In the Matter of E-Square Credit Corporation

February 9, 2012 SEC ADMINISTRATIVE CASE NO. 08-11-134 IN THE MATTER OF E-SQUARE CREDIT CORPORATION, ENFORCEMENT AND PROSECUTION DEPARTMENT , petitioner . FOR : Revocation of Corporate Registration ORDER This resolves the Petition, filed by the Enforcement and Prosecution Department ("EPD"), praying for the revocation of the Certificate of Registration of E-SQUARE CREDIT CORPORATION (E-square Credit) due to its refusal to comply or for its defiance of the lawful order of the Commission to secure a Certificate of Authority to operate as a lending company, pursuant to Sec. 6, par. (i) (3) of Presidential Decree No. 902-A (PD 902-A). The relevant facts are narrated below. caCEDA E-square Credit is a stock corporation duly registered with the SEC on 01 March 1995 under SEC Registration No. ASO95-002000. 1 The primary purpose of E-square Credit, as indicated in its Articles of Incorporation, is: "To engage in the business of lending money to qualified borrowers and to charge interest within the limit prescribed by law. Provided the entity shall not engage in pawnbroking under PD 117 and financing under RA 5983." 2 On 06 October 2009, the Corporation Finance Department (CFD) of the Commission sent a show cause letter to E-square Credit requiring it to secure from the Commission a secondary license or a Certificate of Authority to Operate as a Lending Company. 3 In a reply letter dated 18 November 2009, E-square Credit's President, Guillerma M. Abella, requested CFD that E-square Credit be allowed to secure the required Certificate of Authority to operate as a Lending Company in 2010 without any penalty considering that it started with a small paid-up capital and closed its lending operations in 2002 leaving it only to pursue collecting its receivables to no avail, and that until recently, it decided to increase its paid-up capital to meet the required level in 2010 in order to resume its lending operations. 4 CFD, in a reply letter dated 12 January 2010, directed E-square Credit to file at the soonest possible time its application for a Certificate of Authority since a daily penalty is being proposed for violation of Republic Act No. 9474, also known as the "Lending Company Regulation Act of 2007" (R.A. 9474). 5 The failure of E-square Credit to comply with CFD's directive prompted the latter to endorse to the Enforcement and Prosecution Department (EPD) of the Commission the name of E-square Credit as one of the lending companies found to be operating without Certificates of Authority. 6 In a letter dated 20 January 2011, EPD reiterated CFD's directive requiring E-square Credit to secure a Certificate of Authority and gave it thirty days from receipt to secure said Certificate of Authority, otherwise, stern sanctions will be imposed against it as provided under PD 902-A, as amended, including suspension or revocation of its Certificate of Registration for failure or refusal to obey a lawful order of the Commission. 7 E-square Credit replied in its letter dated 17 February 2011 that it failed to find possible investors that will enable it to meet the required paid-up capital to operate as a lending company and admitted that it is the end of the line for them. 8 TCIHSa Thus, EPD filed the instant Petition. On 26 September 2011, E-square Credit filed its Answer, alleging, among others, that (1) E-square Credit has ceased its business operations way back in 2002; 9 (2) it has expressed its intention to comply with the Order of the Commission but was prevented from doing so due to economic hardships and failure to attract possible investors that would help revive its business; 10 (3) its failure to comply with the order of the Commission was not a willful and deliberate act; 11 and (4) no evidence was presented showing that it has attempted to engage or has engaged in any lending activity since 2002. 12 The ultimate issue to be resolved in this Petition is whether E-square Credit's failure/refusal to comply with CFD's directive to secure a Certificate of Authority to Operate as a Lending Company warrants the revocation of E-square Credit's Certificate of Registration. The Petition is impressed with merit. Section 6, paragraph (i) (3) of PD 902-A, as amended, expressly provides that refusal to comply or defiance of any lawful order of the Commission restraining the commission of acts which would amount to a grave violation of its franchise and failure to file required reports are some of the grounds for suspension or revocation of the certificate of registration of corporations, viz. "Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx 3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise; TIEHSA xxx xxx xxx 6. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period; xxx xxx xxx" In the present case, E-square Credit was incorporated in 1995 primarily to engage in the business of lending money to the public. On 22 May 2007, R.A. 9474 was passed and signed into law mandating that all companies engaged in lending activities or business shall secure a Certificate of Authority from the Commission and comply with the minimum capital requirement of one million pesos (Php1,000,000.00), wherein existing companies engaged in lending activities are given such time as determined by the Commission to comply with the minimum capitalization requirement, to wit: "Section 4. Form of Organization . A lending company shall be established only as a corporation, Provided that existing lending investors organized as sole proprietorships or partnerships shall be disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of this Act. No lending company shall conduct business unless granted an authority to operate by the SEC. Section 5. Capital. The minimum paid in capital of any lending company which may be established after the effectivity of this Act shall be One million pesos (P1,000,000.00): Provided, however, That lending companies established and in operation prior thereto shall comply with the minimum capitalization required under the provisions of this Section within such time as may be prescribed by the SEC which time shall, in no case, be less than three years from the date of effectivity of this Act and: Provided, further, That the SEC may prescribe a higher minimum capitalization if warranted by circumstances." In a letter dated 12 January 2010, E-square Credit was directed by the Commission, through the CFD, to secure a Certificate of Authority to Operate as a Lending Company within the soonest possible time. In a letter dated 20 January 2011, E-square Credit was again warned that failure to comply with CFD's Order within thirty (30) days from receipt shall cause the revocation of its Certificate of Registration. Instead of complying, E-square Credit, in a letter dated 17 February 2011, expressed difficulty in reviving its business due to absence of investors and indicated that it has accepted its end. E-square Credit's contention that it has ceased business operation since 2002 and that no evidence was presented showing that it has attempted to engage or has engaged in lending operations since then is unsubstantiated and self-serving. On the contrary, petitioner's evidence includes CFD's Memorandum dated 24 November 2010 showing that E-square Credit has secured a business permit from the local government to engage in lending activities and has not applied for a Certificate of Authority with the Commission. 13 In connection thereto, its Articles of Incorporation indicates that that E-square Credit is primarily engaged in the business of lending money to the public and to date, it has not amended its Articles of Incorporation to dissolve the corporation or to amend its purpose or line of business other than lending. 14 Clearly, E-square Credit has the burden of proof to show that it has actually ceased its lending operations. Accordingly, E-square Credit is obliged under R.A. 9474 to secure a Certificate of Authority to Operate as a Lending Company from the Commission. ACTESI Considering that E-square Credit failed to substantiate its claim that it already ceased from engaging in lending business and that to date, it has not complied with the requirements of R.A. 9474 despite repeated orders of the Commission to secure a Certificate of Authority to Operate as a Lending Company, its refusal to comply with said lawful orders warrants the revocation of its Certificate of Registration pursuant to Sec. 6, par. (i) (3) of PD 902-A. Even assuming that E-square Credit has indeed ceased its lending operations since 2002, such admission also warrants the revocation of its Certificate of Registration on the ground of its continuous inoperation for more than five (5) years as provided in Section 22 of the Corporation Code. In fact, it also appears from the records of the Commission that E-square Credit failed to file the following required reports: (1) General Information Sheet from 1996 to 2010 and (2) Financial Statement for the years 1996 to 1997 and 2000 to 2009. 15 Failure to file required reports within the prescribed period is one of the grounds for revocation of the Certificate of Registration under Section 6, par. (i) (6) of PD 902-A. WHEREFORE, foregoing premises considered, the instant Petition is GRANTED. Accordingly, the Certificate of Registration of E-SQUARE CREDIT CORPORATION is hereby REVOKED. Let a copy of this Decision be furnished to the Company Registration and Monitoring Department for its appropriate action. SO ORDERED. February 9, 2012, Mandaluyong City, Philippines. (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner Footnotes 1. Records, page 48. 2. Id. , page 37. 3. Id. , pages 13, 55. 4. Id. 5. Id. , pp. 12, 55. 6. Id. , pp. 11, 54. 7. Id. , pp. 2, 54. 8. Id. , pp. 1, 54. 9. Id. , pp. 13, 76. 10. Id. 11. Id. 12. Id. , page 74. 13. Records, p. 11. 14. Id. , pp. 37, 71. 15. Records, p. 71.