In Re: Petition for Suspension of Payments

[SEC-SICD * CASE NO. 3244. August 2, 1990.] IN RE: PETITION FOR SUSPENSION OF PAYMENTS THE CHARGEKARD CORPORATION , petitioner . D E C I S I O N Submitted before this Commission is the Final Report of the Management Committee of the Chargekard Corporation with the corresponding recommendations for approval of this Commission. llcd On April 11, 1988, a Management Committee was constituted upon the conformity of principal creditors to undertake the management of the company and evaluate its rehabilitation for the interest of its stockholders and creditors; that the Management Committee undertook various measures to preserve the assets of the company including the retrenchment of the employees, the minimization of all expenses, the disposal of disposable assets, as well as the intensification of collection efforts and the hiring of a Controller to oversee the operation. Further, the Management Committee alleged that it studied ways and means to rehabilitate the company by either reviving its credit card business or even going into new business. The sale of the business to one or more of the creditors or to outside parties was likewise inquired into but in view of the glut in the credit card business at that time, there were no takers. On July 31, 1988, the Management Committee finally terminated all twenty one (21) Chargekard employees and directly took over the operations of Chargekard which consisted merely of undertaking collection activities both thru judicial and extrajudicial means; that the Management Committee hired new employees who are paid only a little above minimum wages, thereby cutting labor costs to almost one-fourth; that in conducting its collection activities, Chargekard now utilizes the services of two (2) External Collection Agencies and thirteen (13) personnel and their monthly payroll, except for the collection agencies which receive payment on commission basis, amounted to about Thirty Five Thousand Pesos (P35,000.00) as of June 30, 1989; and that effective July 1, 1989, the Chargekard monthly payroll increased to about Forty Thousand Pesos (P40,000.00) due to the increase in the minimum wage. As to the financial performance of Chargekard, the Management Committee retained the services of S.T. Antonio & Co., to examine the books of the company for the period ending June 30, 1989; that the final audit report of the External Auditor was, however, delayed because the previous External Auditor, Sycip Gorres Velayo & Co. (SGV) refused to furnish the Management Committee with their final audit as of June 30, 1987. Moreover, the Management Committee, stressed that when it took over on August 11, 1989, Chargekard had only about Sixty Eight Thousand Pesos (P68,000.00) in its coffers to finance its collection activities; that as of June 30, 1989, after paying all the unpaid obligations of the company, except its form with its major creditors who comprise the Management Committee, Chargekard managed to accumulate some Three Hundred Fifty Thousand Pesos (P350,000.00) in time deposit, aside from its operating funds of about Ninety Five Thousand Pesos (P95,000.00) in current account and about One Hundred Fifty Thousand Pesos (P150,000.00) in escrow account for the benefit of First Pacific Capital Corp. (FPCC), one of the creditors of Chargekard. Presently, the company realizes a cash inflow of about Thirty Thousand Pesos (P30,000.00) a month based on one (1) year's collection effort under the Management Committee. It expects that henceforth, total payroll and administrative collection costs could be reduced to about Sixty Five Thousand Pesos (P65,000.00) a month which case, with an increased monthly gross collection of about One Hundred Twenty Thousand Pesos (P120,000.00) net cash inflow, would mean almost double. As to the restriction on collection, the principal problem of Chargekard in its collection activities is the fact that to date, the invoices supporting each claim against a cardholder has not yet been individually segregated and collating all invoices to substantiate a claim against a cardholder is a very time-consuming and tedious process. On the matter of unpaid subscription, the Management Committee reported that while the books of Chargekard show that all unpaid subscribers have already paid their subscription to the company, there is no evidence al all substantiating such payments, which were presumably done thru the off-setting of stockholders' advances; that the refusal of both SGV and the corporate officers of Chargekard to submit the Financial Report and Corporate Records respectively required of them exacerbates this problem. As to the escrow of funds, the Management Committee averred that shortly before it took over Chargekard, the amount of One Hundred Forty Nine Thousand Four Hundred Eighty Four Pesos (P149,484.00) was deposited in escrow for the account of First Pacific Capital Corporation. This amount represented the proceeds of the sale of personal properties which were earlier mortgaged to First Pacific Capital Corporation which is merely collecting from Chargekard unpaid interests amounting to about Three Hundred Twenty Thousand Pesos (P320,000.00). Moreover, the First Pacific Capital Corporation is actually an affiliate company which managed Chargekard and that its proceeds of subsequent sale of personal properties, which were likewise mortgaged to First Pacific Capital Corporation, were already commingled with Chargekard to form part of its assets for distribution to creditors during liquidation, so that no undue preference will be given to any creditor at this time. Anent the money market placement with the Philippine Underwriters Finance Corporation, the Management Committee claims that the amount of Four Million Three Hundred Thousand Pesos (P4,300,000.00) placed with the same remains unpaid. On the other hand, while claims against Chargekard are already recorded more or less in the books of the corporations, however, the claim of the employees for separation benefits has not yet been booked. The Management Committee, therefore, adopted the position that no separation benefits are due to the