WEEK 13 #27 SEC v.

College Assurance Plan common shares of Comprehensive Annuity Plans & Pension
G.R. No. 202052 | March 7, 2018 Corporation owned by CAP.
By: ARQUILLO  In 2003, after having paid US$6,536,405.01 of the purchase price,
CAP was ordered by the SEC Oversight Board to stop paying
Topic: Insurance SMART/FEMI due to its perceived inadequacy of CAP's funds.
Petitioner: SECURITIES AND EXCHANGE COMMISSION and  On August 23, 2005, CAP filed a Petition for Rehabilitation. A Stay
INSURANCE COMMISSION Order was issued by the court suspending the enforcement of all
Respondent: COLLEGE ASSURANCE PLAN PHILIPPINES (CAP) claims against CAP. Mr. Mamerto Marcelo, Jr. was appointed as
Ponente: BERSAMIN, J Interim Rehabilitation Receiver.
FACTS: (Facts from CA decision)  RTC: gave due course to CAP's Petition for Rehabilitation and
 CAP is a duly registered domestic corporation with the primary directed the Receiver to submit a report on the rehabilitation plan.
purpose of selling pre-need educational plans. To guarantee the The 2006 Revised Business Plan was approved by the court on
payment of benefits under its educational plans, CAP set up a Trust November 8, 2006. Under the Rehabilitation Plan, CAP intended to
Fund contributing therein a certain percentage of the amount sell in 2009 the MRT Bonds at 60% of their face value of US$ 81.2
actually collected from each planholder. million.
 The Trust Fund, with the aid of trustee banks, is invested in assets  While negotiations to effect the sale were ongoing, Smart
and securities with yields higher than projected increase in tuition o demanded that CAP settle its outstanding balance of US$
fees. 10,680,045.25 as February 28, 2009 and
 With the adoption of the policy of deregulation of private o warned that, should CAP insist on holding on to the MRT III
educational institutions by the DepEd in 1993 and the economic Bonds instead of selling them, Smart would demand the
crisis and peso devaluation in 1997, CAP and its Trust Fund were immediate return of the MRT III Bonds as full and final
adversely affected. settlement of CAP's outstanding obligation.
 In 2000, RA 8799 (Securities Regulation Code) was passed. SEC  The Receiver denied that CAP has agreed to pay its liabilities to FEMI
promulgated on August 16, 2001 the New Rules on the Registration and Smart from the proceeds of the prospective sale of the MRT III
and Sale of Pre-Need Plans under Section 16 of the Securities Bonds.
Regulation Code.  On April 13, 2009, the Receiver filed a Manifestation seeking the
 With the adoption of the Pre-Need Uniform Chart of Accounts for the public respondent's approval of the sale of MRT III Bonds, with a face
accounting and reporting of the operations of the pre-need value of US$ 81,2000,000.00, "at the best possible price" to DBP and
companies in the Philippines and the new rules on the valuation of Land Bank.
trust funds invested in real property, CAP incurred a trust fund  Public respondent approved the sale of MRT III Bonds "at the best
deficiency of 3.179 billion as of December 31, 2001. In compliance possible price."
with the directive of SEC to submit a funding scheme to correct the  Two days later, the Receiver received a letter from FEMI that Smart
deficiency, intended to annotate a notice of unpaid seller's lien on the MRT III
 CAP, among others, proposed to purchase MRT III Bonds and assign Bonds with Deutsche Bank, the custodian bank. However, Smart
the same to the Trust Fund. Hence, on August 6, 2002, CAP opted not to do so and would instead assist in finding a buyer
purchased MRT III Bonds then valued at $14 million from Smart and provided that the seller's lien of US$ 9.5 million will be settled
FEMI, and assigned the same to the Trust Fund. through the arrangement it presented, subject to the approval of the
o The purchase price to be paid by CAP in 60 monthly rehabilitation court.
installments payable over 5 years. This obligation was  The Receiver filed a Manifestation with Motion where he sought the
secured by a Deed of Chattel Mortgage over 9,762,982 public respondent's approval of CAP's payment of its obligations to
Smart and FEMI, partly from proceeds of the sale of MRT III Bonds.
