The Securities and Exchange Commission (SEC) has found that fraud was used to take over The Medical City and thus nullified the acquisition of the majority stake in Professional Services, Inc. (PSI), which operates the hospital.

The SEC En Banc resolution said this also includes shares acquired from San Miguel Corporation, Splash Corporation, and Insular Life Assurance Co. Ltd.

The SEC En Banc affirmed the resolution issued by a special hearing panel (SPH) penalizing Viva Holdings (Philippines) Pre. Ltd., Viva Healthcare Limited, Fountel Corporation and Felicitas Antoinette, Inc. (FAI) for violating the mandatory tender offer rules and committing fraud in taking over PSI.

However, the Commission En Banc modified the resolution to declare null and void with immediate effect all share acquisitions made by Viva Holdings, Viva Healthcare, Fountel and FAI in PSI beginning August 1, 2013.

The corresponding increases in the authorized capital stock of PSI shall nonetheless remain valid. The shares shall be considered as unsubscribed and allocated for subscription by investors.

Shares acquired from other shareholders, namely Splash, SMC and Insular Life, shall likewise be canceled and reverted to PSI as treasury shares, which may be sold to other persons.

Once the shares are sold and paid for, the PSI shall reimburse Viva Holdings, Fountel, and FAI for the subscriptions that were nullified.

Following the nullification of the shares acquired by the respondents, the Commission En Banc directed the SEC Office of the General Counsel to immediately resolve the case relating to the conduct of meeting and the election of the members of the board of directors of PSI.

The Commission En Banc further modified the SHP resolution to declare the respondents solidarily liable for the penalty imposed, having acted as beneficial owners of each other’s shares in PSI.

In its decision, the Commission En Banc ruled that Viva Holdings, Viva Healthcare, Fountel, and FAI (CSA Parties) likewise violated Section 26 of the SRC, which prohibits fraudulent transactions with respect to the purchase or sale of any securities.

The respondents managed to increase their collective shareholdings in PSI to over 50 percent, largely through subscriptions in the company’s capital stock increases.

The CSA Parties intended to acquire 35 percent or more of the equity shares in PSI as early as 2013. In an executive meeting on April 23, 2013, PSI Director Jose Xavier B. Gonzales, whose family owns and operates FAI and Fountel, advanced the entry of a partner that, together with Fountel, would eventually own 43 percent of PSI.

However, the oneness of Fountel and the partner, including their plan to acquire control of PSI, was not communicated or could not be inferred during the board meetings, where the company’s capital stock increases were discussed and approved.

On August 1, 2013, the CSA parties entered into a Cooperation and Shareholders Agreement (CSA) which effectively transformed their business relation into beneficial ownership over each other's shares and facilitated their acquisition of majority shares in PSI.

Under the CSA, the Viva and Fountel groups agreed to bring their interests in PSI to at least 25 percent and 25.1 percent, respectively. They further agreed to “subsequently continue to work together to increase their respective shareholdings in PSI.

"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 CSA Parties succeeded in making it appear and in convincing the PSI Board and shareholders that their acquisitions were independent of each other, and that the same will not be used to wrest control over the management, governance, and conduct of business of PSI,” the Commission En Banc noted.

It added that “by doing so, the CSA Parties secured for themselves the opportunity of subscribing from the increase in capital/unissued stock or from the outstanding capital stock of PSI, protected such acquisitions, and used the same to their advantage by asserting that they were exempt. This scheme afforded and provided the CSA Parties with the time needed to acquire majority shareholdings in PSI (which was their intent and plan from the very beginning) without being questioned.”

“The subscription contracts, deeds of assignments, and deeds of sale which the CSA Parties executed and entered into to effect such acquisitions were thus tainted with illegality and fraud for which reason, the nullification of the same pursuant to Section 71.2 of the SRC is warranted,” it added.