of each co-owner over several joint accounts, whether
owned by the same or different combinations of individuals, juridical persons
or entities, shall likewise be subject to the maximum insured deposit of Three
Hundred Thousand Pesos (P300,000.00): Provided, furthermore, That the
provisions of any law to the contrary notwithstanding, no owner/holder of any
negotiable certificate of deposit shall be recognized as a depositor entitled to
the rights provided in this Act unless his name is registered as owner/holder
thereof in the books of the issuing cooperative: Provided, finally, That, in case
of a condition that threatens the monetary and finaneial stability of the financial
system that may have systemic consequences, as defined in section 19 hereof,
as determined by the Monetary Board, the maximum deposit insurance cover
may be adjusted in such amount, for such a period, and/or for such deposit
products, as may be determined by a unanimous vote of the Board of Directors
in a meeting called for the purpose and chaired by the Secretary of Finance,
subject to the approval of the President of the Philippines.

h. The term “transfer deposit” means a deposit in an insured cooperative made
available to a depositor by the Corporation as payment of insured deposit of
such depositor in a closed cooperative and assumed by another insured
cooperative.

Section 8. Deposit Insurance Coverage - The deposit liabilities of any cooperative,
which is engaged in the business of receiving deposits as herein defined on the
effective date of this Act, or which thereafter may engage in the business of receiving
deposits, shall be insured with the Corporation

Section 9, Assessment of member Cooperative -

a. The assessment rate shall be determined by the Board of Directors: Provided,
That the assessment rate shall not exceed one-fifth (1/5) of one per


centum (1%) per annum. The semi-annual assessment for each insured
cooperative shall be in the amount of the product of one-half (1/2) the
assessment rate multiplied by the assessment base but in no case shall it be less
than Three thousand pesos (P3,000.00). The assessment base shall be the
amount of the liability of the cooperative for deposits as defined under
subsection (f) of Section 7 without any deduction for indebtedness of
depositors.

‘The semi-annual assessment base for one semi-annual period shall be the
average of the assessment base of the cooperative as of the close of business on
March thirty-one and June thirty and the semi-annual assessment base for the
other semi-annual period shall be the average of the assessment base of the
cooperative savings deposit as of the close of business on September thirty and
December thirty-one: Provided, That when any of said days is a non-business
day or legal holiday, either national or provincial, the preceding business day
shall be used. The certified statements required to be filed with the Corporation
under subsections (b) and (c) of this Section shall be in such form and set forth
such supporting information as the Board of Directors shall prescribe. The
assessment payments required from the insured cooperatives under subsections
(b) and (c) of this Section shall be made in such manner and at such time or
times as the Board of Directors shall prescribe, provided the time or times so
prescribed shall not be later than sixty (60) days after filing the certified
statement setting forth the amount of assessment.

On or before the 31° of July of each year, each insured cooperative shall file
with the Corporation a certified statement showing for the six months ending
on the preceding June thirty the amount of the assessment base and the amount
of the semi-annual assessment due to the Corporation for the period ending on
the following December thirty-one, determined in accordance with subsection
(a) of this Section, which shall contain or be verified by a written declaration
that it is made under the penalties of perjury. Each insured cooperative shall
pay to the Corporation the amount of the semi-annual assessment it is required
to certify. On or before the 31° day of January of each year, each insured
cooperative shall file with the Corporation a similar certified statement for the
six months ending on the preceding December thirty one and shall pay to the
Corporation the amount of the semi-annual assessment for the period ending on
the following June thirty which it is required to certify.

