2013 Legal Framework of Banking Business

LEGAL FRAMEWORK OF
BANKING BUSINESS,
CONSERVATORSHIP,
RECEIVERSHIP AND
LIQUIDATION
ATTY. MARIA LULU G. REYES
The case of PALUGI Bank

PALUGI Bank started operations in 2000. After
almost 10 years of operations, it appeared to be
one of the success stories in the banking industry.
From one branch, it was able to put up 12
branches by 2009, attracting almost 100,000
depositors and an estimated P15 billion in
deposits contained in about 125,000 accounts.
Much of its success is attributed to Mr. Jose Kita, a
minority stockholder on record but is said to be
the real owner. He is the current President of the
bank.

By 2010, however, the regulator started to receive
complaints about its business practices, which
seemed to be unsafe and might compromise the
interest of depositors. It was also found out that the
bank has not been submitting reports or had been
delayed in submitting the same.
It initially refused requests for examination of its
operations and even threatened the filing of cases
against PDIC.

When the Monetary Board eventually ordered it to
institute some measures to address complaints of
depositors, PALUGI Bank initially refused but
eventually submitted falsified reports to MB to cover
up its non-compliance.
What is legal and regulatory framework governing
similarly situated banks?
Importance of Banks to
Economy
BANKS
Entities engaged in the lending of funds obtained in the

form of deposits.
QUASI-BANKS
Entities engaged in the borrowing of funds through the

issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of relending
or purchasing of receivables and other obligations.
Classes of Banks
Banks
Banks
Universal
Universal
Banks
Banks
Commercial
Commercial
Banks
Banks
Thrift
Thrift
Banks
Banks
General
Banking Law
(RA 8791)
General
Banking Law
(RA 8791)
Thrift Banks
Act
(RA 7906)
Savings
Savingsand
and
Mortgage
Mortgage
Banks
Banks
Stock Savings
And Loan
Associations
Rural
RuralBanks
Banks
Rural Banking
Act
(RA 7353)
Private
Private
Development
Development
Banks
Banks
Cooperative
Cooperative
Banks
Banks
Islamic
Islamic
Banks
Banks
Cooperative
Act
(RA 6938)
Charter of Al
Amanah
Islamic
Investment
Bank of the
Philippines
(RA 6848)
Economy
our financial system is dominated by banks

which has almost P 5 Trillion assets as of
September 2007 or about 78 percent of the
countrys GDP.
NUMBER OF BANKS UNDER BSP

SUPERVISION / REGULATION
I. Universal and Commercial
Banks
A. Universal Banks
1. Private Domestic Banks
2. Government Banks
3. Branches of Foreign Banks
B. Commercial Banks
1. Private Domestic Banks
2. Subsidiaries of Foreign
Banks
3. Branches of Foreign Banks
II. Thrift Banks
III. Rural and Cooperative
Banks
1. Rural Banks
2. Cooperative Banks
TOTAL NUMBER OF BANKS
4,545
4,019
3,578
424
17
526
441
71
14
1,339
2,779
2,617
162
8,663
Economy
The banking system is an indispensable institution in the modern
world and plays a vitalrolein the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not
hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some
interest for him.
Simex International (Manila), Inc. vs. CA 183 SCRA 360 (1990)
Regulation of the Banking

Industry
Law seeks to ensure the protection of the public

from potential abuses of banks and their
owners.
Rule is no person or entity shall engage in
banking operations or quasi-banking functions
without authority from the BSP.
There are instances of abuse by the banks and
their owners in the past.

Industry
To addresses weaknesses, bank regulators

across the region have set out to improve the
practice of banking supervision in their
respective jurisdictions.

Industry
Prudential Measures
1.
Capitalization
Minimum
capitalization
Risk-based capital
2. Fit and Proper Rule

Rules to govern
3.
Reserves
Reserve
directors and officers
requirements
Provision for losses and write offs

Industry
Required MinimumCapital
TypeBank
Universal Commercial Banks
Regular Commercial Banks
Thrift Bank with head office in Metro Manila
Thrift Bank with head office outside Metro Manila
Rural Bank
Cooperative Bank
Minimum
Capitalization
P 5.4 Billion
P 2.8 Billion
P 650 Million
P 64 Million
P 2.6-20 Million
P 2.6-20 Million

Industry
Prudential Measures
4. Investments
Restriction on equity investments in allied

undertakings
Restrictions on direct investments
5.Loan
Restrictions
Single Borrowers Limit
Rules on DOSRI Loans

Industry
Importance of
Banks to Economy
Protection of
Depositors

Industry
Administrative violations committed by
banks/quasi-bank
Conducting business in an unsafe

or unsound manner
Willful violation of the charter or
bylaws
Willful delay in submission of
required reports or publications
Refusal to permit examination
into the affairs of the institution

Industry
Administrative violations committed by
banks/quasi-banks
Willful making of false or

misleading statement to board or
BSP
Commission of irregularities
Willful non-compliance with, or
violation of, any banking law or
any MB order, instruction or
regulation by the MB or the BSP

How should the mounting complaints against
PALUGI Bank be addressed?
Banks in Distress
How do we know that a bank is in
distress?
Examination
of live bank by BSP or PDIC
(Sec.
Sec. 25, RA 7653, The New Central Bank Act; Sec. 8 (eighth),
RA 3591, as amended, PDIC Charter)
Declaration
of bank holiday or suspension of

payment of deposits continuously for 30
days (Sec. 53, RA 8791, The General Banking Law of 2000)
Options of Monetary Board over

distressed bank
Order
the
placement of bank
under
conservatorship
(Sec. 29, RA 7653)
Order
the
placement
of
bank
under
receivership
(Sec. 30, RA
7653)
Addressing Bank Distress

Conservatorship
Resumption of Business
Receivership
Rehabilitation
Liquidation
The Remedy of Conservatorship

Ground for conservatorship
State
of
continuing
inability
or
unwillingness of bank/QB to maintain a
condition of liquidity adequate to protect
the interest of depositors and creditors, as
found by the Supervising and Examination
Department (SED). (Sec. 29, R.A. 7653)
Basic effect of conservatorship
Bank/QB continues to operate as such, but

the conservator takes over the board and
management.

Mandate of conservator
1.
Preserve the assets of the bank/QB

Take charge of assets
Collect all monies and debts
Foreclose mortgages
2. Reorganize management
Take over management
Overrule or revoke actions of previous
board and officers.

Conservator cannot repudiate
transactions post facto
perfected

Let us assume MB issued an Order placing
PALUGI Bank under conservatorship and a
conservator was appointed.
Within 15 days and before conservator could
assume, the Banks President, Jose KITA, with
authority from Board of Directors, filed a case
with the CA against MB alleging grave abuse
of discretion, illegal taking of private property
and violations of his right to due process.

