A SENATOR on Thursday proposed the inclusion of a provision that would address violations in the conditions and requirements for companies granted investments in the law increasing the funds of government banks to assist distressed firms.

Senator Franklin M. Drilon said there should be a “clearer” set of rules for violations of the conditions for distressed companies that will be granted loans under House Bill 7749 or the proposed Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE Act.

“We should insert some provision in the law which will respond to these kinds of conditions because this is the reality on the ground,” he said in a Senate hearing on Thursday, adding that a shareholders agreement cannot be binding for the board of directors who decide on certain issues which can affect conditions under a loan agreement.

“So my suggestion…is to have a clearer set of rules, in so far as violation of these conditions, conditionalities of the requirements that were earlier enumerated. We wouldn’t know whether this would be in the bill or in the law or in the rules and regulations, but nevertheless, we should address that concern,” he added.

Francis Nicolas M. Chua, first vice president of the Development Bank of the Philippines, said a breach in the shareholders agreement would be subject to civil action or resorting to the exit mechanism under the agreement.

The proposal provides P10 billion to government financial institutions — P2.5 billion to the DBP and P7.5 billion to the Land Bank of the Philippines — for credit under the loan assistance program for qualified micro, small, and medium enterprises and for the creation of a special holding company (SHC).

Under the bill, the two banks will invest in or enter into a joint venture agreement to incorporate a special holding company which will help rehabilitate “strategically important companies” affected by the pandemic that are experiencing “temporary solvency issues.”

National Treasurer Rosalia V. de Leon said there are remedies if the conditions under the agreement were violated by a company, noting that a firm that sought investment from the SHC should have a “credible and time-bound recovery plan” that can be monitored.

“If they are faltering in these commitments, then there would be remedies that would be placed in the agreement between the SHC and the company in terms of how the SHC would legally also exit from their investment in the company,” she said in the hearing.

The measure states that an investee company should not be involved in any tax-related cases in court for tax collection or tax evasion, must not be a debtor in any bankruptcy proceeding and must be capable of being rehabilitated.

The agreement between the SHC and the investee company should include conditions that the investee company must not reduce the number of employees beyond the prescribed percentage, shall not issue cash dividends during the term of investment, and increase salaries and benefits of senior officers or board members.

The investee company should likewise not incur excessive expenditures and the ownership of the SHC “shall not be diluted,” with the bill also including a provision protecting the value shares of the holding company from market transactions, among other conditions.

The measure also provides for the creation of a joint congressional oversight committee to monitor the implementation of the proposed law.

The House of Representatives approved the measure on third reading on Feb. 9. — V.M.M. Villegas

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