Philippines – SEC Nully PSI Share Acquisition

Philippines – SEC Nully PSI Share Acquisition

On 20 August 2020, PHI SEC nullified acquisitions by PSI shareholder group.

  • PHI SEC nullified acquisition of substantial shares in Professional Services (PSI), which operates The Medical City, by shareholder group who used fraud to take control of PSI.
  • Follows PHI SEC November 2019 fined shareholders in takeover of Medical City.

PSI Shares

  • In 13 August 2020 decision, Commission En Banc (CEB) affirmed resolution by special hearing panel (SHP) penalizing Viva Holdings (Philippines) Pre Ltd, Viva Healthcare Ltd.
  • As well as Fountel Corporation and Felicitas Antoinette, Inc. (FAI) for violating the mandatory tender offer rules and committing fraud in taking over PSI.
  • CEB modified resolution to declare immediately null and void all share acquisitions made by Viva Holdings, Viva Healthcare, Fountel, FAI in PSI from 1 August 2013.
  • Corresponding increases in authorized PSI capital stock shall nonetheless remain valid.
  • Shares shall be considered as unsubscribed and allocated for subscription by investors.
  • The shares of other shareholders, namely Splash Corporation, San Miguel Corporation and Insular Life Assurance Co. Ltd, are also canceled, revert to PSI as treasury shares.
  • These may be sold to other persons and once the shares are sold and paid for, PSI shall reimburse Viva Holdings, Fountel and FAI for the subscriptions that were nullified.
  • CEB further modified SHP resolution to declare the respondents solidarily liable for the penalty imposed, having acted as beneficial owners of each other’s shares in PSI.

SHP Resolution

  • In the resolution of 22 November 2019, SHP found Viva Holdings, Viva Healthcare, FAI violated Republic Act No 8799, s 18 or Securities Regulation Code (SRC).
  • Also held Fountel, alongside Viva Healthcare, Viva Holdings and FAI, accountable for violating Rules 19.2.A, 19.12 of amended SRC implementing rules, regulations (IRR).
  • For violation of SRC, s 18, SHP imposed penalty of P1mn plus P2,000 for each day of continuing violation from 1 August 2013 up to the time that SEC Form 18-A is filed.
  • Each respondent ordered to pay P1mn plus P2,000 for each continuing violation, from 31 July 2013-15 May 2018 for violating SRC rule 19.2.A, relating to rr 19.3.A, 19.3.B.
  • The SHP imposed the same penalty for the respondents’ violation of SRC Rule 19.12.

CEB Decision

  • CEB ruled Viva Holdings, Viva Healthcare, Fountel, FAI (CSA Parties) violated section 26 of SRC prohibiting fraudulent transactions relating to purchase/sale of securities.
  • Respondents increased their collective shareholdings in PSI to over 50%.
  • Largely through subscriptions in company’s capital stock increases approved by CEB in November 2013, July 2014, August 2017 and October 2017, respectively.
  • CSA parties intended to acquire 35% or more of equity shares in PSI as early as 2013.
  • On 23 April 2013, PSI director Jose Xavier B. Gonzales, whose family owns, operates FAI, Fountel, advanced entry of partner that, with Fountel, would soon own 43% PSI.
  • But the combined entity of Fountel and partner, including their plan to acquire control in PSI, was not communicated or could not be inferred during board meetings.
  • On 1 August 2013, Viva Healthcare, Viva Holdings, FAI, Fountel entered into cooperation and shareholders agreement (CSA), facilitated acquisition of majority of PSI shares.
  • Under CSA, Viva and Fountel groups agreed to bring their interests in PSI to min 25% and 25.1%, respectively, and continue to work together to increase PSI shareholdings.
  • PSI directors and other shareholders only learned about CSA in 2017, as consequence of a negotiation for Ayala Healthcare Holdings, Inc. to acquire shares in the company.
  • SRC rule 19.3.B requires any person or group of persons acting in concert, who intend to acquire 35% or more of a public company’s equity shares to disclose such intention.
  • CEB concluded subscription contracts, deeds of assignments and deeds of sale which the CSA parties executed, entered into to effect such acquisitions were fraudulent.