Case should be dismissed
only stockholders of record representing majority of

the capital stock may bring petition for certiorari to
question MB order of conservatorship. The bank
president, by himself, cannot file petition.
petition must be filed within 10 days from receipt
by the board of the institution of the order.
Actions of the MB placing a bank under
conservatorship are final and executory and thus
cannot be restrained or set aside by courts except
on jurisdictional grounds by way of a petition for
certiorari.

Why only majority stockholders may
assail MB action?
So the order is not frustrated or defeated

by the incumbent board or officers, against
whose acts the order is presumed to be
principally directed.
majority shareholders are expected to be
more objective in determining whether the
resolution is plainly arbitrary and issued in
bad faith.

Conservatorship is an exercise of police
power
Banks are affected with public interest
because they receive funds from the
general public in the form of deposits,
creating a fiduciary relationship with
their depositors. Thus, banks are
obligated to treat with meticulous care
and utmost fidelity the accounts of
those who have reposed their trust and
confidence in them.
Central Bank v. CA (G.R. No. 76118 March 30, 1993)

Conservatorship is an exercise of police
power
The
government cannot simply cross its arms

while the assets of a bank are being depleted
through mismanagement or irregularities. It is
the duty of the BSP to step in and salvage the
remaining resources of the bank so that they
may not continue to be dissipated or
plundered by those entrusted with their
management.
- PVB Employees Union v. PVB G.R. No. 76118 March 30,
1993.

Termination of Conservatorship
When MB is satisfied
that the institution
can continue to
operate on its own
and the conservatorship is no longer
necessary. (Sec. 29,
R.A. 7653)
When MB determines
that the continuance in
business of the bank
would involve probable
loss to its depositors or
creditors. In which case,
bank will be placed
under
receivership.
(Sec. 29, R.A. 7653)

Twelve months have lapsed and PALUGI
continues to be hounded by liquidity problems
forcing it to declare bank holiday for 2 months.
Suppose MB finds that continuance in business
of the bank/QB would involve probable loss to
depositors or creditors, what will now be the
remedy of the regulators?
The Remedy of
Receivership
The Remedy of
Receivership
The placement of a bank under

conservatorship is not a precondition
to its placement under receivership.
(Sec. 30, R.A. 7653)
The Remedy of
Receivership
Grounds for Receivership
1.
Insolvency
Illiquidity:
Bank/QB is unable to pay its

liabilities as they fall due in the ordinary course
of business, except if due to bank runs induced
by financial panic in the banking community.
Insolvency: Bank/QB has insufficient realizable
assets to meet its liabilities
2. Probable Loss to Depositors

Bank/QB cannot continue in business without
involving probable losses to depositors or

creditors
The Remedy of
Receivership
Grounds for Receivership
3.
Dissipation of Assets
Bank/QB willfully violated a final cease-
and-desist order for a violation

involving fraud or dissipation of assets.
4. Prolonged Bank Holiday

Declaration
of
bank
holiday
or
suspension of payment of deposits for
30 days.

Suppose MB summarily placed PALUGI Bank under
receivership because, among others, the examination of
its books showed that there were irregularities in
operations consisting of loans to unknown fictitious
borrowers and refusal of PALUGI to obey CDO (cease
and desist order). The BSPs Supervision and
Examination Department (SED) report detailed the facts
and an extensive chronology of events revealing the
multitude of problems facing the PALUGI Bank.
The Remedy of
Receivership
The MBs closure order need not arise
from an examination under RA 7653
(the new Central Bank Act). MB could
rely on the 50-page report of the head
of SED, which detailed the facts and an
extensive
chronology
of
events
revealing the multitude of problems
facing the rural bank.
- Rural Bank of San Miguel v. Monetary Board, G.R. No.
150886, February 16, 2007.

Immediately upon receipt of Order of
receivership, Jose KITA, together with
the majority stockholder on record, filed
a certiorari petition alleging grave
abuse of discretion on the part of the
MB since his side was not properly
heard and merely relied on the SED
Report. He prays that he be given his
day in court to explain the findings of
the SED.
The Remedy of Receivership

MB resolution is summary in nature
Prior hearing will defeat the purpose and efficacy of
receivership.
Prior hearing will result in bank runs, panic and hysteria. (Rural
Bank of Buhi v. CA, G.R. No. L-61689 June 20, 1988)
Procedural rights of the bank should not take precedence over

the substantive interests of depositors, creditors, and
The Remedy of
Receivership
Rationale
The
mere filing of a case

receivership can trigger a bank run.
for
One can just imagine the dire consequences

of a prior hearing; bank runs would be the
order of the day, resulting in panic and
hysteria. In the process, fortunes may be
wiped out and disillusionment will run gamut
of the entire banking community. (Republic
Bank of Buhi v. CA, G.R. No. L-61689 June 20, 1988)
The Remedy of
Receivership
MB receivership order is final and
executory
thus
cannot be restrained or set aside by the

courts except on jurisdictional grounds by way
of a petition for certiorari
Can only be set aside if there is convincing

proof that the action is plainly arbitrary and
made in bad faith or is capricious,
discriminatory, whimsical, unjust, or a denial
of due process and equal protection.
Effect of Receivership
Monetary Board will Summarily
forbid bank from doing business in
the Philippines
a continuity of commercial dealings and
arrangements, and contemplates to that
extent, the performance of acts or words or
the exercise of some of the functions normally
incident to, and in progressive prosecution of,
the purpose and object of its organization
(Provident Savings Bank vs. CA, May 17, 1993)
Forbidding a bank fromdoing
businessmeans
it cannot accept new deposits
it cannot grant new loans
Receivership is equivalent to an injunction to

restrain the bank officers from intermeddling with
the property of the bank in any way. (Villanueva vs.
CA, 244 SCRA 396)
Articles of Incorporation/By-Laws of bank are

suspended. (Sec. 10 [b], RA 3591, as amended)
The powers, functions and duties, as well as all

allowances, remunerations and perquisites of the
directors, officers and stockholders are suspended.
(Sec. 10 [b], ibid)
The assets of the bank are

considered under custodia legis.
(Sec. 30, RA 7653; Sec. 10 (b) R.A. 3591, as
amended)
Assets of bank are exempt from

any order of garnishment, levy,
attachment, or execution. (Ibid.)
Stay of execution against the
assets of bank. Lipana vs. Development Bank
of Rizal, G.R. No. 73884 September 24, 1987.
Execution would unduly deplete the assets

of the bank to the obvious prejudice of
other depositors and creditors, including
depositors. (Lipana, supra.)
One of the reasons of placing a bank under
receivership is to prevent creditors from
having advantage over the assets of the
bank. (Lipana, supra.)
The Remedy of
Receivership
Who
may
resolution?
contest
MB
Only
stockholders
of
record
representing majority of the capital
stock
may
bring
petition
for
certiorari, within 10 days from receipt
by the board of the institution of the
order.
The Remedy of
Receivership
What can the majority stockholders
assail?
Receivership, being admittedly a harsh

remedy, should be granted with
extreme caution.
Sound reasons for
receivership must appear of record, and
there should be a clear showing of
necessity. The court must consider the
consequences or effects in order to
avoid irreparable injustice or injury.

PPaalluugi Ba
gi Bannkk
Because of the inability

of PALUGI Bank to serve
its depositors, a petition
for receivership is filed
praying to put theBank
under receivership and
appoint
a
wellrespected member of
the
community
as
Receiver in order to
protect the depositors
from its management
The Remedy of
Receivership
Only the MB can place a bank under

receivership and appoint receiver.
for Banks: PDIC

for QBs: One who has recognized
competence in banking or finance
Receivership is for 90 days from take

over of the bank or QB.
The Remedy of
Receivership
Duties of Receiver
1.
2.
3.
Immediately gather and take charge of all

asset and liabilities.
Administer assets and liabilities for the
benefit of creditors
Exercise general powers of a receiver under
the Rules of Court
Bring and defend actions in his own name

Keep possession of property
Receive rents and other income
Collect debts; compound for and compromise
debts.
The Remedy of
Receivership
Specific
receiver
1.
2.
3.
4.
powers
of
PDIC
as
bank
Bring suits to enforce liabilities or

recoveries
Hire experts as deputies and assistants
Suspend
or
terminate
officers
and
employees
Pay accrued, utilities, rental and salaries for
3 months
The Remedy of
Receivership
Specific powers of PDIC as bank
receiver
5. Collect or restructure loans and claims
6. Reduce unusually high interest rates
for unpaid interest
7. Retain private counsel
8. Borrow money and encumber asset to
prevent
dissipation,
redeem
foreclosed assets, or minimize losses
to depositors and creditors
The Remedy of
Receivership
Limitation to powers of PDIC as bank
receiver
Receiver cannot pay, transfer, or dispose of

any asset of bank/QB, except
place the funds in non-speculative
investments
pay for administrative expenses of
liquidation
pay accrued utilities, rentals and salaries
of closed bank from available funds for
up to 3 months
The Remedy of
Receivership
Effect of receivership on banks directors and
officers
The authority of the bank and its directors and
officers over its property and effects is
suspended, such authority being reposed in
the receiver. Allowances and remunerations
are also suspended.
In this respect, the receivership is equivalent
to an injunction to restrain the bank officers
from meddling with the property of the bank in
any way.
EFFECTS of Receivership
On right to foreclose
Receiver is obliged to collect pre-existing debts due

to the bank and to foreclose mortgages securing
the debts. Provident Savings Bank v CA, G.R. No.
97218, May 17, 1993
receivership does not interrupt the running of the
prescriptive period for the collection of debts.
Larrobis v. Philippine Veterans Bank,
G.R. No.
135706, October 1, 2004.
However, the time when the bank was prevented
from enforcing its right to collect by an order of the
MB is deemed a fortuitous event that interrupts
prescription.
Provident Savings Bank v. CA, G.R.
No. 97218, May 17, 1993
EFFECTS of Receivership
On unpaid time deposit in the bank
An
unpaid time deposit in a bank is not a

preferred claim against the bank. Central
Bank v. Morfe, (G.R. No. L-20119 June 30,
1967.
On banks deposit liabilities to depositors
When a banks operations are suspended by
the BSP, the bank is not liable for interest
accrued during the period of suspension, and
this should be deemed read into every
contract of deposit with a bank. Overseas
Bank of Manila v. CA, 105 SCRA 49 (1981).

When Jose KITA learned about the order of MB
placing PALUGI Bank under receivership, he
Refused
to turn over the banks records and

assets to the receivers
tampered with the banks records
Appropriated the banks assets for himself or
another party
Destroyed the banks assets

And he
Continued
to receive deposits as well

payments from banks debtors
Paid a favored supplier from funds of the bank
Transferred to his sons name title to a car
owned by the bank
Asked an officer of the bank to perform any of
the foregoing acts
OUTCOME of Receivership
Within 90 days from take-over of

the bank/QB, the receiver must
determine and recommend to the
MB if
the bank/QB may resume
business with safety to
depositors, creditors, and
the general public.
may be rehabilitated.
cannot be rehabilitated or
permitted
to
resume
business
notify the board of the bank/QB in
writing of findings
direct the receiver to proceed
with liquidation.
The Remedy of Receivership

Possible Outcome of
Receivership
Receiver
Receiver
Receiver
Receiver
recommends
recommends
recommends to
to
recommends
the
to
the MB
MB the
the
to the
the MB
MB the
the
rehabilitation
liquidation
rehabilitation of
of
liquidation of
of
the
the
bank.
(Sec.
the bank.
bank. (Sec.
(Sec. 30,
30,
the
bank.
(Sec.
R.A. 7653)
30, R.A. 7653)
R.A. 7653)
30, R.A. 7653)
Rehabilitation remedy
Nature of rehabilitation
Rehabilitation contemplates a continuance of

corporate life and activities in an effort to restore
and reinstate the corporation to its former position
of successful operation and solvency.
Not all enterprises which fail in a competitive market

place should necessarily be liquidated. A corporation
with a reasonable prospect of survival should be given
the opportunity to rehabilitate.
there is greater value and greater benefit for creditors in

the long term in keeping essential business and other
component parts of such a corporation together.
Effect on management and control of
the bank
RA 7653: Silent on rehabilitation, although

conservatorship by analogy mandates the
conservator to take over management and
control of the bank.
Under the Rules of Procedure on
Corporate Recovery: the rehabilitation
receiver
shall
not
take
over
management and control of the debtor
but shall only closely oversee and
monitor the operators of the debtor
during the pendency of the proceedings
Effect
on
liquidation
pending
receivership
Rehabilitation
suspends
a
pending
liquidation.
To allow the liquidation
proceedings
to
continue
when
rehabilitation has already been mandated
by RA 7169 would seriously hinder the
rehabilitation of the subject bank. Philippine
Veterans Bank v. Vega, GR 105364, 28 June 2001)
or

Upon examination of the books and records of
PALUGI Bank, PDIC immediately arrived at the
conclusion
that
the
bank
cannot
be
rehabilitated. By then, the depositors of the
bank have camped outside its branches,
creditors
have
demanded
payment
of
outstanding obligations, suppliers threatened
to discontinue provision of supplies, etc.
The Remedy of Liquidation
When a person, bank, partnership,

association, corporation or other legal
entity can no longer pay its debts as they
come due and when rehabilitation is not
a feasible option
Institution of insolvency proceeding

Liquidation of its assets
Settlement of claims
Distribution of remaining assets

General Objectives and Features of
Insolvency Proceedings
First Overall Objective
the allocation of risk among participants in a

market economy in a predictable, equitable, and
transparent manner.
Second Overall Objective
to protect and maximize value for the benefit of all

interested parties and the economy in general

Economic Theory Behind
Liquidation
in a competitive market economy, an

enterprise that is unable to compete has
no place in and should be removed from
the market place.
Insolvency is the principal identifying
mark of an uncompetitive enterprise.

