HERNANDO, J.:
1. They opposed the decrease of the authorized capital stock;Thus, the following three issues were raised by the petitioners:
2. They were not given the opportunity to be heard by the CFD;
3. The reduction was approved by the CRMD and CFD despite the lack of more than two-thirds (2/3) approval of the Sinophil shareholders;
4. The decrease in the authorized capital stock of Sinophil violated the legal requirement that a corporation cannot reduce its issued capital unless it has unrestricted retained earnings;
5. The decreases involved the "selective reduction" of Sinophil 's authorized capital stock which resulted in the diminution of the shareholdings of petitioner Yaw and other shareholders of Sinophil, and the return of the investments of petitioners Metroplex and Paxell ahead of Yaw and other shareholders of Sinophil;
6. The selective reduction entailed the assumption and payment of loans secured by Metroplex and Paxell 's Sinophil shares, to the prejudice of Sinophil and its shareholders including petitioner Yaw.[17]
1. Whether the actions of the CRMD and the CFD allowing the reduction of the outstanding capital stock of Sinophil authorized the "selective" reduction of its issued capital;On the other hand, private and public respondents claimed, among others, that there was full compliance with Section 38 of the Corporation Code by the submission of all the requirements and that there was a presumption of regularity in the performance of public respondents' duties.[19]
2. Whether such "selective" reduction had complied with all relevant and procedural requirements and could be legally done through the cancellation and delisting of the 3.87 billion Sinophil shares of Metroplex and Paxell over the objection of the petitioners; and
3. Whether the questioned actions of the CRMD and the CFD constitute grave reversible errors or abuse of discretion amounting to lack or excess of jurisdiction which should be set aside and declared null and void.[18]
Ruling of the Securities and Exchange Commission: |
1. Whether the decrease of the capital stock of Sinophil Corporation was validly allowed by the CRMD and the CFD; andOn February 26, 2009, the SEC issued its assailed Order[21] denying petitioners' Petition for Review Ad Cautelam Ex Abundanti and essentially affirming the acts of the CRMD and CFD regarding the decrease in the capital stock of Sinophil.
2. Whether the issuance of a cease and desist order is in order.[20]
WHEREFORE, premises considered, the Petition for Review with Prayer for the Issuance of a Cease and Desist Order is DENIED.Aggrieved, petitioners appealed before the CA raising the following alleged errors in the SEC's ruling:
SO ORDERED.[24]
1. The SEC committed serious and manifest errors in affirming the actions of its respondent Operating Departments (CRMD, CFD, CPRD and FAAD) which approved the reduction of the authorized capital stock of private respondent Sinophil through the selective reduction of the latter's issued capital;Ruling of the Court of Appeals:
2. The SEC committed serious and manifest errors in ruling that the selective reduction of the issued capital of private respondent Sinophil complied with all relevant legal and procedural requirements; and
3. The SEC committed serious and manifest errors in denying the application of petitioners for a cease and desist order against the respondents.[25]
WHEREFORE, considering the foregoing, the petition is DENIED. The assailed Order dated February 26, 2009 of the Securities and Exchange Commission in Case No. EB 07-08-137 is hereby AFFIRMED in toto.On July 17, 2013, the CA issued a Resolution[28] denying petitioners' motion for reconsideration for lack of merit as all the issues raised were a mere rehash of the arguments already passed upon.[29]
SO ORDERED.[27]
1. The challenged Decision and the challenged Resolution of the CA should be reversed and set aside for being contrary to law and jurisprudence, considering that the CA was not proscribed from reviewing such findings of public respondents' Operating Departments and in fact, such findings are not supported by substantial evidence;Ultimately, the main issue raised by petitioners is whether or not the appellate court correctly affirmed in toto the Order of the SEC.
