The group of businessman Jose Xavier “Eckie” Gonzales has asked the Court of Appeals (CA) to reverse an order of the Securities and Exchange Commission (SEC) nullifying the acquisition of a majority stake in The Medical City (TMC) group of hospitals.
In a 90-page petition filed on Aug. 25, Gonzales-affiliated Fountel Corp. and Felicitas Antoinette Inc. (FAI)—shareholders of Professional Services Inc. (PSI) which owns and operates TMC—sought a 60-day temporary restraining order to enjoin SEC from implementing a decision stripping the group’s ownership of shares.
The CA was asked to stop and set aside the SEC en banc decision dated Aug. 13, along with an earlier decision of a special hearing panel that penalized the group in relation to the battle for control of the hospital group.
“Given the current public health emergency, it cannot be denied that grave and irreparable injury would result and prejudice not only petitioners, but more importantly, the public in case of a disruption in the management and operations of PSI’s hospitals,” the petition said. The petition said the SEC order would “destabilize” the corporation, and sow “confusion and disinformation” among members of the TMC community, including the front lines and third parties who were dealing with PSI.
Represented by legal counsel Villaraza & Angangco, Fountel and FAI argued that the SEC en banc decision—which declared null and void with immediate effect all share acquisitions made by Viva Holdings, Viva Healthcare, Fountel and FAI in PSI beginning Aug. 1, 2013—was a “clear-cut case of administrative overreach.”
Petitioners argued that this was an intra-corporate dispute, which fell outside the SEC’s jurisdiction and should instead be within the exclusive jurisdiction of special commercial courts.
Even assuming that the SEC had jurisdiction to void this private transaction, the petitioners said this was a “gross error,” disputing the SEC’s findings of fraudulent practices.
The Aug. 1, 2013 cooperation and shareholder agreement (CSA) signed by the group with Clermont Group, owner of Viva Holdings, was never concealed and its contents were not misrepresented to the board, the petition said. As such, the group refuted findings that the CSA was used to circumvent the rules of the SEC.
Sometime in 2013, the management of PSI led by Bengzon sought to obtain $100 million in fresh equity for Medical City to fund expansion projects. Gonzales, a nephew of PSI chief executive officer and respondent Alfredo Bengzon, was requested to assist.
The group claimed that Bengzon himself had reviewed and commented on the terms of the proposed agreement between Viva Holdings, Fountel and FAI. The CSA was submitted to PSI for final review and disclosed to SEC that same year. This paved the way for the capital infusion from August 2013 to 2017 through the group’s subscription to authorized capital stock.
The nullification had been done by the SEC “in violation of the property and due process rights of the parties considering that the confiscatory action was brought about in the absence of a trial and an opportunity to cross-examine the witnesses of respondent Bengzon,” petitioners said.
Contrary to the SEC’s findings, Gonzales’ group argued that Fountel, FAI and Viva Holdings were not beneficial owners of each other’s shares. There was no obligation to conduct a mandatory tender offer in 2013 simply because the CSA provided that there was an intention of petitioners and Viva Holdings to eventually acquire more than 50 percent of PSI, the petition said.
Petitioners said it’s against the law for the SEC to declare shares as unsubscribed or revert them to treasury shares without property and immediate resolution to Viva, Fountel and FAI which had paid for these shares. It’s against the law to order that they be paid only after these shares are sold to third party, the petition said.
“It is basic that when a contract is declared void, in this case the subscription to PSI’s shares of stocks, the law requires immediate resolution,” the petition said.
Bengzon himself did not not pray for the nullification of the shares or the return of shares to treasury, the petition said.