Legal Theory Behind Liquidation
Liquidation process can only function

effectively if it is regarded as a collective
process, from the time of its inception.
Follows that an ordered, civilized
administration is necessary under which all
creditors (of varying ranks and classes)
should be bound and treated equally.

Role of Liquidator
A liquidator assumes the role of the

receiver. His task is to dispose of all the
assets of the bank and effect partial
payments of the bank's obligations in
accordance with legal priority, for the
benefit of the bank and its creditors.
Larrobis v. Philippine Veterans Bank, G.R. No. 135706,
October 1, 2004.

Nature of Liquidation Proceedings
Not an ordinary civil action but a special

proceeding
Not an interpleader
Akin to settlement of estate of a deceased
person
In rem in nature
A single proceeding but admitting of
multiple appeals

Liquidation does not seek the enforcement or
protection of a right nor the prevention or redress
of a wrong against a party, and does not pray for
affirmative relief for injury arising from a party's
wrongful act or omission nor state a cause of
action that can be enforced against any person.
What it seeks is merely a declaration by the trial
court of the corporation's insolvency so that its
creditors may be able to file their claims in the
settlement of the corporation's debts and
obligations. PBCEO v. CA, G.R. No. 109373 October 13, 1995.

Liquidation is different from interpleader
Liquidation does not involve claims on a subject
matter against a person who has no interest
therein. The liquidator, as representative of the
corporation, takes charge of its assets and
liabilities for the benefit of the creditors. He is
charged with insuring that the assets of the
corporation are paid only to rightful claimants and
in the order of payment provided by law.
- PBCEO v. CA, G.R. No. 109373 October 13, 1995.

Liquidation is akin to settlement of estate
Liquidation resembles the proceeding for the settlement
of estate of deceased persons under Rules 73 to 91 of
the Rules of Court. The two have a common purpose: the
determination of all the assets and payment of all the
debts and liabilities of the insolvent corporation or the
estate. The Liquidator and the administrator or executor
are both charged with the assets for the benefit of the
claimants. The court's concern is with the declaration of
creditors and their rights and the determination of their
order of payment.
- PBCEO v. CA, G.R. No. 109373 October 13, 1995.
Liquidation Steps
Petition for Assistance in
Petition for Assistance in
Liquidation
Liquidation
Adjudication of
Adjudication of
disputed claims
disputed claims
Approval of Project of
Approval of Project of
Distribution of Assets
Distribution of Assets
Payment of claims and
Payment of claims and
distribution of assets
distribution of assets
Termination of
Termination of
proceedings
proceedings

1.
Petition for Assistance in Liquidation
The receiver is mandated to file an ex

parte Petition for Assistance in the
Liquidation (PAL) of closed bank in the
proper RTC pursuant to a liquidation plan
adopted by PDIC. (Sec. 30, RA 7653)
When the proper RTC gives due course to

the PAL, it is constituted as the Liquidation
Court (LC) of the closed bank. (Sec. 30, RA 7653)

Jurisdiction of Liquidation
Court (LC)
The court shall adjudicate disputed

claims against the closed bank.
The court shall assist in the
enforcement of individual liabilities
of the stockholders, directors and
officers of the bank.
The court shall decide on issues as
may
be
material
in
the
implementation of the liquidation
plan adopted. (Sec. 30, RA 7653)

1.
Petition for Assistance in Liquidation
Goal of Liquidation
.
Convert the assets of the institution to money and for

this purpose, with assistance of counsel, institute
actions to collect and recover accounts and defend
any action against the institution
Dispose of the proceeds to creditors, depositors,
other parties to pay for the debts and disputed claims
owing them according to the rules on concurrence
and preference of credits

2. Adjudication of Disputed Claims
Upon acquiring jurisdiction, RTC will, on
motion:
adjudicate disputed claims against the bank
assist the enforcement of individual liabilities
of the stockholders, directors and officers, and
decide on other issues as may be material to
implement the liquidation plan adopted.

Disputed claims refer to all claims,

whether against the assets of the
insolvent bank, for specific performance,
breach of contract, damages, or whatever.
A claim need not be initially disputed in a court or agency

before it is filed with the liquidation court. Disputed
claim simply connotes that in the course of liquidation,
contentious cases might arise which require a full-dress
hearing where legal issues have to be resolved. Ong v. CA,
G.R. No. 112830. February 1, 1996.

A
liquidation court has exclusive jurisdiction to

resolve all claims against an insolvent bank on
considerations of practicality and necessity,
and to prevent multiplicity of suits. Indeed, it
will be burdensome on the liquidator to appear
before several courts to litigate claims against
the insolvent bank. Star Forwarders, Inc. v. Navarro;
and Hernandez vs. Rural Bank of Lucena , G.R. No. L-29791
January 10, 1978.

The
exclusive jurisdiction of the

liquidation court pertains only to claims
against the bank, not the reverse
situation where the bank is the one
filing a claim against another person.
Manalo v PAIC (G.R. No. 141297 October 8, 2001.

Disputed
claims must be proven in court.

Liquidation requires the holding of hearings
and presentation of evidence of the parties
concerned, i.e., creditors who must prove and
substantiate their claims, and the liquidator
disputing the same. Rural Bank of Bokod v. BIR, G.R.
No. 158261, December 18, 2006.

Although
the claims are litigated in the same

proceeding, the treatment is individual.
Each
claim is heard separately. And, the Order

issued relative to a particular claim applies
only to said claim, leaving the other claims
unaffected, as each claim is considered
separate and distinct from the others. PBCEO v.
CA, G.R. No. 109373 October 13, 1995.

By
virtue of disputed claims, liquidation

admits
multiple
appeals.
A
liquidation
proceeding is a single proceeding consisting of
a number of cases properly classified as
claims.
As such, multiple appeals are
allowed. The period for appeal is 30 days. To
perfect an appeal, in addition to a notice of
appeal, a record on appeal is required. PBCEO v.
CA, G.R. No. 109373 October 13, 1995.

