General Bank and Trust Company v Central Bank of the Phil and Arnulfo Aurellano (liquidator of

GBTC) – GR 152551

FACTS

1. General Bank and Trust Company incurred overdrafts in its current account with Central Bank amounting to 54.9 Million pesos due to the all-
out financial support it extended to Filcapital Development corporation (which is a related interest of Yujuico Family Group and the directors
and officers of GBTC) totaling P55.8 Million, violating existing CB regulations by overdrawings of 54.9 Million.
2. The Central bank required GBTC to stop the unsound banking practice of incurring daily overdrawings. GBTC then returned the Filcapital
checks totaling P28.7 M, and sold government securities of P49 Million to cover overdraft. The return necessitated the release by CB an
emergency advance of P16 Million.
3. However, the chairman of the board of GBTC reported that the bank was experiencing heavy withdrawal, and its liquidity position had
deteriorated therefore needing immediate CB support, requesting that GBTC be allowed to draw cash of P20 Millioon to be spread to its branh
office.
4. The monetary board decided in its resolution to grant GBTC an emergency loan of an amount not exceeding P150 Million and to ratify the
action done by the governor in releasing an emergency advance of P165 million.
5. GBTC then executed a deed of assignment of the general assets in favor of CB. CB made emergency advances to GBTC amounting P116
Million, which were not sufficiently collateralized by GBTC.
6. CB discussed with the board of GBT on the affairs regarding the DOSRI loans, which amounted to P172.3 million or 59.4% of which was
doubtful and uncollectible, while P158.1 Million or 91.7% of the DOSRI accounts was unsecured.
a. CB told GBTC to take immediate steps:
i. Clean DOSRI loans should be collected or collateralized
ii. Pending formal execution of the collateral instruments, borrower must undertake to execute the required mortgage and
security instruments
iii. Before full colleralization, the affected director, officer or stockholder shall assume joint and several liability with the borrower
for payment of loan or credit.
b. The emergency advances totaled P170.227 Million which exceeded the P150 Million approved. MB decided in its resolution to extend
continued support to meet GBTC’s further drawdowns.
7. The advances then reached P272.465 million. The GBTC shares were offered to be bought by the Lucio Tan group, being the most
advantageous offer, continued negotiations was set.
8. However, in the report of the Comptroller of CB, the decrease of DOSRI loans amounted to P6.918 million only, decreasing it to P165.436
million, 77% of which beling to the Yujuico group 99.3% of which was unsecured or uncollaterized, with 88.4% already past due.
 a. The negotiations with the Lucio Tan group could not be resolved, hence CB informed the representatives that they may consider the
offer of Paramount Finance Corporation.
b. Regarding the collateralization of the DOSRI loans, CB wrote 9 members of the Yujuico family to direct their immediate and serious
attention to the said matter.
9. When advances by CB already totaled P305.918 million, CB advised the stockholders that public interest requires CB not continuously
extend further credit assistance, requiring GBTC to submit:
a. Firm commitment to purchase the controlling shares of GBTC by a private group or to undertake a merger with another bank
b. Written decision of stockholders owning at least 2/3 of the outstanding shares to reduce par value and a commitment of the Land
Bank or a private group to put up the additional equity and a commitment to comply with the conditions prescribed by CB.
10. There was no compliance with the said requirements, hence by resolution of the CB declaring GBTC as insolvent, forbid GBTC to do
business in the Philippines, and designated Respondent Arnulfo Aurellano as receiver.
a. As of the deadline, the only bid received by GBTC was from the Lucio Tan Group as it was prepared to acquire the assets and assum
all liabilities subject to terms and conditions submitted.
b. Pursuant to above, the liquidator, the Allied Banking Corporation, and the individual members of Lucio Tan Willy Co group executed a
memorandum of agreement which sold and transferred to Allied Bankk all assets of GBTC and Allied Bank to assume all liabilities of
GBTC subject to terms and conditions one of which is the payment of the P310 Million within 2 years from opening for business of
Allied Bank with 12% interest. Further amendments to the MOA included authorizing Allied Bank to increase paid up capital and
dispense with requirement to Lucio Tan group to submit a standby irrevocable letter of credit
i. They were able to comply with all the conditions.
11. The liquidator Aurellano, then initiated with the CFI of Manila the proceeding for the closure and liquidation of GBTC.
a. However appellees Worldwide Insurance and Surety Company, Midland Insurance Corporation and Standard Insurance Co filed a
motion of intervention, alleging that the closure and liquidation of GBTC was done arbitrarily and in bad faith. GBTC joined the
intervention. Court approved intervention.
12. CFI rendered a decision against Central Bank and in favor of the intervenors, ruling that the liquidation plan of GBTC annulled and set
aside as being plainly arbitrary and made in bad faith.
13. CA reversed CFI decision and denied MR.
14. Hence this petition claiming that CA erred in ruling the GBTC was insolvent leading its closure and eventual liquidation; that the property rights
was not trampled despite CB maliciously and arbitrarily acted in bad faith in ordering its closure and liquidation denying due process and equal
protection; and failing to apply Sec. 29 of RA 265 on procedure for insolvency of banks.

