A SHAREHOLDER group’s acquisitions of majority shares in Professional Services, Inc. (PSI), The Medical City’s operator, were nullified by the corporate regulator for allegedly being illegal and fraudulent.

The ruling came after the Securities and Exchange Commission’s (SEC) special hearing panel in November last year penalized Viva Holdings (Philippines) Pte. Ltd., Viva Healthcare Ltd., Fountel Corp. and Felicitas Antoinette, Inc. (FAI) for violating the mandatory tender offer rules under the Securities Regulation Code (SRC) and committing fraud in taking over PSI.

In an Aug. 13 decision, the Commission en banc added in the said resolution a provision to declare null and void all their share purchases in PSI since Aug. 1, 2013.

The shares bought by the group will be considered unsubscribed and allocated for subscription by investors.

The SEC also ruled to cancel their share acquisitions in Splash Corp., San Miguel Corp. and Insular Life Assurance Co. Ltd., and to revert these as treasury shares.

PSI is to reimburse Viva Holdings, Fountel, and FAI for the subscriptions that were nullified, once these were sold and paid for.

In a statement, Fountel’s majority owner Jose Xavier “Eckie” B. Gonzales said the decision forces The Medical City to pay the acquiring entities at least P10 billion in cash that they had invested since 2013.

“We are disappointed with the questionable decision of the [SEC], which our legal team believes to be arbitrary, unfounded, and, to a certain extent, overreaching. Fortunately, the law provides remedies that will allow these errors to be corrected,” he said.

Mr. Gonzales, who chairs the hospital’s board, said the SEC decision “adds further pressure and uncertainty to a hospital network already straining with the many problems caused by the COVID crisis, including its cash flow.”

To recall, the four entities were found to have breached Section 18 of the SRC and Rule 19 of the implementing rules and regulations of the code, the accompanying penalties of which the SEC wanted them to be held solidarily liable for.

The Commission en banc added that they also violated Section 26 of the SRC, which prohibits fraudulent transactions in the sale of securities.

In 2013, Viva Healthcare, Viva Holdings, FAI, and Fountel entered into a cooperation and shareholders agreement (CSA), “which effectively transformed their business relation into beneficial ownership over each other’s shares.”

The SEC said the entities have increased their collective shareholdings in PSI to more than 50%, mainly through subscriptions in the firm’s capital stock increases, which the regulator approved in November 2013, July 2014, August 2017 and October 2017, respectively. These stock increases, though, were maintained as valid.

In the meetings where these stock increases were discussed, the entities’ intention to gain beneficial ownership, thus taking control of PSI, was not made known to the company.

“The directors and other shareholders of PSI only learned about the CSA in 2017, as a consequence of a negotiation for Ayala Healthcare Holdings, Inc. to acquire shares in the company,” the regulator noted.

The Commission en banc said the parties “succeeded in making it appear and convincing” PSI that their purchases were independent of each other and that these will not be used to control the management, governance, and conduct of the business of the company.

All the processes involved in the share purchases, such as subscription contracts, deeds of assignments, and deeds of sale, were “tainted with illegality and fraud,” it said.

Further, the Commission en banc ordered the SEC’s general counsel to immediately resolve all cases related to the conduct of the meeting and the election of the members of the board of directors of PSI.

In the statement, Mr. Gonzales said his group “will exhaust all legal means possible to ensure that the SEC’s decision will not affect the continuing operations of The Medical City.” — Adam J. Ang