MANILA – The bid of former Health Secretary Alfredo Bengzon to regain control of The Medical City (TMC) hit a snag as the Court of Appeals (CA) junked yet again his plea to stop his ouster as long-time chief executive officer (CEO) and director of the medical empire.

The Court of Appeals (CA), in a resolution dated January 21 this year, denied his motion for reconsideration of the appellate court’s June 2019 ruling which rejected his petition for a preliminary injunction, saying he and other officers have no “vested right” to remain in their positions.

WHAT HAPPENED

Bengzon had wanted the CA to stop a Pasig court’s injunction against him and other former officers and members of the board of the TMC, who ordered them to refrain from representing themselves and performing functions as officers and directors of Professional Services Incorporated (PSI), which operates TMC.

Bengzon served as TMC’s CEO for several years until a special stockholders’ meeting in September 2018 elected his nephew, Jose Xavier “Eckie” Gonzales, as the chairman of the board, with the board appointing Dr. Eugenio Jose Ramos as CEO.

He, however, questioned the election, citing alleged anomalies in Gonzales’ acquisition of additional shares in the company. He accused Gonzales, once his most-trusted nephew, of surreptitiously acquiring more than 50 percent of the company’s shares through several companies without making the proper disclosures to members of the board and the Securities and Exchange Commission (SEC).

Bengzon initially postponed the 2018 stockholders’ meeting scheduled in June that year and secured an order from the SEC on Sept. 11, 2018 suspending the meeting pending the resolution of 2 SEC cases.

But Gonzales and other stockholders proceeded with the meeting 2 days later.

The Bengzon group ignored the election and refused to recognize the newly elected officers. They also allegedly changed the bank signatories of the company, threatened company managers that they will be fired if they follow the orders of the new officers and threatened to suspend Gonzales and Ramos, according to court documents reviewed by ABS-CBN News.

These actions prompted Gonzales’ group to secure a temporary restraining order (TRO) and later a writ of preliminary injunction from the Pasig court in September 2018, along with a quo warranto petition, which remains pending. That same order directed Bengzon and former officers to turn over all corporate properties, assets and records to the new board.

Bengzon ran to the CA to stop the order arguing that their rights to participate in the control and management of the company by voting in a meeting validly called for and to serve in a holdover capacity as board directors had been violated by the holding of the special stockholders’ meeting.

But the appellate court rejected his arguments saying stockholders do not have the right to the control and management of a corporation and they can no longer serve in a holdover capacity because new officers have been elected.

The CA refused to look into the validity of the special stockholders’ meeting and the election of the new board, explaining that these intra-corporate disputes and election contests are for the trial court to resolve. Instead, it suggested the holding of a new stockholders’ meeting to elect the 2019 board.

Gonzales and Ramos were reelected in June 2019.

CA RULING

In its latest ruling, the CA affirmed its position, calling Bengzon’s arguments misplaced. It said that Bengzon and his co-petitioners were not prevented from casting their votes during the Sept. 13, 2018 meeting and their term as directors and officers expired after a year in office, with the election of the new board.

“Petitioners do not have any vested right to remain in their positions indefinitely beyond the term for which they are elected, against the will of PSI’s majority stockholders, as evidently, they have already been replaced. No such rights to be protected therefore exists on behalf of Petitioners,” it said.

A clear and unmistakable right that must be protected is among the requirements for the issuance of a writ of preliminary injunction, as is urgent and paramount necessity to prevent serious damage.

CA said no such necessity exists because the supposed damage “has already been done” and an injunction at this point would have “no practical effect.”

BENGZON GROUP’S REACTION

In a statement, Roderico Puno, Bengzon’s lawyer, sought to downplay the effect of the CA ruling.

“The Resolution dated Jan. 21, 2020 of the Court Appeals relates to the 2018 election of PSI directors, who have since been replaced by directors elected in 2019. Thus, the Resolution is of no consequence since it deals with a Board that no longer exists. It has nothing to do with the current PSI Board. The claim of Gonzales that this Resolution somehow affirms the legality of the current Board is therefore patently false,” he said.

He also pointed out that the SEC, in November last year, fined Gonzales and Singapore-based equity fund company Viva Holdings P50 million for violating the Securities Regulation Code “for numerous and serious violations of the Securities and Regulation Code, including the failure to disclose material information to PSI shareholders, resulting in their illegal takeover.”

• SEC rules in favor of Bengzon group in The Medical City row

An SEC special hearing panel found that Viva Healthcare Limited, Viva Holdings, Felicitas Antoinette, Inc. and Fountel gradually acquired majority shares of the company from 2013 to 2017 through “omission of material facts,” which misled the board of directors and other shareholders.

It said that they “circumvented” the rules by structuring their purchase in such a way as to avoid the requirement of a mandatory tender offer.

Without PSI’s knowledge, the 4 companies entered into a cooperation and shareholders agreement agreeing that Viva and Fountel groups would raise their interests in PSI to at least 25% and 25.1 percent each. They also 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 after Ayala Healthcare Holdings, Inc. failed to acquire shares in the company.

The SEC ruling, however, stopped short of invalidating the 2018 special stockholders’ meeting and election of officers. It also did not rule on the validity of Gonzales’ purchase of additional shares.

“Dr. Bengzon is thus additionally seeking the nullification of the PSI shares that were illegally acquired by the Gonzales group,” Puno said.

“The Gonzales group should not be allowed to benefit from the fruits of their unlawful actions, to the disadvantage of legitimate shareholders of PSI.”

Puno, however, could not yet disclose if they will appeal the CA ruling to the Supreme Court.

GONZALES’ GROUP REACTION

Gonzales’ group, meanwhile, welcomed the CA ruling.

In a statement, Gonzales said the ruling will bring closure to the controversy.

“Since we started work at TMC, revenues have gone up, and costs have been managed. The net result is that all our shareholders—including ex-CEO Dr. Alfredo Bengzon—have seen the value of their shares increase. At the end of the day, our job is to make sure that all stakeholders—from our patients all the way to our shareholders—enjoy the benefits of better corporate governance,” he said, citing a P6-billion record-breaking revenue in 2019 for TMC’s Pasig hospital.

TMC has 5 hospitals in the Philippines and 1 in Guam. It also has more than 50 clinics in the country with a medical staff of 3,000 doctors and 7,000 support staff.

TMC Chairman Emeritus and founder Dr. Augusto Sarmiento said the decision will allow them to “move on with the much-needed task of improving healthcare for Filipinos.”

“It is also an affirmation that the principles of corporate governance and shareholder rights must be honored over and above any individual’s desire to hold power after his or her term of office has expired,” he said in a statement.