Firm liquidated after 30 years of shareholder squabble

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Emeterio Sd. Perez

Emeterio Sd. Perez

(Third of a three-part series)

HERE is a company that ended up in liquidation because the stockholders could not agree on the composition of the management committee itself. For whatever this is worth, this piece is for business alliances that combined their expertise and capital in hopes that it could make for a good relationship. Hopefully, liquidation will not be the answer to the financial woes of Philippine Women’s University (PWU).

Ruby Industrial Corp. went to the Securities and Exchange Commission (SEC) sometime in 1983 to seek protection from creditors whom it could not pay because it had been encountering what the Supreme Court described as “severe liquidity problem since 1980.”

But after obtaining an order from the SEC, which protected Ruby from both creditors, the company failed to anticipate the worst that was yet to happen.


Protracted litigation would haunt Ruby as two groups of stockholders fought over the formation of a management committee and the appointment of its members at the SEC, with the losers bringing the case to the Court of Appeals (CA).

And, finally, when neither camp would give up, their ultimate and last recurse was the Supreme Court. The majority and minority owners would use each of these three venues – the SEC, Appeals Court and the Supreme Court — not only once but twice or more, as they engaged in filing motions and appeals that prolonged the war.

As in other stockholder squabbles, Ruby was the biggest loser, becoming extinct in the end. After 30 years of legal battle, the rehabilitation that should have given the company a new lease on life failed to take off.

While the court fight worsened, another unfortunate event hit Ruby: its first 50-year franchise expired during the litigation. Renewing it for another 50 years was out of the question because Ruby did not get the rehabilitation the stockholders had wanted, but the liquidation of its recoverable assets as ordered by the high court.

Even the SEC’s five-man commission en banc had not been consistent in its decision. In the early stages of the litigation, it reversed its own hearing officers’ preference for the proposed rehabilitation plan of the majority stockholders. Then the commission approved the same plan, after it had been revised, allowing the majority stockholders to use Ruby’s assets as collateral for securing more loans.

The Lim group went to the CA, which rebuffed the SEC for endangering Ruby’s remaining assets.

Incidentally, Ruby fell at a time when interest rates were high. Under the original rehab plan submitted by the majority stockholders that was rejected by the commission en banc, the proponents would help Ruby obtain bank loans but at a 28-percent interest rate, while the minority’s alternative rehabilitation plan proposed to find lenders at a lower interest rate of 25 percent.

Such high cost of borrowing in the 80s placed in doubt Ruby’s rehabilitation and virtually spelled doom for the company, which only wanted temporary relief from paying its debts. A 25-28 percent interest rate on a loan would not help a distressed company but would more likely pull it down even faster.

Ruby filed for protection from creditors on Dec. 13, 1983 and, seven days later, it got the SEC’s approval, temporarily freeing it from its lenders’ collection demands.

Thus, in a ruling in 2011 for the liquidation of Ruby, the high court ordered the SEC to transfer the company to the jurisdiction of an “appropriate court” because the new Securities Regulation Code, which took effect in 2001, had taken away the SEC’s jurisdiction over corporate battles and had given it to regular courts designated by the Supreme Court.

The legal battle between the minority and majority stockholders – the latter filed for suspension of payment of liabilities with the SEC — initially involved the creation of a management committee by the SEC’s hearing officers. Then both groups submitted their respective rehabilitation plans, with the majority’s version getting approved by the hearing panel.

How long did it take the SEC hearing panel to decide which of the two rehabilitation plans would work better for Ruby? The answer is almost five years, counting from the time of the filing for debt moratorium on Dec. 13, 1983 to Oct 28, 1988 when the SEC panel went for the majority’s version.

Under their proposed rehabilitation plan identified in court filings as the Benhar/Ruby Plan, the majority stockholders, led by Yu Kim Giang, would lend a P60-million credit line with China Bank, payable in 10 years; Benhar was to purchase Ruby’s creditors’ exposure and mortgage Ruby’s properties to obtain credit facilities for Ruby. If approved, Benhar, which was controlled by Ruby’s majority stockholders, was to manage Ruby’s operations for 7.5 percent of Ruby’s net sales.

On the other hand, the minority stockholders, led by Miguel Lim, proposed in their alternative rehabilitation plan to: (1) pay all of Ruby’s creditors without securing any bank loan; (2) run and operate Ruby without charging management fees; (3) buy out the majority shares or sell their shares to the majority stockholders; (4) rehabilitate Ruby’s two plants; and (5) secure a loan at 25 percent interest, as against the 28 percent interest under the Benhar/Ruby Plan.

Ruby, an importer and seller of vehicle parts, had P30 million in capital, a big loss to the economy in the 80s. After 30 years of infighting, the SC declared the company dead. The company did not survive because while the court battle was going on, it was deprived of the rehabilitation it urgently needed.

esdperez@gmail.com.

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