SC to hear petitions to nullify PNCC-Radstock deal Tuesday
by GEMMA B. BAGAYAUA, abs-cbnNEWS.com/Newsbreak | 01/13/2009 11:53 AM
Printer-friendly version | 
Send to friend | 
Share your views
The Supreme Court (SC) is set to hear on Tuesday, January 13, 2008 at 2:30 pm, petitions filed before the court seeking to nullify a P6 billion compromise deal that was entered into by the Philippine National Construction Company (PNCC) and Radstock Securities Limited in August 2006.
The petitioners in the case, former PNCC president Luis Sison and the Strategic Alliance Development Corporation (Stradec), are both private parties.
Sison’s case is grounded on the fact that the decision substantially disposes of the PNCC’s assets without benefit of a stockholders’ meeting. Stradec, on the other hand, claims to have won the failed bidding in late 2000 that was supposed to privatize the PNCC.
But the issue is laden with public interest nevertheless because the compromise agreement ceded to Radstock a substantial portion of the assets of PNCC, a corporation acquired by government during the later part of the Marcos regime after the national government absorbed its obligations to government financial institutions and other creditors.
If petitioners succeed in having the compromise agreement nullified, it will restore to the PNCC assets that the company ceded to Radstock under the 2006 agreement. “This can be made to answer for the PNCC’s liabilities to government,” former Senate President Franklin Drilon, one of the vocal critics of the agreement said.
Favored Creditor
Critics claimed earlier that, in entering into the deal, the PNCC effectively favored one creditor (Marubeni / Radstock) over other creditors, including government entities. At the time the deal was signed, the PNCC had almost P50 billion in obligations to various government entities.
These obligations were never raised by government lawyers representing the PNCC in court hearings concerning the Radstock collection case. Neither was the fact that the assets listed in the compromise deal consisted of a substantial portion of the PNCC assets ever mentioned. In fact, critics said, the courts were never informed of the state of the company’s finances.
The company’s accumulated earnings deficit of P13.63 billion as of December 2005 and its outstanding obligations to various creditors were never presented. Neither was the fact that paying the Radstock claim would result in the dissipation of all the company’s assets rendering it technically insolvent.
Instead of pointing out this important fact, PNCC even disputed an observation in one of the motions filed by Radstock that the company is bankrupt.
“Dubious” claim
The compromise deal is the result of a collection case filed against the PNCC by Radstock, in behalf of its predecessor in interest, the Marubeni Corporation of Japan.
Marubeni’s claim, in turn, stemmed from guarantees allegedly issued by the PNCC’s predecessor, the Construction Development Corporation of the Philippines (CDCP), for loans incurred by a subsidiary, CDCP Mining Corporation (CDCP-M) from 1979 to 1980.
CDCP Mining, having gone bankrupt in 1983, failed to pay Marubeni for its obligations under the loan agreements. One of its creditors, the Philippine National Bank (PNB), eventually foreclosed on the company’s assets.
Thus, on May 23, 1984, Marubeni—calling upon the guarantees allegedly executed by the CDCP—sent the company a letter demanding payment for the loans the CDCP-M incurred.
At the time Marubeni sent CDCP its demand letter, it was no longer under Cuenca’s control. Forced by the late dictator to convert debts the company owed them, government financial institutions (GFIs), already owned majority of the company’s shares. The company acquired its current name, PNCC.
The obligation to Marubeni was never acknowledged in PNCC’s books.
But on October 20, 2000, just when the government was about to auction off its shares in the company, the PNCC board approved a resolution acknowledging the company’s obligations to Marubeni to the tune of P10.74 billion.
The meeting also formally recognized the National Government’s receivables in PNCC (P36 billion as of 1999 according to a due diligence report prepared by PunongBayan and Araullo accountants).
Failure to collect
Government did not collect what was due to it.
Marubeni, on the other hand, assigned its claim in PNCC to Radstock, a special purpose assets vehicle corporation based in the British Virgin Islands, which subsequently filed collection case against the PNCC on January 15, 2001, five days after the deed of assignment was signed.
Things happened fairly swiftly after that.
On December 10, 2002, barely two years after Radstock filed its claim, Mandaluyong Regional Trial Count (RTC) Judge Amalia Dy awarded Radstock P13.15 billion excluding interest and attorney’s fees. Dy also issued an order attaching the most of the company’s real estate holdings to the case to prevent it from disposing of them.
The PNCC appealed its position to have the case and the writ of preliminary attachment dismissed before the Court of Appeals (CA). But the appellate court ruled against the company’s motion to have the case dismissed and went on with the hearings. This prompted the PNCC to elevate the issue as well as its motion to have the writ of preliminary attachment issued by the RTC lifted to the Supreme Court even as the main case was being heard at the CA.
On October 3, 2005, the high court lifted the writ of preliminary attachment against the company’s assets but dismissed the PNCC’s motion to dismiss the case on grounds that the company has failed to provide enough evidence to prove that the RTC judge committed grave abuse of discretion.
Months after this, the company started negotiations on a settlement with Radstock.
Status Quo
The compromise deal was affirmed by the Court of Appeals (CA) on January 25, 2007 in a decision penned by then CA Justice Ruben Reyes which also rejected the Stradec and Sison petitions. (Reyes, who was appointed to the Supreme Court shortly after inking the decision, recently retired from the high court.)
But on July 2, 2007, acting on the appeal filed before it by Stradec, the SC issued an order directing the PNCC and Radstock to maintain status quo prior to the filing of the petition. This order prevented both parties from disposing of company assets to implement the terms of the compromise agreement.
The High Court has since consolidated the Stradec petition with that of Sison who also appealed his case before the high court.
This will be first time arguments of the two parties will be heard in court because the CA rejected the motion of the two parties to intervene in the case outright.
