SPV Law not working - international investment firm

An international investment firm said Republic Act 9182, otherwise known as the Special Purpose Vehicle (SPV) Law, have failed to protect entities that has invested in local banks’ non-performing loans and assets under the SPV scheme.

Philippine Investment (PI) One, an SPV company and affiliate of the fallen international investment bank Lehman Brothers, expressed concern that a Nov. 17 Supreme Court decision on their appeal of a Makati City regional trial court ruling on a P73.14-million collection case involving a loan they bought from Bank of Commerce (BOC) may have negated the SPV Law, rendering it useless.

“When SPV companies are prevented from profiting from the buying of NPLs and NPAs from the banks, as intended by Congress, the purpose of the SPV Law is effectively defeated,” PI One said in a statement.

It was learned that the SC, in the Nov. 17 ruling, denied PI One’s appeal of Makati RTC Judge Elmo Alameda’s decision declaring that it was only allowed to collect from a debtor couple and their company Duvaz Corp. its acquisition cost of the NPL from BOC and not the full loan amount of P73.14 million.

“Shockingly, the SC denied the appeal through a minute resolution, invoking the hierarchy of courts and declaring that no reversible error was apparent from the trial court’s decision,” PI One said.

The SPV law was enacted by Congress in 2002 to help the banking industry survive the after-effects of the 1997 Asian financial crisis by helping them dispose of crippling billion peso NPL and NPAs, thereby clearing their balance sheets.

 After the Asian financial crisis of 1997, Philippine banks were saddled with billions of pesos in NPLs and the NPAs – which mainly came from bad loans made in the bullish period that preceded the financial crisis.

The failure of the banks to dispose of these NPLs and NPAs and to “clean” their balance sheets undermined the capability of the banks to extend easy credit to the public.

To address the serious problem and with the aim of averting a devastating financial crisis, Congress enacted the SPV Law in 2002. In essence, said law made it easy for banks and financial institutions to sell their NPLs and NPAs at a discount. On the other hand, the buyers or SPV companies were given incentives to buy NPLs and NPAs with the important assurance that they would step into the shoes of the banks, thereby enabling them to claim the entire amount due the banks.

PI One said that by helping clear the banks’ balance sheets of NPLs and NPAs through the SPVs, the economy benefited through the easing of credit and the lowering of interest rates which spurred greater economic activity.

However, at the Makati City RTC, PI One said the SPV Law’s provisions were challenged by the debtor couple Jose Miguel Vasquez and Judith Duavit and their Duvaz Corp. since the couple claimed that they were only obliged to pay PI One its acquisition cost of their loan with BOC.

“In doing so, the RTC Makati disregarded the SPV Law, which should govern SPV transactions, and applied a general provision of the Civil Code, which allows a debtor to be released from his debt that has been sold to a third party by paying the latter the price paid to the original creditor,” PI One said.

“Any lawyer knows that a special law, such as the SPV, should prevail over a general law when the transaction involves the subject of the special law. This principle was conveniently swept under the rug by the trial court in its slipshod decision,” PI One said.

“If an SPV company cannot profit from buying and selling NPLs because all the debtor has to do is pay the acquisition cost of the NPL to the SPV company to be released from its debt, why should a SPAV go into this business at all?,” PI One pointed out.

“Why should the SPV Company invest hundreds of millions of pesos, when it may not even recover its overhead on the business? Surely, this case could have been resolved by mere common sense,” PI One added.