THE Court of Appeals (CA) has affirmed the resolutions issued by the Insurance Commission (IC)putting the preneed firm Prudentialife Plans Inc. (PPI) under receivership, and subsequently ordering its liquidation after the company’s total liabilities ballooned to P12.36 billion in 2011.
In a decision written by Associate Justice Ramon Cruz, the CA’s Fifth Division dismissed the petition filed by PPI and its planholders seeking the reversal of the IC’s orders issued on September 19, 2012, which placed the company under receivership; and on October 19, 2012, which terminated PPi’s receivership and ordered its liquidation.
The appellate court ruled there was enough evidence to prove that PPI is insolvent, thus, the IC’s orders placing it under receivership and liquidation were not issued in bad faith.
“It must also be noted that the debt-to-asset ratio of PPI since 2008 is greater than 1, and has increased over the year. The swelling debt-to-asset ratio derived clearly indicates difficulty on the part of petitioner to pay its obligations as they fall due. Indeed, petitioner PPI is in a state of insolvency,” the CA said.
The CA did not give credence to the PPI claim that the IC decided to kill the company when it rejected its rehabilitation plan which featured “Balik Bayad” program aimed at returning to its education and pension planholders all installments paid on their plans The appellate court, however, said the program was not a feasible option.
It noted that the program was anchored on the assumption that the IC will issue a license to sell life plans to PPI despite its capital deficiency and its diminished trust fund and
net worth.
But the CA said based on the records, PPI failed to undertake concrete steps to secure the license considering that, as early as 2009, its dealer’s license and permit to sell preneed plans was already revoked by the Securities and Exchange Commission for failure to comply with the capital and trust-fund buildup.
“To date, it appears that petitioner fell short of complying with the minimum and basic requirements provided under R.A. 9829 [Preneed Code of the Philippines] for the issuance of a license to sell,” the CA said.
The CA also noted that in the implementation of Balik-Bayad Program, the education and pension trust funds will be transferred to Manila Bankers Life Insurance Corp., which shall act as administrator and custodian of the planholders’ share, and maintain individual planholders’ record and facilitate the benefits payment when due.
The CA pointed out that combining the trust funds of both the education and pension plans into a single trust fund and to use the trust fund of the life plan for the acquisition of some real assets for PPI’s operation would be a circumvention of the Preneed Code.
“To reiterate, the aim of rehabilitation is to place the company in a condition that it may resume business with safety to all its planholders. This proposal plaint fails to pass the tests of legality and economic viability,” the CA ruled.
Furthermore, the CA said PPI’s assurance that it would issue P3.3 billion worth of preferred shares has no basis since PPI only has P995.83 million in net corporate assets as of December 31, 2011. “While it is the policy of the State to encourage the rehabilitation of a distressed company, this, however, does not suppose that every faltering enterprise will be accorded relief as it wishes,” it declared.