PAL Holdings released from obligation

BY IRA P. PEDRASA, BusinessWorld Reporter THE HOLDING firm of Philippine Airlines, Inc. (PAL) is not obliged to buy the shares of stock of government financial institutions in the flag carrier, the Supreme Court said. In an 11-page decision penned by Associate Justice Cancio Garcia, the first division of the high tribunal released Ascot Holdings, Inc., Cube Factor Holdings, Inc., Sierra Holdings and Equities, Inc. and Pol Holdings, Inc. from their obligations to comply with an agreement in 1996 that would allow it to buy the government shares at P5 per share. The companies owned shareholdings in PAL which were later bought by PAL Holdings, Inc. The government institutions that have shareholdings in PAL are the Philippine National Bank, Development Bank of the Philippines, Armed Forces of the Philippines Retirement and Separation Benefits System and the Government Service Insurance System. Under the agreement forged at a stockholders’ meeting in 1996, the government financial institutions have the "put option" to sell their shares of stock. The holding firms will then have to buy these at P5 per share on the sixth year after the effectivity of the stock agreement, or in 2002. The deal was guaranteed by Lucio Tan firms Fortune Tobacco Corp. and Asia Brewery, Inc. Instead of honoring the deal however, the holding firms petitioned in July 2002 before the Makati Regional Trial Court that they be released from their obligations because of the radical changes in the conditions prevailing at the time the deal was forged. They cited the fleet expansion and re-equipment of PAL, the pilot strike that crippled the airline, the Asian economic downturn, the devaluation of the peso and the purported reduced demand for air travel as reasons for reneging on the agreement. The trial court ruled in favor of the holding firms. The Court of Appeals also later dropped Landbank’s petition for review since the case was filed beyond the reglementary period, or the 15-day period within which to file pleadings of cases. Landbank then asked the Supreme Court to direct the appellate court to continue hearing the case "in the interest of substantial justice." It said it stood to lose investments in PAL because the holding firm reneged on the contract. Citing the interim rules of procedure governing intra-corporate controversies however, the high court noted "motion for new trial, or for reconsideration of judgment or order, or for reopening of trial are prohibited pleadings in said cases." "The filing by [Landbank] of a motion for reconsideration before the trial court did not toll the reglementary period to appeal the judgment... As a consequence, the [appellate court] has no more jurisdiction to entertain the petition for review which Landbank intended to file before it, much less to grant the motion for extension of time for the filing thereof," the court said. Landbank’s claims that it would lose its investments are unfounded, it added. "Any benefit that [the holding firms] may derive from the continued profitable operations of PAL will likely benefit [the government financial institutions]," it noted. In July 2007, PAL Holdings, Inc., the listed holding firm of Mr. Tan, bought PAL shares equivalent to 81.57% from the holding firms. PAL President and Chief Executive Jaime J. Bautista told BusinessWorld that company officials have yet to read the decision and its consequent impact on the operations of the flag carrier. But he added that "these are shareholders’ issues." "PAL [management] is not a party to it. We don’t want to be involved. However, we would like to affirm our commitment to operate this company efficiently whatever the issues of the stockholders."