Republic of the Philippines
HOUSE OF REPRESENTATIVES TW.
Quezon City &, BY

16" Congress
First Regular Session

House Bittno. 2741 _

Introduced by Representative WESLIE T. GATCHALIAN

EXPLANATORY NOTE

The cooperative movement in the Philippines had shown its existence as a viable instrument 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

To date, it is clear that cooperatives are strong social and economic force. In a 2009 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 thriftiness and savings
mobilization among its members, cooperatives opened their doors to cooperative savings
deposit, cooperative banking and financial services which generally provide 2 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 assets now running in hundred millions and even


billions and most, if not all, do have their own savings deposit activities overtaking the small
rural and savings banks of our country,

Novaliches Development Cooperative for one has a total deposit liability of more or less
Php 448,000,000.00 as of December 31, 2012. Its depositors are growing in numbers and
usually come from the informal sectors of the society, the vendors, drivers, small
entrepreneurs, lowly paid employees ~ ang masang Pilipino,

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.

Like 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 assistance 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.



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

16" Congress
First Regular Session

wouse auto 2741

Introduced by Representatives WESUIE T. GATCHALIAN

AN ACT
PROVIDING PROTECTION TO COOPERATIVE DEPOSITORS AND
ESTABLISHING THE PHILIPPINE COOPERATIVE INSURANCE
CORPORATION, DEFINING ITS POWERS 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. Xil 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 Oeposit 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.

Section 3. Creation and Nature of the Corporation ~ There is hereby created a Philippine
Cooperative Deposit Insurance Corporation which shall have the status of 2 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:


b)
c)

a)
e)
f)
8)
h)

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;
To direct the management and operation of the Corporation;

To receive and manage grants, donations, and other forms of assistance;

To sue and be sued;

To adopt an annual budget for, and authorize such expenditures by the Corporation;
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)

b)

¢)

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

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

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

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;

¢ 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;

f 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

c, 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

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 financial 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
31day 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 this 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.



g, 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

h, 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 (f) 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.

d. 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
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
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,

c. 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
fof such loans or claims as may be deemed advantageous to the
interest of the creditors and claimants of the closed cooperative;
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; (ii) 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 deposits -

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

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

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

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

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.

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

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.

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 Bongko 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 1st 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,

©. Arreport 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 (2)
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
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
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
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 Oevelopment 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,