The purpose of receivership

In a recent decision, the Supreme Court reiterated that the object of receivership is the prevention of imminent danger to the property.  If the action does not require such protection or preservation, the remedy is not receivership.

As early as 2008, or a year after the Steel Corp. of the Philippines (SCP) was placed under receivership by a Batangas Court, Nueva Ecija Rep. Carlos Padilla already questioned the action, saying SCP was placed under receivership despite having diligently made interest payments to its creditor banks.

SCP was the only certified enterprise under R.A. 7103, also known as the Iron and Steel Industry Act of 1991. It located its plant in Balayan, Batangas, and started building the country’s biggest and most modern integrated flat steel factory in 1996. To finance the venture, it secured loans worth P3.1 billion from a consortium of local and foreign banks.

But in 1997, the Asian recession hit and by 2001, the owners knew they would not be able to meet loan repayment schedules without impairing their working capital. They asked their creditors for restructuring. In 2002, a restructuring agreement was drawn up, which would involve the creditors putting up a revolving trade financing line of P500 million in exchange for the shareholder’s equity infusion of P550 million which the company would use exclusively to pay back the line after three years. BDO-Equitable was the lead bank and consortium agent.

Inspite of this, the bank petitioned a Batangas court to place the company under receivership. In its petition, the bank sought conversion of P3.12 billion in outstanding debt to equity. This despite SCP’s assertion that receivership was not necessary because it was registering operating profits of P600 million or more each year.

Steel Corp. now has debts totalling P7.2 billion, and total physical assets of around P13 billion. It is the country’s biggest integrated flat steel mill that produces cold-rolled coils and steel products used in construction, appliances, automotive, architecture, furniture, cans, roofing and other consumer products.

In fact, the rehabilitation court has previously ruled on October 11, 2007 that “it (rehabilitation court) has found that there is no clear and imminent danger that Steel Corp. will lose its corporate assets”. Eventually, the creditors got what they wanted and the company was placed under receivership.

Santiago Gabionza Jr. has held the position of SCP rehabilitation receiver for about three years now.  SCP sources say that for this job, he is receiving a hefty fee of P300,000 a month and that in addition, he has engaged a  law firm of which he is a partner as his legal counsel and for which the SCP has shelled out P663,141 in just a period of four months.

SCP insists that a rehabilitation receiver is supposed to be independent, neutral and impartial since he represents the court - not the creditors or stockholders.  He is primarily tasked to study the best way to rehabilitate the debtor and to ensure that the value of the debtor’s property is reasonably maintained pending the determination of whether or not the debtor should be rehabilitated as well as implement the rehabilitation plan after its approval.  

It is also being said that Gabionza assumed his post as rehabilitation receiver of SCP even if the court has yet to determine whether or not there is really a need for the appointment of a receiver. 

All these have prompted the SCP to ask the Court of Appeals seeking to junk the  Batangas City Regional Trial Court’s appointment of Gabionza as receiver. 

The SCP has also filed a motion with the rehabilitation court for the conduct of hearings to clarify the legal personality of Gabionza relative to the rehabilitation program of the company.  This was because he has tendered a letter of resignation as early as April 14, 2008 but still acts as receiver to this day. 

It was learned that just recently, he reportedly called a creditors meeting and created panic and confusion among SCP banks by writing them and asking for the disclosure of any and all amounts held in the name of SCP in the said banks, a possible violation of the law on secrecy of bank deposits and the General Banking Act. 

We do not know Gabionza personally nor are we judging his actions. All these accusations may turn out to be baseless. But it’s probably time that the laws and rules on receivership be reviewed because of the immense powers that a receiver wields and the seeming lack of measures that could check on possible abuses by the receiver and the rehabilitation court.

Subic operators raise howl

This column a few days back called on existing cargo operators in Subic to just submit their counterproposals instead of criticizing the recently approved Subic Bay Metropolitan Authority (SBMA) joint venture contract with Harbour Centre Port Terminal Inc. (HCPTI) for the exclusive handling of bulk (excluding fertilizer), break-bulk and general cargo for a period of 25 years.

In reaction, the same cargo operators insist that the reason why they refuse to participate in the Swiss Challenge of the joint venture contract is the unacceptability of the conditions being imposed by the SBMA for the submission of counter proposals.

One of those raising howl over the SBMA terms is Amerasia International Terminal Services Inc. (AITSI),  which has been cargo handling operator at the Subic Bay Freeport Zone since 1996 and is presently handling 70 percent of the break bulk and general cargo at the Freeport. In October 2007, it was granted by SBMA  a 25-year lease contract covering a 3,500 sq.m. area at the Naval Supply Depot (NSD), the Freeport’s biggest bulk and break-bulk cargo terminal.

According to AITSI president Mario Lorenzo  Yapjoco, an unofficial copy of the SBMA terms and conditions for the Swiss Challenge point to conditions which are simply unfair for existing cargo operators like them.

He said that one of the conditions is that a submission of a counterpart proposal would constitute the waiving of existing contracts with SBMA, and that the proposal should also be accompanied by an undertaking not to sue SBMA.

A company participating in the Swiss Challenge is also required to have a minimum P2 billion paid- up capital which, Yapjoco said, is simply not feasible for most, if not all, cargo operators at the Freeport.

AITSI, together with other Subic cargo handlers, Subic Seaport Terminal, Inc., Mega Subic Terminal Services, Inc. are reportedly poised to bring their complaints against SBMA officials before the Office of the Ombudsman.

The cargo operators said that SBMA has apparently given HCPTI preferential treatment. They have also asked the SBMA to conduct a public hearing to clarify everything.

They also claim that the deal was “undue, unfair and unlawful violation” of their legal and contractual rights, as well as the “equitable rights” earned over the last years as bona fide Subic Bay Freeport Enterprises or locators and cargo handling operators.

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