Each cooperative which becomes an insured cooperative shall not be required
to file any certified statement or pay any assessment for the semi-annual period
in which it becomes an insured cooperative. On the expiration of such period,
each such cooperative shall comply with the provisions of subsection (b) of thi
section except that the semi-annual assessment base for its first certified
statement shall be the assessment base of the cooperative as of the close of
business on the preceding June thirty or December thirty-one, whichever is
applicable, determined in accordance with subsection (a) of this section. If such
cooperative has assumed the liabilities for deposits of another cooperative, it



shall include such liabilities in its assessment base. The first certified statement
shall show as the amount of the first semi-annual assessment due to the
Corporation, an amount equal to the product of one-half of the annual
assessment rate multiplied by such assessment base.

|. All assessment collections and income from operations after expenses and
charges shall be added to the Deposit Insurance Fund under Section. Such
expenses and charges are: (1) the operating costs and expenses of the
Corporation for the calendar year; (2) additions to reserve to provide for
insurance and financial assistance losses, net of recoverable amounts from
applicable assets and collaterals, during the calendar year; and (3) the net
insurance and financial assistance losses sustained in said calendar year.

. The Corporation (1) may refund to an insured cooperative any payment of

assessment in excess of the amount due to the Corporation or (2) may credit
such excess toward the payment of the assessment next becoming due from
such cooperative and upon succeeding assessments until the credit is
exhausted.
Any insured cooperative which fails to file any certified statement required to
be filed by it in connection with determining the amount of any assessment
payable by the cooperative to the Corporation may be compelled to file such
statement by mandatory injunction or other appropriate remedy in a suit
brought for such purpose by the Corporation against the cooperative and any
officer or officers thereof in any court of the Philippines of competent
jurisdiction in which such cooperative is located.

. The Corporation, in a suit brought in any court of competent jurisdiction, shall
be entitled to recover from any insured cooperative the amount of any unpaid
assessment lawfully payable by such insured cooperative to the Corporation,
whether or not such cooperative shall have filed any such certified statement
and whether or not suit shall have been brought to compel the cooperative to
file any such statement. No action or proceeding shall be brought for recovery
of any assessment due to the Corporation or for the recovering of any amount
paid to the Corporation in excess of the amount due to it, unless such action or
proceeding shall have been brought within five years after the right accrued for
which the claim is made, except where the insured cooperative has made or
filed with the Corporation a false or fraudulent certified statement with the
intent to evade, in whole or in part, the payment of assessment, in which case
the claim shall not have been deemed to have accrued until the discovery by the
Corporation, that the certified statement is false or fraudulent.

. The Corporation shall not terminate the insured status of any cooperative which
continues to operate or receive deposits. Should any insured cooperative fail or
refuse to pay any assessment required to be paid by such cooperative under any
provision of this Act, and should the cooperative not correct such failure or
refusal within thirty (30) days after written notice has been given by the
Corporation to an officer of the cooperative citing this subsection, and stating
that the cooperative has failed or refused to pay as required by the law, the
Corporation may, at its discretion, file a case for collection before the
appropriate court without prejudice to the imposition of administrative


sanctions allowed under the provisions of this Law on the cooperative officials
responsible for the non-payment of assessment fees.

Section 10. Sanctions against unsafe and unsound cooperative practices -

a. Whenever upon examination by the Corporation into the condition of any
insured cooperative, it shall be disclosed that an insured cooperative or its
directors or agents have committed, are committing or about to commit unsafe
or unsound practices in conducting the savings deposit business of the
cooperative or have violated, are violating or about to violate any provisions of
any law or regulation to which the insured cooperative is subject, the Board of
Directors shall submit the report of the examination to the Cooperative
Development Authority to secure corrective action thereon. If no such
corrective action is taken by the Cooperative Development Authority within
forty-five (45) days from the submission of the report, the Board of Directors
shall, motu proprio, institute corrective action which it deems necessary. The
Board of Directors may thereafter issue a cease and desist order, and require
the cooperative or its directors or agents concerned to correct the practices or
violations within forty-five (45) days. However, if the practice or violation is
likely to cause insolvency or substantial dissipation of assets or earnings of the
cooperative, or is likely to seriously weaken the condition of the cooperative or
otherwise seriously prejudice the interests of its depositors and the cooperative,
the period to take corrective action shall not be more than fifteen (15) days.
‘The order may also include the imposition of fines provided in Section 22 (0)
hereof. The Board of Directors shall duly inform the Cooperative Development
Authority of action it has taken under this subsection with respect to such
practices or violations.

b. The actions and proceedings provided in the preceding subsection may be
undertaken by the Corporation if, in its opinion, an insured cooperative or its
directors or agents have violated, are violating or about to violate any provision
of this Act or any order, rule or instruction issued by the Corporation or any
written condition imposed by the Corporation in connection with any
transaction with or grant by the Corporation.

