G.R. No. 202052 - Securities and Exchange Commission vs. College Assurance Plan Philippines, Inc.

The petitioners are the Securities and Exchange Commission (SEC) and the Insurance Commission (IC), while the respondent is the College Assurance Plan Philippines, Inc. (CAP), a pre-need company.
The dispute concerns the use of assets in CAP’s trust fund and whether CAP’s obligations to Smart Share Investment, Ltd. (Smart) and Fil-Estate Management, Inc. (FEMI) can be paid from such trust fund assets.

CAP sells pre-need educational plans to planholders and maintains a Trust Fund intended exclusively for the planholders’ benefits.
The Trust Fund consists of a portion of payments collected from planholders, administered by trustee banks and invested in assets intended to grow and cover planholders’ future obligations.
Economic downturns and regulatory changes, including the 1997 peso devaluation and the enactment of the Securities Regulation Code (Republic Act No. 8799) in 2000, adversely affected CAP and its Trust Fund.

Due to trust fund deficiency, CAP purchased MRT III Bonds for a present value of approximately US$14 million from Smart and FEMI on August 6, 2002, assigning these bonds to the Trust Fund.
Payment for the bonds was structured in sixty (60) monthly installments over five (5) years, secured by a chattel mortgage over CAP’s shares in another company.
CAP paid about US$6.54 million before the SEC ordered a halt to payments in 2003 due to CAP’s insufficient funds.

CAP filed a Petition for Rehabilitation in 2005; an Interim Rehabilitation Receiver was appointed, and a rehabilitation plan was approved in 2006.
The plan anticipated selling the MRT III Bonds in 2009 at a discounted price to alleviate CAP’s financial problems.
Negotiations ensued with Development Bank of the Philippines (DBP) and Land Bank of the Philippines, and Smart demanded payment of the outstanding balance of approximately US$10.68 million.
The Receiver sought and initially received court approval to sell the MRT III Bonds and to pay Smart and FEMI partially from the sale proceeds.
However, the Regional Trial Court (RTC) later withdrew approval for payment orders and ultimately denied motions to approve settlement with Smart and FEMI, invoking the principle that Trust Fund assets should be preserved for all creditors equitably.

CAP petitioned the CA via certiorari to contest the RTC’s denial of the payments.
On June 14, 2011, the CA nullified the RTC orders and directed CAP, through its Receiver, to pay Smart and FEMI US$6 million from the Trust Fund proceeds.
The CA ruled that such payment was allowable under the applicable New Rules on the Registration and Sale of Pre-Need Plans (Section 16.4, Rule 16) and the Pre-Need Code (Republic Act No. 9829), considering the payment as a "benefit" or "administrative expense" necessary for trust fund preservation.
The CA further concluded that the unpaid purchase price did not form part of the trust fund assets and hence Smart and FEMI were not ordinary creditors but contributors to the trust fund assets.
The petitioners sought reconsideration, which was denied.

Whether the payment of CAP’s outstanding obligation to Smart and FEMI, representing the balance of the purchase price of the MRT III Bonds, can be validly withdrawn from the respondent’s trust fund.

Whether the payment of CAP’s outstanding obligation to Smart and FEMI can be considered an administrative expense and thus an allowable withdrawal from the trust fund.

Whether the RTC acted without or in excess of jurisdiction or with grave abuse of discretion in denying the payment of the respondent’s obligation to Smart and FEMI from the proceeds of the sale of the MRT III Bonds, which form part of the trust fund.