High Court clears way for ownership checks

A CONTROVERSIAL memorandum circular spelling out foreign ownership rules for Philippine corporations has been declared legal by the Supreme Court, clearing the way for corporate regulator Securities and Exchange Commission (SEC) to run after erring firms.

The high tribunal decided on the case on Nov. 22, but portions of the ruling were announced through a statement by its public information office just yesterday.

PROBE TO PROCEED

Both petitioner and respondents have yet to see a copy of the ruling, both sides said, but SEC Chairperson Teresita J. Herbosa said the decision would allow the regulator to proceed with its probe on whether telco giant PLDT, Inc. complied with foreign ownership limits.

“We have not yet completed the investigation because of this case. Now with the [ Supreme Court] resolution, we can apply the decision,” Ms. Herbosa told BusinessWorld by phone yesterday, adding that an SEC finding could be out by early 2017.

Central to the debate is SEC’s Memorandum Circular No. 8, Series of 2013, which said Filipino nationals should own 60% of a corporation “engaged in nationalized or partly nationalized activities,” reckoned both as a percentage of “the total number of outstanding shares entitled to vote in the election of directors, and the total number of outstanding shares of stock, whether or not entitled to vote.”

Petitioner Jose M. Roy III had sought to nullify that directive, arguing that it did not conform to “the spirit and letter” of a 2011 Supreme Court ruling known as the Gamboa decision and, later, the Gamboa resolution.

In that landmark ruling, the court defined “capital” as referring “only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and nonvoting preferred shares).”

Observers took that decision to mean that non-voting shares should not be counted when computing ownership, so that as early as 2012 — and ahead of the SEC memorandum — PLDT sold P150 million of voting preferred shares to meet the foreign ownership cap.

But yesterday, in siding with the SEC, the high court clarified itself saying that it “reviewed the Gamboa Decision and Resolution and reiterated that both defined ‘capital’ broadly but only to apply to shares of stock that can vote in the election of directors and that MC No. 8 simply implemented and is, thus, fully in accordance with Gamboa.”

“The Court noted that the Gamboa Resolution states that ‘capital’ was still required to be owned by Filipinos as to 60% of the capital stock outstanding and entitled to vote,” according to an SC public information media brief.

The court, meeting en banc, said its ruling “had long become final” and that it “cannot now restrictively reinterpret the term ‘capital’,” which dissenters to the decision said should be applied to “each class of shares.”

It left to the SEC the task of determining whether PLDT complied with the capital requirement, pointing out that the court “is not a trier of facts.”

“We were implementing the decision in the Gamboa case,” Ms. Herbosa said.

“On top of that, we said that in addition to keeping the old way of computing the 60- 40 based on outstanding capital — if every class of shares — it will be so restrictive that companies won’t be able to function without adequate capitalization.”

The regulator now can “continue seeing to it that all companies comply and we have to look into how they compute their Filipino and foreign ownership.”

The court junked the petition also on technicality, saying that Mr. Roy has “no locus standi or standing to sue as he lacks the material and real interest based on an actual and personal injury that is traceable to the act in question.”

“I haven’t seen the decision. It would be premature to say anything now. Why don’t we wait for the decision?” Mr. Roy said in a phone interview.

PLDT officials have yet to respond to requests for comment. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld, through the Philippine Star Group, which it controls. — with Kristine Joy V. Patag