Section 11, Powers, responsibilities and prohibitions -

a. The Board of Directors shall administer the affairs of the Corporation fairly and
impartially and without discrimination.

b. The Board of Directors shall appoint examiners who shall have power, on
behalf of the Corporation to examine any insured cooperative. Each such
examiner shall have the power to make a thorough examination of all the
savings of the cooperative and in doing so, he shall have the power to
administer oaths, to examine and take and preserve the testimony of any of the
officers and agents thereof, and, to compel the presentation of books,
documents, papers, or records necessary in his judgment to ascertain the facts
relative to the condition of the cooperative; and shall make a full and detailed


report of the condition of the cooperative to the Corporation, The Board of
Directors in like manner shall appoint claim agents who shall have the power to
investigate and examine all claims for insured deposits and transferred
deposits. Each claim agent shall have the power to administer oaths and to
examine under oath and take and preserve testimony of any person relating to
such claim

The investigators appointed by the Board of Directors shall have the power on
behalf of the Corporation to conduct investigations on frauds, irregularities and
anomalies in relation to saving transaction committed in cooperatives, based on
reports of examination conducted by the Corporation and Cooperative
Development Authority or complaints from depositors or from other
government agency. Each investigator shall have the power to administer oaths,
and to examine and take and preserve the testimony of any person relating to
the subject of investigation.

. Each insured cooperatives shall make to the Corporation reports of condition in
such form and at such times as the Board of Directors may require such reports
to be published in such manner, not inconsistent with any applicable law, as it
may direct. Every such cooperative which fails to make or publish any such
report within such time, not less than five days, as the Board of Directors may
require, shall be subject to a penalty of not more than P100 for each day of
such failure recoverable by the Corporation for its use.

The Corporation shall have access to reports of examination made by, and
reports of condition made to the Cooperative Development Authority or its
appropriate supervising agencies.
Each insured cooperative shall keep and maintain a true and accurate record or
statement of its daily deposit transactions consistent with the standards set by
the Cooperative Development Authority and the Corporation, Compliance with
such standards shall be duly certified by the chairman/president of the
cooperative or the compliance officer: Provided, That refusal or willful failure
to issue the required certification shall constitute a violation of this Section and
shall subject such officers of the cooperative to the sanctions provided for
under Section 22 (f) of this Act.
Personnel of the Corporation are hereby prohibited from:
1. being an officer, director, consultant, employee or member, directly or
indirectly, of any cooperative;
2. receiving any gift or thing of value from any officer, director or
employee thereof:

. revealing in any manner, except as provided in this Act or under order of the
court, information relating to the condition or business of any such cooperative.
This prohibition shall not apply to the giving of information to the Board of
Directors, the President of the Corporation, Congress, any agency of
government authorized by law, or to any person authorized by either of them in
writing to receive such information.


h. The Corporation shall underwrite or advance litigation costs and expenses,
including legal fees and other expenses of external counsel, or provide legal
assistance to, directors, officers, employees or agents of the Corporation in
connection with any civil, criminal, administrative or any other action or
proceeding, to which such director, officer, employee or agent is made a party
by reason of, or in connection with, the exercise of authority or performance of
functions and duties under this Act: Provided, That such legal protection shall
not apply to any civil, criminal, administrative or any action or proceeding that
may be initiated by the Corporation, in whatever capacity, against such
director, officer, employee or agent: Provided, further, That directors, officers,
employees or agents who shall resign, retire, transfer to another agency or be
separated from the service, shall continue to be provided with such legal
protection in connection with any act done or omitted to be done by them in
good faith during their tenure or employment with the Corporation: Provided,
finally, That in the event of a settlement or compromise, indemnification shall
be provided only in connection with such matters covered by the settlement as
to which the Corporation is advised by counsel that the persons to be
indemnified did not commit any negligence or misconduct.

i. The costs and expenses incurred in defending the aforementioned action, suit or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay the amount advanced
should it ultimately be determined by the Board of Directors that he is not
entitled to be indemnified as provided in this subsection.