 The MRT III Bonds were sold at US$ 21,501,760 to DBP and Land in the nature of "cost for services rendered or property delivered."
Bank. The Buyers agreed to purchase the MRT III Bonds at a
premium of 3.30% made possible by: (1) Smart's desistance from  We agree w/ petitioners.
enforcing its unpaid seller's lien, (2) FEMI's relinquishing its 4 board  In respect of pre-need companies, the trust fund is set up from the
seats with MRT Corporation, (3) swap arrangement of FEMI shares planholders' payments to pay for the cost of benefits and services,
held by CAP to liquidate $3.5 million of the outstanding obligation; termination values payable to the planholders and other costs
and (4) substantial discount of $1.2 million from CAP's outstanding necessary to ensure the delivery of benefits or services to the
liabilities. The contract of sale was perfected and partly planholders. The trust fund is to be treated as separate and distinct
consummated-FEMI gave up its 4 board seats in MRTC, the MRT III from the paid-up capital of the company, and is established with a
Bonds were delivered to the buyers, and the buyers paid trustee under a trust agreement approved by SEC to pay the benefits.
$21,501,760 to CAP, which amount was credited to its trust accounts  Section 16.4, Rule 16 of the New Rules,: 16.4. No withdrawal shall be
with Philippine Veterans Bank (PVB). However, CAP's payment to made from the Trust Fund except for paying the Benefits such as
Smart and FEMI remained to be executed. the monetary consideration, the cost of services rendered or
 Receiver moved for the payment of CAP’s obligations to Smart and property delivered, trust fees, bank charges and investment expenses
FEMI. in the operation of the Trust Fund, termination values payable to the
o RTC approved the motion. Planholders, annuities, contributions of cancelled plans to the fund and
o RTC withdrew the approval and instead ordered the receiver taxes on Trust Funds. Furthermore, only reasonable withdrawals for
and the respondent to file their reply to the opposition.  minor repairs and costs of ordinary maintenance of trust fund assets
 RTC issued a joint order denying the motion to approve payment to shall be allowed.
Smart as well as the motion to approve CAP’s additional equity  The term "benefits" is "the money or services which the Pre-Need
infusion in CAP General Insurance. Company undertakes to deliver in the future to the planholder or his
 CAP received summons from the High Court of Hong Kong Special beneficiary."
Administrative Region, CFI, directing it to either satisfy the claim of  Moreover, Sec 30 of RA 9829 stipulates that the trust fund is to be
Smart and FEMI, or to return the Acknowledgment of Service, stating used  at all times  for the  sole benefit  of the planholders, and
whether it intended to contest the proceedings or to make an cannot ever be applied to satisfy the claims of the creditors of the
admission. company
 CAP filed its motion w/ RTC seeking authorization to pay the claims  Section 30. Trust Fund. - xxx Assets in the trust fund shall at all times
of Smart and FEMI and explaining that the institution of the action in remain for the sole benefit of the planholders. At no time shall any part
Hong Kong presented a real threat that the buyers would rescind of the trust fund be used for or diverted to any purpose other than for
their contact with CAP and demand the return of the purchase price the exclusive benefit of the planholders. In no case shall the trust fund
of $21,501,760.00. assets be used to satisfy claims of other creditors of the pre-need
 company. The provision of any law to the contrary notwithstanding, in
ISSUE 1: WON obligation to pay Smart and FEMI did not constitute the case of insolvency of the pre-need company, the general creditors shall
"benefits" or "cost of services rendered" or "property delivered" not be entitled to the trust fund.
under Sec 16.4, Rule 16 of the New Rules and Sec 30 of RA 9829.