The first phase is concerned with the approval and disapproval of
claims. Upon the approval of the petition seeking the assistance of the
proper court in the liquidation of a closed entity, all money claims
against the bank are required to be filed with the liquidation court. This
phase may end with the declaration by the liquidation court that the
claim is not proper or without basis. On the other hand, it may also end
with the liquidation court allowing the claim. In the latter case, the
claim shall be classified whether it is ordinary or preferred, and
thereafter included Liquidator. In either case, the order allowing or
disallowing a particular claim is final order, and may be appealed by the
party aggrieved thereby.
The second phase involves the approval by the Court of the distribution
plan prepared by the duly appointed liquidator. The distribution plan
specifies in detail the total amount available for distribution to creditors
whose claim were earlier allowed. The Order finally disposes of the
issue of how much property is available for disposal. Moreover, it ushers
in the final phase of the liquidation proceeding - payment of all allowed
claims in accordance with the order of legal priority and the approved
distribution plan.
- Rural Bank of Bokod vs. BIR, G.R. No. 158261, December 18, 2006.

3. Project of Distribution
specify in detail all the assets available for

distribution
identify the creditors whose claims were
earlier allowed by the liquidation court
specify the order of preference and
concurrence of credits under the Civil Code
Rule on concurrence and preference of
credit applicable only if the assets of the
bank are not enough to pay all creditors.

Assets available for distribution

Includes all assets belonging to the bank
or QB in its own right
But excludes assets held in trust, on
which the bank only holds legal (but not
beneficial) title.

Filing of motion for approval of POD with the
liquidation court
The
distribution plan specifies in detail the total amount

available for distribution to creditors whose claims were
earlier allowed. Moreover, it ushers in the final phase of
the liquidation proceedingpayment of all allowed
claims in accordance with the order of legal priority and
the approved distribution plan. (PaBCEO vs. CA, ibid.)

4. Payment of Claims (accdg to POD)
All revenues and earnings realized in

winding up the affairs and administering
the assets of the bank/QB shall be used.

4.
Payment of Claims
First to be paid: Administrative

expenses
Cost, fees, and expenses of liquidation
proceedings
Reasonable expenses and fees of the
receiver
Salaries
of
such
personnel
whose
employment is rendered necessary in
discharge of the liquidation,
and
other additional expenses caused
thereby

4. Payment of Claims
Next for payment are claims of creditors

according to the rules on concurrence and
preference of credit under the Civil Code.

BIR raised an issue before the RTC claiming
that its claims for taxes should be prioritized
over and above the other claims.
It cited Arts. 2241 (1) and 2242 (1) of the Civil
Code in support of its argument.

Those provisions may be seen to
classify credits against a particular
insolvent into three general categories,
namely:
a.special
preferred credits listed in Articles

2241 and 2242;
b.ordinary preferred credits listed in Article
2244; and
c.common credits under Article 2245.

Specially Preferred Credits (Art. 2241 &
2242, CC)
These
credits
constitute
liens
or
encumbrances on the specific movable or
immovable property to which they relate.
mortgages or pledges of real or personal
property, or liens within the purview of
legal provisions governing insolvency.
(Art. 2243, CC)

Specially Preferred Credits (Art. 2241 &
2242, CC)
Arts. 2241 and 2242 jointly with Arts. 2246 to 2249

establish a two-tier order of preference.
The first tier includes only taxes, duties and fees due
on specific movable or immovable property.
All other special preferred credits stand on the same
second tier to be satisfied, pari passu and pro rata, out
of any residual value of the specific property to which
such other credits relate.

Republic vs. Peralta (G.R. No. L-56568, May
20, 1987)
Arts. 2241 and 2242 jointly with Arts. 2246
to 2249 establish a two-tier order of
preference.
The first tier includes only taxes, duties and

fees due on specific movable or immovable
property.
All other special preferred credits stand on

the same second tier to be satisfied, pari
passu and pro rata, out of any residual value
of the specific property to which such other
credits relate.

Republic vs. Peralta (G.R. No. L-56568,
May 20, 1987)
Ordinary Preferred Credits, Article
2244 CC
Art. 2244 creates no liens on determinate
property which follow such property.
What Article 2244 creates are simply
rights in favor of certain creditors to have
the cash and other assets of the insolvent
applied in a certain sequence or order of
priority.

Republic vs. Peralta (G.R. No. L-56568, May 20,
1987)
Ordinary Preferred Credits, Article

2244 CC
Only in respect of the insolvent's "free
property" is an order of priority
established by Article 2244.

4. Payment of Claims (preference of
taxes)
Duties,
taxes, and fees due the Government enjoy

priority only when they are with reference to a specific
movable property under Article 2241(1), or immovable
property under Article 2242(1), of the Civil Code. But
with reference to the other real and personal property
of the debtor, sometimes referred to as free property,
taxes and assessment due the National Government,
other than those in Articles 2241(1) and 2242(1), will
come only in ninth place in the order of preference
under Article 2244. Rural Bank of Bokod v. BIR, G.R. No.
158261, December 18, 2006.

4. Payment of Claims (preference of
taxes)
All
payments by PDIC of insured deposits in

closed banks partake of the nature of public
funds and, as such, must be considered a
preferred credit similar to taxes due to the
National Government in the order of
preference under Article 2244 of the Civil
Code.

4.
Payment of Claims (preference of

taxes)
Depositors are not considered preferred
creditors within the meaning of Article
2244. A general depositor is merely a
general creditor who does not enjoy any
preference over other general creditors.
Judgment for payment of time deposit only
seeks to fix the amount of debt and does
not establish its preference. Central Bank vs.
Morfe (G.R. No. L-20119 June 30, 1967.

4.

taxes)
PDIC, upon payment of any depositor, shall be
subrogated to all rights of the depositor against the
closed bank to the extent of such payment. Such
subrogation shall include the right to receive the
same dividends and payments from the proceeds of
the assets of such closed bank and recoveries on
account of stockholders liability as would have
been payable to the depositor on a claim for the
insured deposits.

4.

taxes)
Creditors have 3 years from date of
last notice to claim payment.
After the lapse of the 3-year period,
unclaimed payments are escheated
to the Republic.
Mandate of PDIC
under R.A. 3591 as amended
by R.A. 9576
Insurer of deposits
Receiver of banks
Mandate of PDIC
as insurer of deposits
SEC. 3. Section 4 (g) :

"(g) The term insured deposit means the
amount due to any bona fide depositor for
legitimate deposits in an insured bank net of
any obligation of the depositor to the
insured bank as of the date of closure, but
not to exceed Five hundred thousand pesos
(P500,000.00). Such net amount shall be
determined according to such regulations as
the Board of Directors may prescribe.
What cannot be insured?

The PDIC shall not pay deposit insurance for the following
accounts or transactions, whether denominated, documented,
recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust
accounts, and other similar instruments;
"(2) Deposit accounts or transactions which are unfunded, or
that are fictitious or fraudulent;
"(3) Deposit accounts or transactions constituting, and/or
emanating from, unsafe and unsound banking practice/s, as
determined by the Corporation, in consultation with the BSP,
after due notice and hearing, and publication of a cease and
desist order issued by the Corporation against such deposit
accounts or transactions; and
"(4) Deposits that are determined to be the proceeds of an
unlawful activity as defined under Republic Act No. 9160, as
amended.
INDIVIDUAL AND JOINT

ACCOUNTS
In determining such amount due to any depositor, there shall be added

together all deposits in the bank maintained in the same right and
capacity for his benefit either in his own name or in the name of others. A
joint account regardless of whether the conjunction and, or, and/or is
used, shall be insured separately from any individually-owned deposit
account: Provided, That
(1) If the account is held jointly by two or more natural persons, or by two
or more juridical persons or entities, the maximum insured deposit shall
be divided into as many equal shares as there are individuals, juridical
persons or entities, unless a different sharing is stipulated in the
document of deposit, and
(2) If the account is held by a juridical person or entity jointly with one or
more natural persons, the maximum insured deposit shall be presumed to
belong entirely to such juridical person or entity: Provided, further, That
the aggregate of the interests of each co-owner over several joint
accounts, whether owned by the same or different combinations of
individuals, juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five hundred thousand pesos (P500,000.00):
JOSE, PILAR AND ANITA

as depositors of the closed PALUGI BANK
Depos Deposi
it
t
Balan Share
ce
Maximu
m
Insuranc
e Cover
Joses
Pilars
Anitas
Share in
max.
Insurance
cover
Share in
max.
Insurance
cover
Share in
max.
Insurance
cover
600
600
500
500
n/a
n/a
2.1 Jose and / or Pilar
500
250
500
250
250
2.2 Jose and Pilar
800
400
500
250
250
2.3 Jose or Anita
600
300
500
250
250
1. Jose
Individual
2. Jose Joint
Accounts
Total DEPOSIT
2,500
1,250
650
300
Total Insured deposit
1,750
1,000
500
250
Total Uninsured Deposit
750
250
150
50
Joses total share is P1,250,000 but his maximum insurance cover is only P1,000,000.00
--P500,000 for his individual account and another P500,000.00 for all his joint accounts. The
P250,000 excess of P500,000 is part of his uninsured deposit which must be claimed during
the liquidation proceedings of the bank.
SUMMARY (IN THOUSANDS OF PESOS)

Total
Deposit
Share
Share in
Insurance
Cover
Insured
Deposit
Uninsured
Deposit
Jose
1550
1250
1000
250
Pilar
650
500
500
150
Anita
300
250
250
50
______
_____
______
2,500
1750
450
Total
OVERVIEW OF ANTI-MONEY
LAUNDERING ACT
RA 9160 as amended by RA 9194,
RA 10167 and most recently RA
10365 (signed into law 15
February 2013)
Why the Law?
The Philippines , while striving to sustain

economic development and poverty alleviation
through, among others, corporate governance
and public office transparency, must contribute
its share and play a vital role in the global fight
against money laundering. Hence, the compelling
need to enact responsive anti-money laundering
legislation in order to establish and strengthen an
anti-money laundering regime in the country
which will not only increase investors confidence
but also ensure that the Philippines is not used as
a site to launder proceeds of unlawful activities.
History of the Act
Republic Act No. 9160 otherwise known as The AntiMoney Laundering Act of 2001 was signed into law on
September 29, 2001 and took effect on October 17, 2001
. The Implementing Rules and Regulations took effect on
April 2, 2002 . On March 7, 2003 , R.A. No. 9194 (An Act
Amending R.A. No. 9160) was signed into law and took
effect on March 23, 2003 . The revised Implementing
Rules and Regulations took effect on September 7, 2003.
Two additional amendatory laws have been enacted:
Republic Act No. 10167 and most recently, Republic Act
No. 10365. It is one of the most dynamic statutes in
Philippine history, constantly reviewed and updated in
order to cover emerging trends and patterns in financial
crimes.
Significant Amendments
to the Original Law
a. Lowers the threshold amount for single covered transactions (cash

or other equivalent monetary instrument) from P4M to P500,000.00
within one (1) banking day.
b. Expands the reporting requirements to include the reporting of
suspicious transactions regardless of the amount involved
c. Authorizes AMLC to inquire into or examine any particular deposit
or investment, with any banking institution or non-bank financial
institution and their subsidiaries and affiliates upon order of any
competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or
investments are related to an unlawful activity. However, no court
order is required in cases involving unlawful activities of kidnapping
for ransom, narcotics offenses and hijacking, destructive arson and
murder, including those perpetrated by terrorists against noncombatant persons and similar targets.
Significant Amendments
to the Original Law
d. Authorizes the Bangko Sentral ng Pilipinas to

inquire into or examine any deposit or investment
with any banking institution or non-bank financial
institution and their subsidiaries and affiliates when
the examination is made in the course of a periodic or
special examination, in accordance with the rules of
examination of the BSP to ensure compliance with
R.A. No. 9160, as amended.
e. Transfers the authority to freeze any
money/property from the AMLC to the Court of
Appeals.
Money Laundering Offenses

(amended under RA 10365)
Under Section 4, Money laundering is committed

by any person, who, knowing that any monetary
instrument or property represents, involves, ore
relates to the proceeds of any unlawful activity:
Transacts monetary Instrument or Property;
Converts, transfers, disposes of, moves, acquires,
possesses or used said monetary instrument or property;
Conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
Attempts or conspires to commit money laundering
offenses referred to in Paragraphs (A), (B), or (C);
Money Laundering Offenses

(amended under RA 10365)
Aids, abets, assists in or counsel the commission of
the money laundering offenses referred to in
paragraphs (A), (B) or (C) above; and
Performs or facilitates to perform any act as a
result of which he facilitates money laundering as
referred to in paragraphs (A), (B), or (C) above.
Money laundering is also committed by any covered
person, who, knowing that a suspicious transaction
is required under this Act to be reported to the AntiMoney Laundering Council (AMLC), fails to do so.
Predicate Crimes/Unlawful Activities

(expanded under RA 10365)
Unlawful Activity is the offense which

generates dirty money. It is commonly called
the predicate crime. Prosecution or conviction
for a predicate crime is not a condition
precedent to prosecution for the crime of
money laundering. The two are independent
from one another. Predicate crime/unlawful
activity refers to any act or omission or series
or combination thereof involving or having
direct relation to the following:

Kidnapping for ransom

Drug trafficking and related offenses
Graft and corrupt practices
Plunder
Robbery and Extortion
Jueteng and Masiao
Piracy
Qualified theft
Swindling
Smuggling
Violations under the Electronic Commerce Act of 2000

Hijacking; destructive arson; and murder, including those perpetrated by

terrorists against non-combatant persons and similar targets
Fraudulent practices and other violations under the Securities Regulation
Code of 2000
Terrorism and conspiracy to commit terrorism as defined and penalized
under sections 3 and 4 of Republic Act No. 9372;
Financing of terrorism under section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of Republic Act No. 10168, and otherwise known as
the Terrorism Financing Prevention and Suppression act. Of 2012;
Bribery under articles 210, 211 and 211-A of the Revised Penal Code, as
amended, and corruption of public officers under article 212 of the Revised
Penal Code, as amended;
Frauds and Illegal Exactions and Transactions under articles 213, 214, 215
and 216 of the Revised Penal Code, as amended;
Malversation of Public Funds and Property under Articles 217 and 222 of the
Revised Penal Code, as amended;
Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and 176
of the Revised Penal Code, as amended;

Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise

known as the anti-Trafficking in Persons act of 2003;
Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree
No. 705, otherwise known as the Revised Forestry Code of the
Philippines, as amended;
Violations of Sections 86 to 106 of Chapter VI, of Republic Act No.
8550, otherwise known as the Philippine Fisheries Code of 1998;
Violations of Sections 101 to 107 and 110 of Republic Act No. 7942,
otherwise known as the Philippine Mining Act of 1995;
Violations of Sections 27(c), (e), (f), (g) and (i) of Republic Act No.
9147, otherwise known as Wildlife Resources Conservation and
Preservation act;
Violation of Section 7(b) of Republic Act No. 9072, otherwise known as
the National Caves and Cave Resources Management Protection Act;
Violation of Republic Act No. 6539, otherwise known as the AntiCarnapping of 2002, as amended;

Violation of Presidential Decree No. 1612, otherwise known as the AntiFencing Law;
Violation of Section 6 of Republic Act No. 8042, otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995, as amended by Republic
Act No. 10022;
Violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of The Philippines;
Violation of Section 4 of Republic Act No. 9995, otherwise known as the AntiPhoto and Video Voyeurism Act of 2009;
Violation of Section 4 of Republic Act No. 9775, otherwise known as the AntiChild Pornography Act of 2009;
Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12, and 14 of Republic
Act No. 7610, otherwise known as the Special Protection of Children Against,
Abuse, Exploitation and Discrimination;
Fraudulent practices and other violations under Republic act No. 8799,
otherwise known as the Securities Regulation Code of 2000; and
Felonies or offenses of similar nature that are punishable under the penal
laws of other countries.
Other Offenses/Penalties
Failure to keep records is committed by any responsible official or employee of a

covered institution who fails to maintain and safely store all records of all transactions
of said institution, including closed accounts, for five (5) years from the date of the
transaction/closure of the account. Penalty is 6 months to 1 year imprisonment or a
fine of not less than P100,000 but not more than P500,000, or both.
Malicious reporting is committed by any person who, with malice or in bad faith,
reports/files a completely unwarranted or false information relative to money
laundering transaction against any person. Penalty is 6 months to 4 years
imprisonment and a fine of not less than P100,000 but not more than P500,000, at the
discretion of the court. The offender is not entitled to avail the benefits of the Probation
Law.
If the offender is a corporation, association, partnership or any juridical person, the
penalty shall be imposed upon the responsible officers, as the case may be, who
participated in, or allowed by their gross negligence, the commission of the crime.
If the offender is a juridical person, the court may suspend or revoke its license.
If the offender is an alien, he shall, in addition to the penalties prescribed, be
deported without further proceedings after serving the penalties prescribed.
If the offender is a public official or employee, he shall, in addition to the penalties
prescribed, suffer perpetual or temporary absolute disqualification from office, as the
case may be.
Breach of confidentiality.
When reporting covered or suspicious transactions to the

AMLC, covered institutions and their officers/employees are
prohibited from communicating directly or indirectly, in any
manner or by any means, to any person/entity/media, the
fact that such report was made, the contents thereof, or any
other information in relation thereto. In case of violation
thereof, the concerned official and employee of the covered
institution shall be criminally liable. Neither may such
reporting be published or aired in any manner or form by the
mass media, electronic mail or other similar devices. In case
of a breach of confidentiality published or reported by
media, the responsible reporter, writer, president, publisher,
manager and editor-in-chief shall also be held criminally
liable. Penalty is 3 to 8 years imprisonment and a fine of not
less than P500,000 but not more than P1M.
Covered Persons (amended and

expanded under RA 10365)
Covered Institutions are those mandated by the AMLA to
submit covered and suspicious transaction reports to
the AMLC. These are:
Banks and all other entities, including their
subsidiaries and affiliates, supervised and regulated
by the Bangko Sentral ng Pilipinas
Insurance companies and all other institutions
supervised or regulated by the Insurance Commission
Securities dealers, pre-need companies, foreign
exchange corporations and other entities supervised
or regulated by the Securities and Exchange
Commission

Jewelry dealers in precious metals, who, as a business, trade in

precious metals, for transactions in excess of One million Pesos
(P1,000,000.00)
Jewelry dealers in precious stones, who, as a business, trade in
precious stones, for transactions in excess of One million Pesos
(P1,000,000.00)
Company service providers which, as a business, provide any of the
following services to third parties:
Acting as a formation agent of juridical persons;

Acting as (or arranging for another person to act as) a director or a
corporate secretary of a company, a partner of a partnership, or a similar
person in relation to other juridical persons;
Providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or
any other legal person or arrangement; and
Acting as (or arranging for another person to act as) a nominee

shareholder for another person:

Persons who provide any of the following services:
Managing of client money, securities or other assets;

Management of bank, savings or securities accounts;
Organization of contributions for the creation, operation or management of
companies; and
Creation, operation of juridical persons or arrangements and buying and
selling business entities.
Notwithstanding the foregoing, the term covered persons shall

exclude lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients or
where disclosure of information would compromise client confidences
or the attorney-client relationship: Provided, That these lawyers and
accountants are authorized to practice in the Philippines and shall
continue to be subject to the provisions of their respective codes of
conduct and/or professional responsibility or any of its amendments.
Covered & Suspicious

Transactions (as amended
by RA 9194)
Covered transactions are single

transactions in cash or other equivalent
monetary instrument involving a total
amount in excess of Five Hundred
Thousand (P500,000) Pesos within one
(1) banking day
Covered & Suspicious Transactions

(as amended by RA 9194)
Suspicious transactions are transactions with covered
institutions, regardless of the amounts involved, where any of
the following circumstances exists:
there is no underlying legal/trade obligation, purpose or
economic justification; the client is not properly identified;
the amount involved is not commensurate with the business
or financial capacity of the client;
the transaction is structured to avoid being the subject of
reporting requirements under the AMLA;
there is a deviation from the clients profile/past transactions;
the transaction is related to an unlawful activity/offense
under the AMLA;
and transactions similar or analogous to the above.
Freezing of Monetary Instrument or

