THE Supreme Court (SC) has set aside the ruling issued by the Regional Trial Court (RTC) of Makati City that allows the inclusion of the trust fund of failed preneed firm Legacy Consolidated Plans Inc. in the court-managed liquidation proceedings.
In a 24-page ruling written by Associate Justice Jose Catral Mendoza, the Court’s Second Division granted the petition filed by the Securities and Exchange Commission (SEC), declaring null and void the order issued by Makati RTC Branch 56 presiding Judge Reynaldo Laigo on June 26, 2009.
The Court held the lower court committed grave abuse of discretion when Laigo transferred the trust fund to a receiver, and stopped the SEC from validating plan-holders’ claims against the trust held by the Land Bank of the Philippines.
“In sum, improvidently ordering the inclusion of the trust fund in Legacy’s insolvency estate without regard to the avowed state policy of protecting the consumer of preneed, as laid down in the SRC [Securities and Regulation], the New Rules and the Pre-Need Code, constitutes grave abuse of discretion,” the SC said.
“The RTC should have known, and ought to know, the overreaching consideration the Congress intended in requiring the establishment of trust funds—to uphold first and foremost the interest of plan holders,” it added.
Legacy collapsed in the mid-2000 and failed to pay its obligations to plan holders.
This resulted to the preneed firm being the subject of an involuntary insolvency petition filed in 2009 by several plan holders.
In the same year the Makati RTC declared Legacy insolvent and directed it to submit an inventory of its assets and liabilities, pursuant to the provisions of Republic Act 1956, or the Insolvency Law.
Subsequently, Judge Laigo ordered the insolvency assignee to take possession of the trust fund despite opposition from the SEC, which insisted that trust funds are specifically established to guarantee the delivery of benefits due the plan holders.
In ruling in favor of the SEC, the Court said trust funds should solely benefit the plan holders and may not be used to satisfy the claims of other creditors of Legacy under Section 30 of the Pre-Need Code.
“To rule that Legacy has retained a beneficial interest in the trust fund is to perpetuate the injustices being committed against the plan holders and violate not only the spirit of the trust agreement but, more important, the lawmaker’s intent.
“The plan holders would be prejudiced as they would be forced to share in the assets that would be distributed pro rata to all creditors, whether plan holders or not,” it explained.
Having declared the inclusion of trust funds in the liquidation proceedings, the SC ordered the SEC to “process the claims of legitimate plan holders with dispatch.”
Concurring with the ruling were Associate Justices Antonio Carpio, Arturo Brion and Mariano del Castillo.