Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)
Practical Considerations |
At this point, it may be recalled that the original version of the SPV Act sought to solve our NPA problem in a two-fold way first, by granting tax incentives and fee privileges and second, by remo-ving obstacles to the enforcement of creditors rights. The second is equally important as the first. Indeed, no matter how attractive the tax incentives under the law are, no investor in his right mind would buy non-performing loans if he could not efficiently collect them in the first place. That was the reason why the earlier versions of the new law had provisions removing the present-day obs-tacles to the enforcement of cre-ditors rights. For example, the bills filed in both Houses con-tained provisions regulating the issuance of temporary restraining orders and preliminary injunc-tions against foreclosures of mort-gages. The bills also had provi-sions granting creditors and SPVs the right vote down suspension/stay orders issued in rehabilitation cases. Unfortunately, the law, as fi-nally passed, did not contain these non-tax incentives because of op-position during the legislative deliberations. Congress hoped that the law would still work by giving tax exemptions and fee pri-vileges. The SPV Act is, therefore, essentially a tax exemption and fee incentive piece of legislation. For the IRR to unduly limit the tax exemptions and fee incentives granted by the SPV Act would violate the very essence of the law. Again, it is a settled principle that implementing rules and regula-tions cannot defeat or be in dero-gation of the purpose of the basic statute. Indeed, while the general rule is that tax exemptions should strictly be construed against the taxpayer, there is authority to the effect that such rule does not apply to special taxes relating to special cases and affecting only special classes of persons. Surely, the SPV law is one such kind of legis-lation.
Another limiting ef-fect of the proposed IRR is the provision that all taxes on previous tran-sfers to the transferor-financial institution or SPV must have been paid. In the first place, this may not be necessary at all. If a parti-cular asset is already in the name of the transferring FI or SPV, then taxes on the transfer must have already been paid. It is public knowledge that payment of trans-fer taxes is a condition precedent to the registration of the property in the name of the transferee. Secondly, this provision creates an unnecessary risk on the part of potential investors. It may be uti-lized as a tool of harassment by unscrupulous tax collectors. The provision will give these tax collectors a reason to review payment of taxes on previous transfers, notwithstanding the fact that the proper taxes had presu-mably been already paid. Why will a SPV, for example, buy a ROPOA from a bank with such risks? Will a bank give a repre-sentation and warranty to address the concerns of the SPV on the matter? Better still, will a bank give an indemnity in favor of the SPV to cover the risks? These and a host of other issues arising in connection with the questioned provision will delay the banks sale of its non-performing assets to the SPV.
Equally problematic or trouble-some is the minimum net worth required of the SPVs. What this means is that the SPVs will be required to put up cash or pro-perty to comply with the mini-mum net worth required by the proposed IRR. This, of course, will work undue hardship on the investors of SPVs, not to men-tion the criminal penalties at-tached to the non-compliance with the minimum net worth requirement. This is especially so because the SPV Act categori-cally provides that IUIs issued by the SPVs will not form part of their capital (Sec. 3[f]). These IUIs, indeed, form part of the liabilities of the SPV and, there-fore, counterpart assets will have to be put up in order to comply with the minimum net worth requirement prescribed by the IRR.
(The author is a senior partner and the co-managing partner of the Abello Concepcion Regala & Cruz Law Offices or ACCRALAW. He may be contacted at telephone number (632) 830 8000 or e-mailed at "felim@accralaw.com")