2. The challenged Decision, as affirmed by the challenged Resolution, of the CA should be reversed and set aside for being contrary to law and jurisprudence, considering that the SEC has the jurisdiction to review the actions of public respondents Operating Departments in approving the reduction of the authorized capital stock of private respondent Sinophil through the selective reduction of the latter's issued capital;
3. The challenged Decision, as affirmed by the challenged Resolution, of the CA should be reversed and set aside for being contrary to law and jurisprudence, considering that private respondent Sinophil failed to comply with the requirements of the law and the SEC, particularly notice and hearing and prior approval of all of the shareholders and, in fact, violated the Trust Fund Doctrine;
4. The petitioners are entitled to the application for injunctive relief against the respondents as prayed under the instant petition.[31]
Section 38 of the Corporation Code clearly lists down the requirements for a corporation to decrease its capital stock. |
Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors, and at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholders' meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.Section 38 is clear. A corporation can only decrease its capital stock if the following are present:
A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) x x x;
(4) x x x;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription:
Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.
x x x x (Emphasis supplied)
The list of requirements under Section 38 is altogether different from the list of legal requirements presented by petitioners. In short, petitioners plainly did not comply with the law. The Court agrees with the appellate court when it held that:
- Approval by a majority vote of the board of directors;
- Written notice of the proposed diminution of the capital stock, and of the time and place of a stockholders' meeting duly called for the purpose, addressed to each stockholder at his place of residence;
- 2/3 of the outstanding capital stock voting favorably at the said stockholders' meeting duly;
- Certificate in duplicate, signed by majority of the directors and countersigned by the chairman and secretary of the stockholders' meeting stating that legal requirements have been complied with;
- Prior approval of the SEC; and
- Effects do not prejudice the rights of corporate creditors.
We reject petitioners' contentions as they do not even cite any particular rule wherein notice and hearing is required before approval for the increase or decrease in the capital stock is granted or denied. The provision cited by petitioners in their brief, Section 13 of RA 8799, is not even appropriate as it refers to the rejection or revocation of the registration of securities, on any of the grounds stated in said section, none of which obtains in the case at bar. There is likewise no validity nor legal basis to the allegation that prior approval of all the stockholders is required for the reduction in capital stock. Suffice it to state that under Section 38 of the Corporation Code, such decrease only requires the approval of a majority of the board of directors and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) vote of the outstanding capital stock. So long as written notice of the proposed increase or diminution of the capital stock was made to all stockholders, the presence and approval of at least 2/3 of the capital stock is enough to make the increase or diminution valid. This is the plain language of the provision over which no other interpretation may be made.[32] (Emphasis supplied)Here, a judicious perusal of the records of the case reveals that Sinophil submitted to the SEC the following documents in support of its application for the decrease of its authorized capital stock and in full compliance with the requirements laid down under Section 38:
Three stockholders' meeting were likewise held on February 18, 2002, June 3, 2005 and June 21, 2007 where the stockholders voted for the reduction of the corporation's authorized capital stock.
- Certificate of Decrease of Capital Stock;
- Director's Certificate;
- Amended Articles of Incorporation;
- Audited Financial Statements as of the last fiscal year stamped and received by the Bureau of Internal Revenue and the SEC (as of December 31, 2004 and 2007);
- Long Form Audit Report of the Audited Financial Statements (as of December 31, 2004 and 2007);
- List of Creditors (Schedule of Liabilities as of December 31, 2004 and 2007), as certified by the Accountant;
- Written consent of Creditors;
- Notice of Decrease of Capital; and
- Affidavits of Publication of the Notice of Decrease of Capital.[33]
SEC only has the ministerial duty to approve the decrease of a corporation's authorized capital stock. |
[C]ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction among themselves as will result in serious injury to the plaintiffs stockholders.The "business judgment rule" simply means that "the SEC and the courts are barred from intruding into business judgments of corporations, when the same are made in good faith."[36]
The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, thus:Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not in the business of business, and the laissez faire rule or the free enterprise system prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave business to the businessmen; especially so, when courts are ill-equipped to make business decisions. More importantly, the social contract in the corporate family to decide the course of the corporate business has been vested in the board and not with the courts.[35]
The issuance of an injunctive relief of temporary restraining order (TRO) is not warranted. |