HOW do you protect yourself from fraud and devious financial schemes if, in spite of all the sworn documents they signed, the presumably respectable parties to whom you had extended a series of loans, deliberately deceive you?
This is a lesson in doing business with entities larger than yourself or your company. What you will read about is a clear case of duplicity, prevarication and unethical conduct by an MNC and its regional sales manager.
The complainant is a leading Philippine bank that extended hundreds of millions in various loans and credit facilities to a local firm, Interbrand Logistics and Distribution, Inc., a top distributor of the MNC. The respondents include the MNC that produces and markets a wide range of food and beverage products. It operates on a global scale, with 2009 sales running above $100 billion.
The bank granted the loans after satisfying itself about the borrower’s credit worthiness and the viability of its business as exclusive distributor of the MNC’s products in Quezon City, Tarlac and Bulacan. The bank checked with the MNC and was advised that indeed, the borrower was "one of its top distributors in the country; that it meets its sales targets; and that its payment record is satisfactory."
Due to this favorable endorsement, the bank granted Interbrand in May 2006 credit facilities of P80 million and a Bills Purchase Line of P10 million. Interbrand availed of this facility in various amounts starting July 2006. It signed a Facility Agreement and issued promissory notes to the bank, to be redeemed upon maturity. It backed up its promise to pay by executing, in favor of the bank, a chattel mortgage over its merchandise inventories.
To further secure the prompt observance of the terms of the agreement, the President/Chief Executive Officer and a director of Interbrand also executed a Continuing Suretyship to answer for the loans.
The credit facility was renewed from year to year, after the bank had reviewed and reassessed the performance of the borrower. As part of due diligence, and prior to renewal, the bank always checked with the MNC about the financial status of Interbrand, and each time, the MNC would give a favorable endorsement.
The bank also conducted random checks with the MNC in between renewals to monitor the borrower’s creditworthiness and its status as distributor. One such random inquiry was made in June 2009. In its complaint, the bank claims that in reply, the MNC’s Head of Distribution Management told the bank that Interbrand remained as its No. 1 distributor in the Philippines. Even when MNC knew that this was no longer the case.
Another trade check was made on the borrower in September 2009 when its credit facility again came up for renewal. Reportedly, the MNC once more gave the usual positive assessment.
These favorable endorsements led the bank to renew Interbrand’s credit facility, allowing the latter to secure a series of 19 loans totaling P123.25 million in the second half of 2009. On January 13 of this year, Interbrand availed of still another loan, amounting to P6 million, backing this up with another promissory note.
But just two days after getting this latest loan, Interbrand defaulted on a P5.3 million borrowing that was due on January 15, 2009. Reminders and demands for payments were given to the borrower but it failed to settle its accountabilities.
In the course of its investigation, the bank discovered what appears to be a horror story, with both Interbrand and the bank ending up terribly scarred – financially and otherwise.
It turns out that the MNC, through its Regional Sales Manager (ASM), had been pulling out inventory from Interbrand’s warehouse. These were then delivered to some of the MNC’s key accounts that were urgently asking for additional product deliveries. In exchange, the ASM would issue credit memos that Interbrand could use, in lieu of cash, to purchase MNC products.
On various dates in May 2009, the multinational company, through its ASM, pulled out some P114 million worth of products from Interbrand’s warehouse. However, the ASM only issued P58 million worth of credit memos. The balance of P56 million was left unsecured.
When Interbrand tried to use the P58 million in credit memos to pay for the purchase of MNC products, the MNC refused to honor these, claiming that the credit memos were forgeries. It also denied having pulled out the P56 million worth of products not covered by the credit memos.
Oddly enough, the MNC reportedly acknowledged during a meeting with the bank that its ASM had, in fact, issued the P58 million in credit memos to Interbrand but it claimed that these were forgeries and were unauthorized.
Confronted about the false information he provided, MNC’s Head of Distribution Management allegedly told the bank that the company prohibits them from disclosing such information about its distributors.
Clearly, a trusting Interbrand is the victim of a huge scam. It was played for a fool by the MNC and its ASM. The trusting bank was also misled into thinking that everything was hunky-dory even when the MNC already knew that its ASM was a crook.
Interbrand went belly up because of the MNC’s collusion with its crooked ASM. Of course, this does not absolve Interbrand of responsibility over its unpaid accounts. According to the bank, Interbrand became aware of its money troubles as early as mid-2009, yet it knowingly failed to advise its creditor of its dire financial status. And it continued to avail of the credit facility, although it knew that it no longer had the capability to pay the loans.
In its complaint, the bank said Interbrand and its officials, as well as the MNC, deliberately concealed information vital to the decision about the credit facility to protect their own business interests. It said the defendants "acted in utmost bad faith and in wanton, fraudulent, reckless, oppressive and malevolent manner."
The bank also accused the MNC of having "knowingly made a false representation with intent to mislead the Bank into renewing Interbrand’s credit facilities and allowing Interbrand to make further availments under the same to finance the purchase of (its) products which would eventually lead to (its) benefit."
It asked the court to order Interbrand, its four officials and the MNC, to pay the bank P109.792 million in damages as of March 22, 2010 plus interests, penalties and other charges; at least P1 million in exemplary damages; more than P28.448 million in attorney’s fees and litigation expenses; and from Interbrand and its four officials, P30,497.85 in liquidated damages as of March 22, 2010.
Hopefully, Interbrand, as primary victim, has also sued MNC for all it is worth!
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