said employees because under the Labor Code no such benefits accrue to the employees of companies which closed due to financial difficulties. Likewise, the Management Committee, aside from conducting a financial audit of Chargekard, also initiated the conduct of legal audit and submitted its report thereon. It was noted, that the primary problem identified by the legal auditors is the lack of documentary evidence to substantiate the claims against cardholders. As to the rehabilitation of Chargekard, it is the opinion of the Management Committee that the possibility of rehabilitating the company is nil. Although Chargekard had the competitive edge of having a big computer which processed the data of cardholders when it was operational then, such had become obsolete and, in fact, after a year's effort to sell the same, still there were no takers. Considering the stiff competition in the credit card business today, Chargekard cannot possibly hope to compete without a modern computer, not to mention the fact that the company's name has become so negative as a consequence of its closure, and there is no alternative therefore, but for Chargekard to stop operation permanently and proceed to liquidation. The major creditors of Chargekard are represented in the Management Committee and they are all aware, more or less, of the true value of the company's receivables which are its only assets. Besides, the same creditors are also aware of the slow rate of collection. There will be no difficulty therefore if the same creditors will be appointed as liquidators of the company. Thus, the Management Committee recommended the following: 1. That Chargekard Corporation be immediately placed under liquidation status with the creditors comprising the Chargekard Management Committee being designated as the Joint Liquidators; 2. That an investigation on the payment of subscription to Chargekard shares of stock be immediately conducted; 3. That the funds held in escrow in favor of First Pacific Capital Corporation amounting to One Hundred Forty Nine Thousand Four Hundred Eighty Four Pesos (P149,484.00) be released to Chargekard to form part of the funds of the latter for distribution to its creditors according to the order of preference provided in the Civil Code during liquidation; and 4. That the claim of Chargekard with Philippine Underwriters Finance Corporation for the former's money market placement amounting to Four Million Three Hundred Thousand Pesos (P4,300,000.00), which is already entered in the books of Philfinance, be duly affirmed and its payment facilitated. We have considered the documents submitted in the final report, which include the summary of activities undertaken by the Management Committee from the time of its creation, the audit report of S.T. Antonio & Co. as of June 30, 1988, the unaudited financial statement of Chargekard as of June 30, 1989, and the findings of the legal audit. We also took note of the motion filed by First Pacific Capital Corporation, the secured creditor of Chargekard of its conformity to the dissolution and liquidation of petitioner corporation. It is a matter of record that more than a year had elapsed since the creation of the Management Committee which was tasked, among others, to take custody of, and control over, all the existing assets and property of such entities under management; to evaluate the existing assets and liabilities, earnings and operations of such corporation to determine the best way to salvage and protect the interest of investors and creditors; to study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to be feasible by the Commission. We realize principally the substantial interest of the petitioner to preserve its rehabilitation. However, as contained in the final report, the petitioner has not provided the Management Committee substantial and concrete workable proposals to meet the basic requirements needed for formulation and approval of a viable rehabilitation plan acceptable to all its creditors. More so, the petitioner is no longer doing business, having ceased operation, and its principal assets are composed mostly of its account receivables. After a thorough review of all the documents submitted by the Management Committee, we believe and so hold that its recommendations to liquidate the petitioner is well founded and justified. We are now impelled by an extreme sense of urgency to give ample protection for the best interest not only of the corporation and stockholders but also all of its creditors. Wherefore, the Hearing Panel resolves as follows: 1. That Chargekard Corporation shall be placed under liquidation and the creditors comprising the Chargekard Management Committee are hereby designated as Joint Liquidators to the effect that they will faithfully discharge the duties of Joint Liquidators in this case and obey the orders of this Commission; and that these Joint Liquidators shall have the following duties, among others: a) they shall see to it that the payment of subscriptions to Chargekard shares of stock be immediately conducted; b) that the funds held in escrow in favor of First Pacific Capital Corporation amounting to One Hundred Forty Nine Thousand Four Hundred Eighty Four Pesos (P149,484.00) be released to the latter upon fulfillment of the condition contained in the escrow agreement; otherwise, the said funds shall be released to Chargekard to form part of the funds of the latter for distribution to its creditors according to the order of the preference provided in the Civil Code during liquidation; and c) that the claim of Chargekard with Philippine Underwriters Finance Corporation for the former's money market placement amounting to Four Million Three Hundred Thousand Pesos (P4,300,000.00), which is already entered in the books of Philfinance be duly affirmed and its payment facilitated. 2. That the Management Committee created pursuant to the Order dated April 11, 1988 be, as it is hereby, dissolved; 3. That the petition for suspension of payments be, as it is hereby dismissed. llcd SO ORDERED. (SGD.) JOSEFINA L. PASAY-PAZ Hearing Officer (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer