CA allows CAP to pay $6 million to affiliate firms

MANILA, Philippines - The Court of Appeals (CA) has allowed pre-need firm College Assurance Plan Philippines Inc. (CAP) to pay its affiliate creditors its outstanding dues worth some $6 million despite opposition from planholders.

In a 26-page decision, the ninth division of the appellate court reversed the ruling issued by Makati City regional trial court Branch 149 disapproving the payment of CAP’s obligation to Smart Share Investments. Ltd. and Fil-Estate Management Inc. (FEMI), both owned by the Sobrepeña family.

“After a careful and painstaking examination of the records of the case, this court finds merit in the petition. The public respondent committed grave abuse of discretion amounting to lack or excess of jurisdiction when it disapproved the payment of CAP’s obligations to Smart and FEMI from the proceeds of the sale of the MRT III bonds,” the CA declared in its ruling penned by Associate Justice Rosmari Carandang.

Associate Justices Ramon Garcia and Samuel Gaerlan concurred with the ruling.

CAP planholders have been opposing the use of the proceeds of the MRT III bonds to pay for CAP’s obligations to Smart Share and FEMI as they insisted that the money should only be used to pay the 700,000 plan holders.

The CA junked the claim of the Securities and Exchange Commission (SEC) that the MRT III bonds were specified in the approved rehabilitation plan by the Makati RTC as a source of liquidity to pay the benefits of plan holders and not to satisfy obligations of CAP to its creditors.

The commission had insisted that since the proceeds came from MRT III bonds, which are trust fund assets, they, cannot be considered as part of the corporate assets of the pre-need firm.

But the CA held that while it is true that in pre-need plans, the assets of the trust fund shall at all times remain for the sole benefit of the plan holders, the New Rules on the Registration and Sale of Pre-Need Plans under Section 16 of the Securities Regulation Code provides that a withdrawal may be made from the trust fund to pay the benefits such as the cost of services rendered or property delivered.

It explained that the MRT III bonds were purchased by CAP from SMART and FEMI and assigned to the Trust Fund as a solution to correct its trust fund deficiency.

As of Feb. 28, 2009, CAP’s outstanding obligation was $10.68 million and during the rehabilitation proceedings, the bonds were sold at $21.50 million to Development Bank of the Philippines and Land Bank.

Part of the proceeds of the sale, amounting to P616.11 million had been used to pay plan holders’ benefits.