Pontius Pilate act in LBP-UCPB merger
What is it in the merger of Landbank of the Philippines (LBP) and United Coconut Planters Bank (UCPB) that the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) had to order them to execute a “free and harmless clause” in their favor as a condition for the approval of the merger?
On Jan. 13, 2022, the BSP approved the merger subject to the condition, among others, that the banks shall “execute and submit to BSP documents stating that they will keep the BSP free and harmless from any liabilities arising from, or in connection with, the approval of subject transaction, with the adoption of a disclaimer as follows … ”
The following day, the SEC approved the merger on the condition, that, among others, they will submit joint directors’ certificates and affidavits of undertaking by their board of directors “ … to keep this Commission free and harmless from any liabilities arising from, or in connection with, the approval of the subject transaction, with the adoption of a disclaimer as follows …”
Since the wording of the approvals and disclaimers (which are too lengthy to be reproduced here) are practically the same, it is apparent the BSP and the SEC consulted with each other before they issued their respective approvals.
The immunity clause and disclaimer defy logic.
They oblige LBP and UCPB to defend the agencies that directly regulate their operations from any cause of action that may be filed by third parties on account of their approval of the merger.
In effect, the banks will be accountable if later something turns out wrong in the approvals that they had no participation in their making outside of the submission of the required documents.
When a government office approves a transaction submitted to it for review in line with its supervisory authority, it is reasonable to assume that the approval is the product of thorough efforts and that the office will be willing to defend its action from any questions that may arise.
There is no room for a Pontius Pilate act when it comes to accountability for official government acts. That responsibility is an integral element of government service.
If the BSP and the SEC were unsure of or had reservations about the validity of their actions as to require an immunity clause from the banks, then they should have not given their seal of approval.
The BSP had sufficient time to go through the books of the banks with fine-toothed combs to make sure the concerns subject of the immunity clause will not materialize.
Why the rush to approve the merger? Was pressure made to bear to quickly approve it to—according to the grapevine—prevent UCPB from being acquired by a conglomerate that has banking and real estate interests?
Note that if any of the banks is sued in connection with the approval of the merger, it has the right, as part of its defense, to demand the disclosure of the facts and circumstances behind the approvals.
Knowing the BSP’s strict rules on confidentiality, that’s a scenario it would not want to find itself in.
With regard to the SEC, its concern that it may be sued on account of its approval of the merger seems exaggerated.
Under the law, its responsibility in any merger plan is to make sure the required affirmative votes of the respective board of directors and stockholders of the concerned corporations are complied with and validated through notarized certificates. That’s all.
Since the SEC’s participation in the merger is only “formal” in character, with the BSP as the principal party in the completion of the merger, it is doubtful if the SEC would find itself at the receiving end of any suit that may be filed in connection with its approval.
Besides, if that happens, it has, like the BSP, a hefty “legal defense” fund that ensures it can pay for the services of the best lawyers in town.
So, will the immunity clause henceforth be a norm in bank mergers? Or is it exclusive to the LBP-UCPB merger for reasons known only to the regulators? INQ
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