Unless the actions of the Corporation or any of its officers and employees are
found to be in willful violation of this Act, performed in bad faith, with malice
and/or gross negligence, the Corporation, its directors, officers, employees and
agents 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 performance of their functions,
without prejudice to any criminal liability under existing laws.

Legal assistance shall include the grant or advance of reasonable legal fees as
determined by the Board of Directors to enable the concerned director, officer,
employee or agent to engage counsel of his choice, subject to approval by the
Board of Directors.

Notwithstanding the provisions of this Section and Sections 4 and 5, members
of the Board of Directors and personnel of the Corporation may become
directors and officers of any cooperative in connection with financial assistance
extended by the Corporation to such institution and when, in the opinion of the
Board, it is appropriate to make such designation to protect the interest of the
Corporation.


Section 12. Receivership and liquidation -

a. The provisions of other laws, general or special, to the contrary
notwithstanding, whenever it shall be appropriate for the Cooperative
Development Authority to appoint a receiver of any cooperative
pursuant to existing laws, the Cooperative Development Authority. shall
give prior notice and appoint the Corporation as receiver.

b. The Corporation as receiver shall control, manage and administer the
affairs of the closed cooperative. Effective immediately upon takeover
as receiver of such cooperative, the powers, functions and duties, as well
as all allowances, remunerations and perquisites of the directors,
officers, and shareholders of such cooperative are suspended, and the
relevant provisions of the Articles of Cooperation and By-laws of the
closed cooperative are likewise deemed suspended.

The assets of the closed cooperative under receivership shall be deemed
in custodia legis in the hands of the receiver. From the time the closed
cooperative is placed under such receivership, its assets shall not be
subject to attachment, garnishment, execution, levy or any other court
processes.

In addition to the powers of a receiver pursuant to existing laws, the
Corporation is empowered to

1. bring suits to enforce liabilities to or recoveries of the closed
cooperative;

2. appoint and hire persons or entities of recognized competence in
cooperativism as its deputies and assistants, to perform such
powers and functions of the Corporation as receiver or liquidator
of the closed cooperative;

3. suspend or terminate the employment of officers and employees
of the closed cooperative: Provided, That payment of separation
pay or benefits shall be made only after the closed cooperative
has been placed under liquidation and that such payment shall be
made from available funds of the cooperative after deducting
reasonable expenses for receivership and liquidation;

4. pay accrued utilities, rentals and salaries of personnel of the
closed cooperative for a period not exceeding three (3) months,
from available funds of the closed cooperative;

5. collect loans and other claims of the closed cooperative, and for
the purpose, modify, compromise or restructure the terms and
conditions of such loans or claims as may be deemed
advantageous to the interest of the creditors and claimants of the
closed cooperative;

6. hire or retain private counsels as may be necessary;

7. borrow or obtain a loan, or mortgage, pledge or encumber any
asset of the closed cooperative, when necessary to preserve or


prevent dissipation of the assets, or to redeem foreclosed assets of
the closed cooperative, or to minimize losses to the depositors
and creditors;

8. if the stipulated interest on deposits is unusually high compared
with the prevailing applicable interest rate, the Corporation as
receiver may exercise such powers which may include a
reduction of the interest rate to a reasonable rate: Provided, That
any modification or reduction shall apply only to unpaid
interest; and

9. exercise such other powers as are inherent and necessary for the
effective discharge of the duties of the Corporation as a receiver.

