SEC order to bring back Bengzon to The Medical City leadership
MANILA, Philippines—The Securities and Exchange Commission (SEC) ordered the operator of The Medical City to restore its board composition going back several years, paving the way for the return of directors, including former health secretary and longtime CEO Alfredo Bengzon.
This followed a landmark decision last week by the regulator which said the 2018 board takeover led by Bengzon’s nephew, Jose Xavier B. Gonzales and foreign partners, was based on illegal transactions.
The SEC on Aug. 20 voided the acquisition by Gonzales’ companies along with Singapore-based Viva Holdings (Philippines) Pte. Ltd. and Viva Healthcare Ltd. of a controlling stake in The Medical City operator Professional Services Inc. (PSI).
The SEC said Gonzales and Viva concealed a cooperation and shareholders agreement signed on Aug. 1, 2013 to take control of the health care group with over 40 hospitals and clinics in the Philippines and Guam.
The board and shareholders were unaware of the agreement for years until Gonzales and Viva secured a controlling stake in PSI in 2017. The SEC said this amounted to fraud and violation of the Securities Regulation Code.
On Monday (Aug. 24), the corporate regulator followed up by issuing a decision saying the board of directors of PSI will revert to its composition in the period before the illegal transactions started.
It said PSI’s board should return to its status before the signing of the shareholders’ agreement between Gonzales’ companies and Viva on Aug. 1, 2013.
“Such being the case, the members of the BOD of PSI as of 31 July 2013 are deemed to be the duly constituted BOD, sitting and functioning in a holdover capacity,” the SEC said, using the initials for board of directors.
PSI had 15 board directors registered with the SEC as of July 5, 2013.
They were Augusto P. Sarmiento (chair), Bengzon (president and CEO), Gonzales (treasurer), Sis. Maria Rosalia Nacionales, Mona Lisa B. de la Cruz, Eugenio Jose F. Ramos, Rosalinda A. Hortaleza, Rev. Fr. Roberto C. Yap, Mediadora C. Saniel, Venacio I. Gloria, Rafael LL. Reyes, Pote P. Videt, Blesidla E. Conception, Alberto L. Buenviaje and Foreign Affairs Secretary Teodoro L. Locsin Jr.
A day before the SEC issued its Aug. 24 decision, a statement released by Gonzales’ group said the verdict imposes “additional challenges” amid the COVID-19 pandemic.
“While there is never a good time to get decisions on shareholder disputes, the SEC decision comes at a really bad time,” said Eugenio Jose F. Ramos, who replaced Bengzon as CEO of the health care group during the takeover bid.
“The last thing our staff needs right now is even more uncertainty – it’s hard enough to face patients who may or may not have COVID,” he added. “Now they also have to worry about what is going to happen to their hospital.”
This was a change of tune from an Aug. 20 internal memo to employees where Ramos said the SEC decision “will have no direct impact on the operations of The Medical City.”
He added that discussions on legal remedies were being handled on the shareholder level.
“As a health care institution, we have to keep our focus on the exemplary role we have been playing in this global pandemic—to be the hospital that delivers world-class health care to every patient, COVID or otherwise, even and especially during this crisis,” Ramos said in the memo.
The SEC order said Gonzales’ camp and partners will eventually be paid back by PSI for the nullified transactions. Gonzales estimated the amount to be P10 billion.
He said this would place added financial strain on The Medical City as the company is struggling with P750 million in unpaid bills from Philippine Health Insurance Corp., which is now embroiled in a corruption scandal.
In a statement on Monday, Bengzon’s camp lauded the SEC decision while suggesting a buyer might be lined up to acquire the shares from the voided transactions.
“The significant cash windfall that PSI will earn through the sale of the nullified shares to a qualified third party, expected to be in the billions of pesos, is much needed to sustain operations at this time,” Eric Puno, Bengzon’s lawyer, said in a statement.
“We urge the leadership of PSI/TMC installed by the erring group to collaborate with the holdover Board in ensuring a smooth and orderly transition as required by law, challenging as this will be in the face the current health crisis,” he added.