ISSUE

W/N respondent CB violated any existing procedural or substantive law in issuing the resolution which ordered closure of bank and the resolution
adopting the Lucio Tan Groups as liquidation plan of GBTC amounting in turn to grave abused of discretion – NO
SC DENIES PETITION

RATIO

 In this case, GBTC was ordered closed by the CB when insolvency defined under Section 29 of RA 265 as amended by PD 1007 where and
when the insolvency concept carried a slightly different but contextually significant connotation. Then defined insolvency means the inability
of a banking institution to pay its liabilities as they fall due in the ordinary course of business. As in this case, CB found GBTC
undoubtedly incapable of generating liquid funds by itself to meet drawdowns on its deposits as well as advances from the CB.
 SC ruled that there was no error when CA sustained the validity of the resolutions on the issue of insolvency. Section 29 of RA 265 gives the
burden to prove bad faith to the petitioner. As in here, there is not concrete proof of bad faith. Instead GBTC insisted that it owned more
realizable assets than liabilities as per definition in PD 1937 which took effect only in 1984. Petitioners cannot insist to adopt a statutory
definition which was not yet in force when the resolutions by CB were issued.
 GBTC then claims that the definition of insolvency under PD 1007, in that although it was not yet in a position to generate funds by itself,
GBTC nonetheless argues that it did not fall within insolvency under PD 1007.
o SC disagrees because in said amendment, a bank is not insolvent when it is inable to pay of an otherwise non-insolvent bank
caused by extraordinary demands. This only applies to an otherwise non-insolvent bank, whereas in the instant case, GBTC is
insolvent.
 SC also agrees that pleadings on record show no sign of arbitrariness and capriciousness for the closure.
o When GBTC requested for emergency advances, the CB grants the requests and even encouraged and assisted the controlling
stockholders in negotiation with various groups to help restore GBTC, indicating CB’s earnest desire to find a solution to GBTC.
 As for the question of the right of due process, GBTC claims that the span of 2 days from time a meeting with the board of GBTC was called
to the time CB issued the resolution finding GBTC as insolvent (2 days) and subsequently ordering its liquidation (4 days) denied sufficient
time for GBTC to comply with its directives.
o SC disagrees because in this case the financial issues of GBTC did not occur overnight, nor is a product of a single financial
indiscretion. It was rooted on traceable unsound banking practices by the management when it gave all out support to
Filcapital Development Corporation (a related interest of the Yujuico Family Group, directors and officers of GBTC), and their
standing practice of extending DOSRI loans exceeding the limit provided by law.
o In addition 91.7% of the DOSRI loans were unsecured.
o All said unsound practices occurred way before the effects became manifest, which in turn lead the bank to resort to other unsound
practices such as the daily overdrafts. All these problems indicated that CB had to impose said resolutions for the protection of
the depositors and the banking public.

DISPOSITIVE

PETITION DENIED