Insolvency rules at Hacienda Luisita – questions to ask

In November, 2011, the Supreme Court (SC) ordered Hacienda Luisita Inc. (HLI) to pay farm worker beneficiaries (FWBs) P1.33 billion as their share in the sale by HLI of certain lands covered by the agrarian reform laws.  The SC also ordered that the FWBs be given title to 4,915 ha. of land, subject to just compensation.

To safeguard the interests of the FWBs in the P1.33 billion, the SC ordered the Department of Agrarian Reform (DAR) “to engage the services of a reputable accounting firm approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were actually used or spent for legitimate corporate purposes.  Any unspent or unused balance and any disallowed expenditures as determined by the audit shall be distributed to the 6,296 original FWBs.”

A 2010 news report suggests that HLI may already be insolvent.

Certain questions, the kind often asked in law school, now arise.  Among them:

What happens if a landowner-respondent in a land reform case, such as HLI, even after it is paid just compensation, is insolvent?   In other words, can the obligation of HLI of P1.33 billion to pay the FWBs be defeated by insolvency?

What if HLI has mortgaged the subject property to banks?  Do the mortgagee banks have better creditor rights than the FWBs?

What happens if the FWBs do nothing at this stage but simply wait to be paid the P1.33 billion?

Can the FWBs argue that the real party obliged in the land-reform case is not HLI but the original owners of the land?  Why or why not? Will this require another prolonged round of litigation?

If the original landowners have assets held in corporations other than HLI, can the FWBs claim against such assets?  How?

The answers to these questions are perhaps even more important than the landmark SC decision. They bear on whether the FWBs can realize on their claims as established by the decision.

UPDATE: Economist Solita Collas-Monsod mentions the possibility of there being “poison pills” in the SC decision that could disadvantage the FWBs.


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