Property (as amended by RA 10167
and RA 10365)
The Court of Appeals, upon a verified application ex parte
(without notice to the other party) by the AMLC and
after determination that probable cause exists that any
monetary instrument or property is in any way related
to an unlawful activity, may issue a freeze order which
shall be effective immediately. The freeze order shall be
for a period of six (6) months unless extended by the
court.
No court, except the Supreme Court, shall issue a
temporary restraining order or a writ of injunction
against a freeze order.
Authority to Inquire into Bank

Deposits (as amended by RA
10167)
Notwithstanding the provisions of R.A. No. 1405, as amended, R.A. No.
6426, as amended, R.A. No. 8791, and other laws, the AMLC may
inquire into or examine any particular deposit or investment with any
banking institution or non-bank financial institution upon order of
any competent court in cases of violation of this act when it has
been established that there is probable cause that the
deposits/investments are involved/related to an unlawful activity as
defined in Sec. 3(i) of the AMLA or a money laundering offense under
Sec. 4 thereof;
except that no court order shall be required in cases involving
kidnapping for ransom; drug trafficking and related offenses;
and hijacking, destructive arson and murder, including those
perpetrated by terrorists against non-combatant persons and
similar targets.
LAW ON SECRECY OF BANK

DEPOSITS (Republic Act No. 1405 as
amended, in rel. to R.A. 6426)
PURPOSES (Sec. 1)
to encourage savings in banks

to prevent private hoarding of money
SCOPE
All deposits of whatever nature with

banks or banking institutions in the
Philippines including investments in bond
issued by the government of the
Philippines, its political subdivisions and
its instrumentalities, are considered
absolutely confidential and may not be
examined, inquired or look into by any
person, government official, bureau or
office (Sec. 2 R. A. No. 1405)
PROHIBITED ACTS (Secs. 2-3)
The
examination and inquiry

or looking into deposits
The
disclosure by any bank

official or employee to any
unauthorized person
E XCEPTIONS:
When there is written permission of the depositor

or investor;
Impeachment cases;
Upon the order of competent court in cases of
bribery or dereliction of duty of public officials;
Upon order of competent court in cases where
the money deposited or invested is the subject of
litigation;
Upon the order of competent court or tribunal in
cases involving unexplained wealth under the
Anti-Graft and Corrupt Practices Act, R.A No.
3019
E XCEPTIONS:
Upon inquiry by the Commissioner of Internal revenue for the

purpose of determining the net estate of a deceased depositor;
Upon the order of competent court or in proper cases by the
Anti-Money Laundering Council where there is probable cause
of money laundering and in some instances even without the
court order. (Sec. 11, R.A No. 9160);
Disclosure to the treasurer of the Philippines for dormant
deposits for atleast (10) ten years under the ,Unclaimed
Balances Act(Sec.2 R.A. No. 3936);
Report of banks to Anti-Money Laundering council of covered
and/or suspicious transactions ( Sec. 9 R.A No. 9160 as
amended);
Upon order of the Court of Appeals, examination by law
enforcers in terrorism cases under Human security Act of 2007
( Sec. 27 and 28, R.A. No. 8372).
FOREIGN CURRENCY
DEPOSITS ACT
(Republic Act No. 6426, as
amended)
GSIS V. CA, 8 June 2011

These two laws both support the confidentiality of bank deposits. There
is no conflict between them. Republic Act No. 1405 was enacted for
the purpose of giving encouragement to the people to deposit their
money in banking institutions and to discourage private hoarding so
that the same may be properly utilized by banks in authorized loans
to assist in the economic development of the country.It covers all
bank deposits in the Philippines and no distinction was made
between domestic and foreign deposits. Thus, Republic Act No. 1405
is considered a law of general application.
On the other hand, Republic Act No. 6426 was intended to encourage
deposits from foreign lenders and investors. It is a special law
designed especially for foreign currency deposits in the Philippines.
A general law does not nullify a specific or special law. Generalia
specialibus non derogant. Therefore, it is beyond cavil that Republic
Act No. 6426 applies in this case.
PRIVILEGES
ABSOLUTE CONFIDENTIALITY
GSIS v. CA, 8 June 2011
China Banking v. CA, 511 S 110
Intengan v. CA, 377 S 63
NUMBERED ACCOUNTS
RATE OF INTEREST
TAXES
EXEMPTION FROM COURT ORDER OR PROCESS
Salvacion v. Central Bank, 278 S 27
Benedicto v. CA, 4 September 2001
EXCEPTIONS TO ABSOLUTE
CONFIDENTIALITY
When there is written consent of

depositor under Sec. 8 of the Foreign
Currency deposit Act, and:
Under Sec. 11 of the Anti- Money
Laundering Act;
Under sec. 27 and 28 of the Human
Security Act.
THANK YOU VERY MUCH

AND GOOD LUCK!

2013 Legal Framework of Banking Business

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2013 Legal Framework of Banking Business

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LEGAL FRAMEWORK OF

The case of PALUGI Bank

The case of PALUGI Bank

The case of PALUGI Bank

Entities engaged in the lending of funds obtained in the

Entities engaged in the borrowing of funds through the

our financial system is dominated by banks

NUMBER OF BANKS UNDER BSP

Regulation of the Banking

Law seeks to ensure the protection of the public

Regulation of the Banking

To addresses weaknesses, bank regulators

Regulation of the Banking

2. Fit and Proper Rule

directors and officers

Regulation of the Banking

Regulation of the Banking

Restriction on equity investments in allied

Regulation of the Banking

Regulation of the Banking

Conducting business in an unsafe

Regulation of the Banking

Willful making of false or

The case of PALUGI Bank

of live bank by BSP or PDIC

of bank holiday or suspension of

Options of Monetary Board over

Addressing Bank Distress

The Remedy of Conservatorship

The Remedy of Conservatorship

Basic effect of conservatorship

Bank/QB continues to operate as such, but

The Remedy of Conservatorship

Preserve the assets of the bank/QB

board and officers.

The case of PALUGI Bank

The case of PALUGI Bank

only stockholders of record representing majority of

The Remedy of Conservatorship

So the order is not frustrated or defeated

The Remedy of Conservatorship

The Remedy of Conservatorship

government cannot simply cross its arms

The Remedy of Conservatorship

The case of PALUGI Bank

The placement of a bank under

Bank/QB is unable to pay its

2. Probable Loss to Depositors

involving probable losses to depositors or

and-desist order for a violation

4. Prolonged Bank Holiday

The case of PALUGI Bank

The case of PALUGI Bank

The Remedy of Receivership

Bank of Buhi v. CA, G.R. No. L-61689 June 20, 1988)

Procedural rights of the bank should not take precedence over

mere filing of a case

One can just imagine the dire consequences

cannot be restrained or set aside by the

Can only be set aside if there is convincing

(Provident Savings Bank vs. CA, May 17, 1993)

Receivership is equivalent to an injunction to

Articles of Incorporation/By-Laws of bank are

The powers, functions and duties, as well as all