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Foreign banks licensed to do business in the Philippines argued they should be considered "residents" under the Insolvency Law to file an involuntary insolvency petition against a debtor company. The trial court dismissed the petition for lack of jurisdiction, but the Court of Appeals reversed. The Supreme Court affirmed the Court of Appeals' decision, ruling that foreign banks licensed and doing business in the Philippines qualify as residents under the Insolvency Law and related statutes covering banking, taxation and corporations. Considering the relevant laws together, the Court found foreign banks operating in the Philippines through licensed branches have the necessary "locality of existence" to be residents for purposes of insolvency proceedings.
Foreign banks licensed to do business in the Philippines argued they should be considered "residents" under the Insolvency Law to file an involuntary insolvency petition against a debtor company. The trial court dismissed the petition for lack of jurisdiction, but the Court of Appeals reversed. The Supreme Court affirmed the Court of Appeals' decision, ruling that foreign banks licensed and doing business in the Philippines qualify as residents under the Insolvency Law and related statutes covering banking, taxation and corporations. Considering the relevant laws together, the Court found foreign banks operating in the Philippines through licensed branches have the necessary "locality of existence" to be residents for purposes of insolvency proceedings.
Foreign banks licensed to do business in the Philippines argued they should be considered "residents" under the Insolvency Law to file an involuntary insolvency petition against a debtor company. The trial court dismissed the petition for lack of jurisdiction, but the Court of Appeals reversed. The Supreme Court affirmed the Court of Appeals' decision, ruling that foreign banks licensed and doing business in the Philippines qualify as residents under the Insolvency Law and related statutes covering banking, taxation and corporations. Considering the relevant laws together, the Court found foreign banks operating in the Philippines through licensed branches have the necessary "locality of existence" to be residents for purposes of insolvency proceedings.
STATE INVESTMENT HOUSE, INC. ANS STATE FINANCING CENTER, INC.
VS Whether or Not foreign banks licensed to do business in the Philippines,
CITIBANK, BANK OF AMERICA AND HONGKONG AND SHANGHAI BANK may be considered “residents of the Philippine Islands” as contemplated in Sec. 20 of Insolvency Law FACTS: The foreign banks involved in the case are Bank of America, Citibank, and An adjudication of insolvency may be made on the petition of three or more Hongkong and Shanghai Banking Corporation, all of whom are creditors of creditors, residents of the Philippine islands, whose credits or demands Consolidated Mines, Inc. (CMI). accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less than one thousand pesos. On December 11, 1981, the three banks jointly filed with the RTC of Rizal a petition for Involuntary Insolvency of CMI. Among the grounds alleged by HELD: The SC ruled that since the Insolvency Law did not mention of the the foreign banks is CMI’s commission of specific acts of insolvency, i.e. that meaning of “residents of the Philippine Islands”, the better approach would CMI suffered its property to remain under attachment for three days for the be to harmonize the provisions of the Corporation Code, the General purpose of hindering or delaying or defrauding its creditors and that CMI has Banking Act, the Offshore Banking Law and the NIRC. defaulted in the payment of its current obligations for a period of thirty days. Hence, the Court ruled that it is not really the grant of a license to a foreign corporation to do business in the Philippines that makes it a resident. The The petition for involuntary insolvency was opposed by herein petitioners license merely gives legitimacy to its doing business in the country. What State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI). effectively makes such foreign corporation a resident corporation in the SIHI and SFCI claimed, among others, that the court had no jurisdiction to Philippines is its actually being in the Philippines and licitly doing business take cognizance of the petition for insolvency because the foreign banks are here, or the “locality of existence”, which is the necessary element. not resident creditors of CMI as required under the Insolvency Law. Foreign corporations duly licensed to do business in the Philippines are The RTC rendered judgment in favour of SIHI and SFCI for lack of jurisdiction considered “residents” of the Philippines, as the word is understood in Sec. over the subject matter. The court ruled that the insolvency court could not 20 of the Insolvency Law, authorizing at least three resident creditors of the acquire jurisdiction to adjudicate the debtor (CMI) as insolvent because the Philippines to file a petition to declare a corporation insolvent. The Tax Code foreign banks are not “residents of the Philippines”. declares that the term “resident foreign corporation applies to foreign corporation engaged in trade or business within the Philippines” as On petition for review, the CA rendered order reversing the judgment of the distinguished from a “non-resident foreign corporation” which is not RTC. The CA ruled that the three banks are residents of the Philippines for engaged in trade or business within the Philippines. The Offshore Banking the purpose of doing business in the Philippines, and that the Insolvency Law sates that: “Branches, subsidiaries, affiliates, extension offices or any Law was designed for the benefit of both the creditors and debtors. The CA other units of corporation or juridical person organized under the laws of also reiterated that the authority granted to the three banks by the SEC any foreign country operating in the Philippines shall be considered covers not only transacting banking business, but also maintaining suits for residents of the Philippines.” The General Banking Act places “branches and the recovery of any debt and claims. agencies in the Philippines of foreign banks” in the category as commercial banks, rural banks, stock savings and loan association making no distinction Hence, SIHI and SFCI brought their appeal before the SC. between the former ad the latter in so far as the terms “banking institutions” and “banks” are used in said Act. Petition is DENIED and the ISSUE: challenged Decision of the Court of Appeals is AFFIRMED.