The Board of Directors shall adopt such policies and guidelines as may
be necessary for the performance of the above powers by personnel,
deputies and agents of the Corporation.

Section 13. Court fees and other fees - In all cases or actions filed by the
Corporation as receiver for the recovery of, or involving any asset of the closed
cooperative, payment of all docket and other court fees shall be free.

Section 14. Receivership expenses - Before any distribution of the assets of the
closed cooperative in accordance with the preference established by Philippine
Cooperative Code and other laws, the Corporation shall periodically charge against
said assets reasonable receivership expenses and subject to approval by the proper
court, reasonable liquidation expenses, it has incurred as part of the cost of
receivership/liquidation proceedings and collect payment therefore from available
assets.

After the payment of all liabilities and claims against the closed cooperative, the
Corporation shall pay any surplus dividends at the legal rate of interest from date of
takeover to date of distribution, to creditors and claimants of the closed cooperative in
accordance with legal priority before distribution to the shareholders of the closed
cooperative.

Section 15. Permanent Insurance Funds - To carry out the purposes of this Act, the
permanent insurance fund shall be Five Hundred million pesos (P500,000,000.00).

‘The Deposit Insurance Fund shall be the capital account of the Corporation and shall
principally consist of the following: (i) the Permanent Insurance Fund; ({i) assessment
collections, subject to the charges enumerated in Section 6 (d); (iii) reserves for
insurance and financial assistance losses; and (iv) retained earnings: Provided, That
the reserves for insurance and financial assistance losses and retained earnings shall be
maintained at a reasonable level to ensure capital adequacy: Provided, further, That
the Corporation may, within two (2) years from the passage of this Act, and every five
(5) years thereafter, conduct a study on the need to adjust the amount of the Permanent
Insurance Fund, insurance cover, assessment rate and assessment base, and thereafter
make the necessary recommendation to Congress. For this purpose, the Corporation


may hire the services of actuarial consultants to determine, among others, the
affordability of assessment rates, analysis and evaluation of insurance risk, and
advisability of imposing varying assessment rates or insurance cover of different
cooperatives.

Section 16. Payment of Insured deposits - Whenever an insured cooperative shall
have been closed by the Cooperative Development Authority, payment of the insured
deposits on such closed cooperative shall be made by the Corporation as soon as
possible either (1) by cash or (2) by making available to each depositor a transferred
deposit in another insured cooperative in an amount equal to insured deposit of such
depositor: Provided, however, That the Corporation, in its discretion, may require
proof of claims to be filed before paying the insured deposits, and that in any case
where the Corporation is not satisfied as to the viability of a claim for an insured
deposit, it may require final determination of a court of competent jurisdiction before
paying such claim: Provided, further, That failure to settle the claim, within six (6)
months from the date of filing of claim for insured deposit, where such failure was due
to grave abuse of discretion, gross negligence, bad faith, or malice, shall, upon
conviction, subject the directors, officers or employees of the Corporation responsible
for the delay, to imprisonment from six (6) months to one (1) year: Provided,
furthermore, That the period shall not apply if the validity of the claim requires the
resolution of issues of facts and or law by another office, body or agency including the
case mentioned in the first proviso or by the Corporation together with such other
office, body or agency.

Section 17. Subrogation - The Corporation, upon payment of any depositor, shall be
subrogated to all rights of the depositor against the closed cooperative to the extent of
such payment. Such subrogation shall include the right on the part of the Corporation
to receive the same payments from the proceeds of the assets of such closed
cooperative and recoveries on account of cooperatives debtors as would have been
payable to the depositor on a claim for the insured deposits but, such depositor shall
retain his claim for any uninsured portion of his deposit. All payments by the
Corporation of insured deposits in closed cooperatives 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 2244 of the New Civil
Code:

Section 18. Determination of insured dep

a. The Corporation shall commence the determination of insured deposits due the
depositors of a closed cooperative upon its actual takeover of the closed
cooperative. The Corporation shall give notice to the depositors of the closed
cooperative of the insured deposits due them by whatever means deemed
appropriate by the Board of Directors: Provided, That the Corporation shall
publish the notice once a week for at least three (3) consecutive weeks in a
newspaper of general circulation or, when appropriate, in a newspaper


circulated in the community or communities where the closed cooperative or its
branches are located and post the same in the office of the cooperative.

b. Payment of an insured deposit to any person by the Corporation shall discharge
the Corporation, and payment of transferred deposit to any person by the new
cooperative or by an insured cooperative in which a transferred deposit has
been made available shall discharge the Corporation and such new cooperative
or other insured cooperative, to the same extent that payment to such person by
the closed cooperative would have discharged it from liability for the insured
deposit.

c. Except as otherwise prescribed by the Board of Directors, neither the
Corporation nor such other insured cooperative shall be required to recognize
as the owner of any portion of a deposit appearing on the records of the closed
cooperative under a name other than that of the claimant, any person whose
name or interest as such owner is not disclosed on the records of such closed
cooperative as part owner of said deposit, if such recognition would increase
the aggregate amount of the insured deposits in such closed cooperative.

d. The Corporation may withhold payment of such portion of the insured deposit
of any depositor in a closed cooperative as may be required to provide for the
payment of any liability of such depositor as a shareholder of the closed
cooperative, or of any liability of such depositor to the closed cooperative or its
receiver, which is not offset against a claim due from such cooperative,
pending the determination and payment of such liability by such depositor or
any other liable therefor.

e. Unless otherwise waived by the Corporation, if the depositor in the closed
cooperative shall fail to claim his insured deposits with the Corporation within
two (2) years from actual takeover of the closed cooperative by the receiver, or
does not enforce his claim filed with the corporation within two (2) years after
the two-year period to file a claim as mentioned hereinabove, all rights of the
depositor against the Corporation with respect to the insured deposit shall be
barred; however, all rights of the depositor against the closed cooperative or the
receivership estate to which the Corporation may have become subrogated,
shall thereupon revert to the depositor. Thereafter, the Corporation shall be
discharged from any liability on the insured deposit.

Section 19. Corporate funds and financial assistance -

a. Money of the Corporation not otherwise employed shall be invested in
obligations of the Republic of the Philippines or in obligations guaranteed as to
principal and interest by the Republic of the Philippines.

b. The banking or checking accounts of the Corporation shall be kept with the
Bangko Sentral ng Pilipinas, with the Land Bank of the Philippines, or with
any other bank designated as depository or fiscal agent of the Philippine
government.

c. It is hereby declared to be the policy of the State that the Deposit Insurance
Fund of the Corporation shall be preserved and maintained at all times.
Provided, ‘That, the Corporation shall be exempt from income tax, final


withholding tax, value-added tax on assessments collected from member
cooperatives, and local taxes.

d. When the Corporation has determined that an insured cooperative is in danger
of closing, in order to prevent such closing, the Corporation, in the discretion of
its Board of Directors, is authorized to make loans to, or purchase the assets of,
or assume liabilities of, or make deposits in, such insured cooperative, upon
such terms and condition as the Board of Directors may prescribe, when in the
opinion of the Board of Directors, the continued operation of such cooperative
is essential to provide adequate cooperative saving service in the community or
maintain financial stability in the economy.

The authority of the Corporation under the foregoing paragraph to extend financial
assistance to, assume liabilities of, purchase the assets of an insured cooperative may
also be exercised in the case of a closed insured cooperative if the Corporation finds
that the resumption of operations of such cooperative is vital to the interests of the
community: Provided, That the reopening and resumption of operations of the closed
cooperative shall be subject to the prior approval of the Cooperative Development
Authority.

The Corporation may provide any corporation acquiring control of, merging or
consolidating with or acquiring the assets of an insured cooperative danger of closing
in order to prevent such closing or of a closed insured cooperative in order to restore
to normal operations, with such financial assistance as it could provide an insured
cooperative under this subsection: Provided, That, within sixty (60) days from date of
assistance the Corporation shall submit a report thereof to the Cooperative
Development Authority.

The Corporation, prior to the exercise of the powers under this Section, shall
determine that actual payoff and liquidation thereof will be more expensive than the
exercise of this power: Provided, That when the Cooperative Development Authority
has determined that there are systemic consequences of a probable failure or closure
of an insured cooperative, the Corporation may grant financial assistance to such
insured cooperative in such amount as may be necessary to prevent its failure or
closure and/or restore the insured cooperative to viable operations, under such terms
and conditions as may be deemed necessary by the Board of Directors, subject to
concurrence by the Cooperative Development Authority and without additional cost to
the Deposit Insurance Fund.

Section 20. Authority to borrow - The Corporation is authorized to borrow from
the Bangko Sentral ng Pilipinas and the Bangko Sentral is authorized to lend the
Corporation on such terms as may be agreed upon by the Corporation and the Bangko
Sentral, such funds as in the judgment of the Board of Directors of the Corporation are
from time to time required for insurance purposes and financial assistance provided
for in Section 19(d) of this Act: Provided, That any such loan as may be granted by
the Bangko Sentral shall be consistent with monetary policy; Provided, further, That


the rate of interest thereon shall be fixed by the Monetary Board but shall not exceed
the treasury bill rate.

When in the judgment of the Board of Directors the funds of the Corporation are not
sufficient to provide for an emergency or urgent need to attain the purposes of this
Act, the Corporation is likewise authorized to borrow money, obtain loans or arrange
credit lines or other credit accommodations from any bank designated as depository or
fiscal agent of the Philippine Government: Provided, That such loan shall be of short-
term duration.

Section 21. Reports and audit -

a. The Corporation shall annually make a report of its operations to the Congress
as soon as practicable after the Ist day of January in each year.

b. The financial transactions of the Corporation shall be audited by the
Commission on Audit in accordance with the principles and procedures
applicable to commercial corporate transactions and under such rules and
regulations as may be prescribed by the Commission on Audit. The audit shall
be conducted at the place or places where accounts of the Corporation are
normally kept. Except as to matters relating to the function of the Corporation
as receiver which shall be subject to visitorial audit only, the representatives of
the Commission on Audit shall have access to all books, accounts, records,
reports, files and all other papers, things, or property belonging to or in use by
the Corporation pertaining to its financial transactions and necessary to
facilitate the audit, and they shall be afforded full facilities for verifying
transactions with the balances or securities held by depositories, fiscal agents,
and custodians. All such books, accounts, records, reports, files, papers, and
property of the Corporation shall remain in possession and custody of the
Corporation.

c. A report of the Audit for each fiscal year ending on June 30 shall be made by
the Auditor General to the Congress not later than January 15 following the
close of such fiscal year. On or before December 15 following such fiscal year,
the Auditor General shall furnish the Corporation a short form report showing
the financial position of the Corporation at the close of fiscal year. The report
to the Congress shall set forth the scope of the audit and shall include a
statement of assets and liabilities and surplus or deficit; a statement of surplus
or deficit analysis; a statement of income and expenses; a statement of sources
and application of funds and such comments and information as may be
deemed necessary to inform Congress of the financial operations and condition
of the Corporation, together with such recommendations with respect thereto as
the Auditor General may deem advisable. The report shall also show
specifically any program, expenditure, or other financial transactions or
undertaking observed in the course of the audit, which in the opinion of the
Auditor General, has been carried on or made without authority of law. A copy



of each report shall be furnished to the President of the Philippines, to the
Governor of the Bangko Sentral ng Pilipinas, and to the Corporation at the time
submitted to the Congress.

Section 22. Penalties -

a. Every insured cooperative shall display at each place of business maintained by
it a sign or signs, and shall include a statement in all its advertisements to the
effect that its deposits are insured by the Corporation

b. No insured cooperative shall pay any dividend on its share capital or distribute
any of its capital assets while it remains in default in the payment of any
assessment due to the Corporation: Provided, That if such default is due to a
dispute between the insured cooperative and the Corporation over the amount
of such assessment, this subsection shall not apply if such cooperative shall
deposit security satisfactory to the Corporation for payment upon final
determination of the issue.

¢. Without prior written consent by the Corporation, no insured cooperative shall
(1) merge or consolidate with any cooperative or (2) assume liability to pay any
deposits made in, or similar liabilities of, any cooperative or (3) transfer assets
to any cooperative in consideration of the assumption of liabilities for any
portion of the deposits made in such insured cooperative.

4. The Corporation may require an insured cooperative to provide protection and
indemnity against burglary, defalcation, losses arising from discharge of duties
by, or particular acts of defaults of its directors, officers, or employees, and
other similar insurable losses. The Board of Directors in consultation with the
Cooperative Development Authority, shall determine the bonding requirement
as it refers to directors, officers and employers of the insured cooperative as
well as the form and amount of the bond, Whenever any insured cooperative
refuses to comply with any such requirement the Corporation may contract for
such protection and add the cost thereof to the assessment otherwise payable by
such cooperative

e. Any assessment payable by an insured cooperative under this Act shall be
subject to payment of interest computed from the date such assessment became
due and payable and at the legal rate for loans as prescribed by law or
appropriate authority and in case of willful failure or refusal to pay such
assessment and interest thereon, there shall be added a penalty equivalent to
twice the amount of interest payable as computed herein for each day such
violations continue, which the interest and penalty the Corporation may recover
for its use: Provided, That the penalty shall not be applicable under the
circumstances stated in the provisions of subsection (b) of this Section.

f 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 upon any director, officer,
employee or agent of a cooperative:


1. for any willful refusal to submit reports as required by law, rules and
regulations;

2. any unjustified refusal to permit examination and audit of the deposit
records or the affairs of the cooperative;

3. any willful making of a false statement or entry in any cooperative
report or document required by the Corporation;

4. submission of false material information in connection with or in
relation to any financial assistance of the Corporation extended to the
cooperative;

5. splitting of deposits or creation of fictitious loans or deposit accounts.

Splitting of deposits occurs whenever a deposit account with an
outstanding balance of more than the statutory maximum amount of
insured deposit maintained under the name of natural or juridical
persons is broken down and transferred into two (2) or more accounts in
the name/s of natural or juridical persons or entities who have no
beneficial ownership on transferred deposits in their names within one
hundred twenty (120) days immediately preceding or during a
cooperative declared holiday, or immediately preceding a closure order
issued by the Cooperative Development Authority for the purpose of
availing of the maximum deposit insurance coverage;

6. refusal to allow the Corporation to take over a closed cooperative placed
under its receivership or obstructing such action of the Corporation;

7. refusal to turn over or destroying or tampering cooperative records;

8. fraudulent disposal, transfer or concealment of any asset, property or
liability of the closed cooperative under the receivership of the
Corporation;

9. violation of, or causing any person to violate, the exemption from
garnishment, levy, attachment or execution.

10.any willful failure or refusal to comply with, or violation of any
provision of this Act, or commission of any other irregularities, and/or
conducting business in an unsafe or unsound manner as may be
determined by the Board of Directors.

g. The Board of Directors is hereby authorized to impose administrative fines for
any act or omission enumerated in the preceding subsection, and for violation
of any order, instruction, rule or regulation issued by the Corporation, against a
cooperative and/or any of its directors, officers or agents responsible for such
act, omission, or violation, in amounts as it may be determined to be
appropriate, but in no case to exceed three times the amount of the damages or
costs caused by the transaction for each day that the violation subsists, taking
into consideration the attendant circumstances, such as the nature and gravity
of the violation or irregularity and the assets of the cooperative.



Section 23. Separability Clause - If any provision or section of this Act or the
application 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 24. 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.

Section 25. Effectivity Clause - 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.

Adopted,