CAP gets 20-day extension to comply with SEC order

The Securities and Exchange Commission has given College Assurance Plan Phils. Inc. another 20 days to explain why sanctions should be imposed against it for its failure to correct its trust fund deficiency and for violation of the rules on the registration and sale of pre-need plans.

CAP had originally been given until yesterday (Aug. 1) to reply to the SEC’s show cause order.

CAP said it needed more time to answer the issues raised by the SEC.

"We have agreed to grant their request just to show them that we are fair and that we don’t decide on things arbitrarily. We’re hoping they could come up with a satisfactory explanation," an SEC official said.

The SEC official said the commission is no longer inclined to give CAP another extension, pointing out that the 20-day period is more than enough time for the pre-need firm to come up with a viable explanation.

In its request, CAP said the SEC "would be able to clearly conclude if there is really money coming in within the 20-day extension."

An official of CAP also asked for sobriety from the SEC, taking note of the magnitude of the pre-need firm’s coverage which is about 700,000 planholders.

"This is not a simple commercial business where decisions are made on the peso or financial level. Public interest is involved here. The option of liquidation – should be weighed against planholder interests above all. Is liquidation – where the business is terminated and planholders lose hope of getting their original dreams realized and getting only a minuscule of their investments – the answer? Or are there better options that are still open?" the CAP official asked.

When the pre-need firm’s dealer’s license was suspended up to the end of the 2004-2005 school year in March of this year, CAP paid a total of P1.636 bllion in planholder benefits.

The same CAP official also pointed to the firm’s lack of dealer’s license as the reason behind its failure to secure additional funding. "This is what CAP has been fighting for – its dealer’s license. This is what three major investors are only waiting for, aside from this one investor where the consideration for investing in CAP is not the financials but the social impact of the investment – CAP has over 700,000 planholders. Give the dealer’s license – even without issuing the Permit to sell – and these three investors are coming in," the official said.

SEC Associate Commissioner Jesus G. Martinez said CAP’s future seems to be hanging in the balance without any fresh capital infusion. "It would look more like a liquidation, not rehabilitation. If there are no funds coming in then what is there to rehabilitate. You only go into rehabilitation when you think the company could still be a going concern.

There are two things that decide whether a pre-need company is a going concern. First it must have an existing dealers‚ license and approved plans to sell to the public. If you don’t have plans to sell then you can not be an ongoing concern," Martinez said.

Martinez, however, emphasized that this was merely his personal opinion and that any action with respect to CAP would have to be decided upon by the five-man collegial body.

CAP has had no dealership license since last year after failing to replenish its trust fund.

Martinez, however, admitted that deciding what to do with CAP would be a tall order for the Commission given the enormous public interest involved.

"The SEC might fall into a trap, a dangerous territory. It could become difficult for the SEC considering the thousands of planholders that will be affected. If we say we’re doing this for the interest of planholders, they might think the other way around," he said.

The SEC is now finalizing the composition of the management committee that will take over CAP. Among the names that are being considered are former Finance Secretary Ernest Leung, former SEC Associate Commissioner and Petron Corp. chairman Monico Jacob, and economist Bernardo Villegas.

The CAP official stressed that the pre-need firm is not running away from its problems and remains committed to covering obligations to planholders. He said that CAP director Robert John Sobrepeña is now abroad working on securing fresh capital from a foundation based in Switzerland. The official refused to name the foundation but said that it was related to International Global Holdings Inc. The cash infusion will be made over a five-year period.

The pre-need firm was found to have failed to meet the mandated capital requirement and the deposit requirements for its trust funds, keep intact the proceeds held by the company in certain suspense accounts, submit audited financial statements and actuarial valuation report for 2004 in spite of the repeated orders of the SEC.

Other violations include unauthorized issuance of plans worth P325 million as of Aug. 31, 2004 in spite of the Commission’s directive ordering it to stop selling new plans and non-settlement of penalties amounting to P1.08 million. CAP has been on the SEC’s watchlist since 2001 after incurring a huge trust deficiency.