Except for the payment of the cost of benefits or services, the
RULING: Did not constitute the "benefits." termination values payable to the planholders, the insurance premium
 Petitioners’ Argument: trust fund should be treated separately payments for insurance-funded benefits of memorial life plans and
from corporate assets and obligations of CAP. other costs necessary to ensure the delivery of benefits or services to
 Respondent’s Argument: payment to Smart and FEMI constituted a planholders, no withdrawal shall be made from the trust fund unless
valid withdrawal from the trust fund because it was upon a "benefit" approved by the Commission. xxx.
 and TA 4450-58-000123 (Old TA No. 91), x x x did not report any
liability relating to the MRT III bonds.
 CA erred in authorizing the payment out of the trust fund of the
obligations due to Smart and FEMI. Even assuming that the ISSUE 2: WON Payment to Smart and FEMI was not an
obligations were incurred by the respondent in order to infuse administrative expense to be withdrawn from the trust fund.
sufficient money in the trust fund to correct its deficiencies, such
obligations should be paid for by its assets, not by the trust fund. RULING: Not to be withdrawn from the trust fund.
 The planholders are the beneficiaries of the trust properties.
 CA: only the paid value of the MRT III Bonds should be made part of  The CA ruled that the respondent's outstanding obligation to Smart
the trust fund; that with the MRT III Bonds being subject to the and FEMI could be considered an administrative expense that was
unpaid seller's lien, Smart and FEMI were considered as contributors not covered by the stay order.
to the source of the assets of the trust fund, and for that reason were  SC disagrees.
not to be treated as ordinary creditors of the respondent.  Section 16.4, Rule 6 of the New Rules made an exclusive
 We cannot sustain the observations of the CA. enumeration of the administrative expenses that may be
 SC: There had been no indication by respondent to the trustee bank withdrawn from the trust fund, as follows:
that only the paid value of the MRT III Bonds should accrue to the o trust fees, bank charges and investment expenses in the
trust fund. Even in its comment, the respondent intimated that the operation of the trust fund, taxes on trust funds, as well as
bonds were assigned to the trust fund without any reservations or reasonable withdrawals for minor repairs and costs of
conditions imposed thereon. ordinary maintenance of trust fund assets.
 SC: uphold the petitioners' stance that the MRT III bonds, upon their  Evidently, the purchase price of the bonds for the capital infusion
infusion to the Trust Fund, and consequently, the proceeds of the to the trust fund was not included as an administrative expense
sale thereof, were considered as the Trust Fund assets themselves. that could be validly taken from the trust fund.
 The Agreement dated August 6, 2002 between CAP and BANK OF  Yet, assuming that the unpaid obligation to Smart and FEMI
COMMERCE TRUST SERVICES GROUP AS TRUSTEE states that constituted an administrative expense, its payment was the
o upon the sale and delivery by Vendors to CAP of said liability of the respondent's assets, not of the trust fund. It is
Bonds, CAP shall assign the Bonds valued at already clear that the trust fund was separate and distinct from the
US$14,000,000.00 to the Trust Fund administered by and corporate assets of the respondent. In other words, only the
in the possession of the TRUSTEE. planholders as the beneficiaries of the trust fund could claim
o CAP warrants that: the Bonds are not mortgaged nor in against the trust fund, to the exclusion of Smart and FEMI as the
any way encumbered in favor of any person or respondent's creditors.
corporation.
 That the unpaid purchase price of the MRT III bonds in favor of
Smart and FEMI was not the liability of the respondent's Trust Fund
is clearly shown in the Trust Fund Statements of respondent's Trust
Fund with the BOC. Specifically, the Balance Sheet as of December
31, 2002 for CAP's Trust Fund Account No. TG-91-07-00001-C x x x
did not include among the respondent's Trust Fund liabilities the
outstanding obligation of CAP to Smart and FEMI.
 Likewise, the Balance Sheet as of February 28, 2009 of the Trust
Account of respondent with PVB with Trust Account Nos. TA 4450-
58-000124 (Old TA No. 81), TA 4450-58-000126 (Old TA No. 85)