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- versus - CARPIO,*
CORONA,
CARPIO MORALES,
NACHURA,
Oppositors-Intervenors. BERSAMIN,
DEL CASTILLO, and
ABAD, JJ.
Promulgated:
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RESOLUTION
Dividend Rate - The SMC Board of Directors shall have the sole discretion to
declare dividends on the Series 1 Preferred Shares as redeemed
by SMC, the dividend rate shall be at a fixed rate of 8% per
annum, payable quarterly and calculated by reference to the
issue price.
Dividend Rate Step Up - Unless the Series 1 Preferred Shares are redeemed by
SMC, the Dividend Rate shall be adjusted at the end of the
fifth year to the higher of (a) the Dividend Rate or (b) the
prevailing 10-year PDSTF rate plus a spread of 300 bps.
Optional Redemption and Purchase - SMC has the option, but not the
obligation, to redeem all or part of the Series 1 Preferred Shares
on the third anniversary from the Issue Date or on any
Dividend Date thereafter at a redemption price equal to the
Issue price of the Preferred Shares plus all cumulated and
unpaid cash dividends.
Selling costs - All selling costs pertaining to the Common Shares shall be
borne by the common shareholders. x x x (Emphasis added.)
xxxx
xxxx
Standard 6. If and when SMC exercises its right, but not an obligation,
to redeem after a period of three (3) years the SMC Series 1 Preferred Shares,
the redemption shall in no case be less than the Issue Price of Seventy Five
Pesos (P75.00) per share plus unpaid cumulative dividends.
xxxx
Standard 9. The initial capital of the [CITF] shall be the SMC Series 1
Preferred Shares that will be issued by SMC as herein described.
Standard 10. Within ten (10) days from and after the date of the final
approval by this Honorable Court of the Conversion, the Republic of the
Philippines, acting through the Presidential Commission on Good Government
through its duly authorized Chairman, shall deliver to SMC these documents.
xxxx
Standard 11. As the issuer, SMC shall within a reasonable period from
a trade, or exchange, of the SMC Common Shares into 753,848,312 SMC
Series 1 Preferred Shares through the facilities of the Philippine Stock
Exchange, deliver duly-signed and issued SMC Series 1 Preferred Stock
Certificate(s) in the name of “The Republic of the Philippines acting though
the Philippine Coconut Authority as Trustee of the Coconut Industry Trust
Fund (CITF) For the Benefit of the Coconut Farmers.”
Standard 13. The trustee of the [CITF] shall have no authority to sell,
dispose, assign, encumber or otherwise impair the value of the SMC Series 1
Preferred Shares, unless the same are redeemed by SMC in accordance with
its Articles of Incorporation, as amended.
Standard 15. Thirty (30) days after the receipt of any dividend paid on
the SMC Series 1 preferred Shares, the net proceeds x x x shall be disbursed
by the Trustee in favor of these entities in these proportions:
b. Twenty percent (20%) – To the (PCA) “in trust and for the
benefit of the coconut farmers”, being the governmental agency
designated by law to implement projects for the coconut industry.
xxxx
Eventually, the coconut levy funds that were used to acquire the
sequestered CIIF SMC common shares in question were peremptorily
determined to be prima facie public funds. The Court, in Republic v.
COCOFED, elucidated on the nature of the coconut levy funds:
Public funds are those moneys belonging to the State or to any political
subdivision of the State; more specifically, taxes, customs duties and moneys
raised by operation of law for the support of the government or for the
discharge of its obligations. Undeniably, coconut levy funds satisfy this
general definition of public funds, because of the following reasons:
1. Coconut levy funds are raised with the use of the police and taxing
powers of the State.
2. They are levies imposed by the State for the benefit of the coconut
industry and its farmers.
xxxx
xxxx
2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its
Farmers.
xxxx
Having Been Acquired With Public Funds, UCPB Shares Belong, Prima
Facie, to the Government
Having shown that the coconut levy funds are not only affected with
public interest, but are in fact prima facie public funds, this Court believes that
the government should be allowed to vote the questioned shares, because they
belong to it as the prima facie beneficial and true owner.
Moreover, the CIIF SMC shares traded in the local bourse have
substantially dropped in value in the last two (2) years. The SMC Class “A”
shares, which commanded the unit price of PhP 48 per share as of November 6,
2008, were trading at PhP 57.50 in 2007 and PhP 65 in 2006. SMC Class “B”
shares, on the other hand, which fetched a price of PhP 49 per share on
November 6, 2008, were priced at PhP 61 in 2007 and PhP 74.50 in 2006. As
of June 1, 2009, Class “A” and Class “B” common shares of CIIF SMC closed
at PhP 53.50 and PhP 54 per unit, respectively. CIIF SMC share prices may
decline over the years.
No doubt shares of stock are not the safest of investments, moored as they
are on the ever changing worldwide and local financial conditions. The
proposed conversion would provide better protection either to the government
or to the eventually declared real stock owners, depending on the final ruling on
the ownership issue. In the event SMC suffers serious financial reverses in the
short or long term and seeks insolvency protection, the owners of the preferred
shares, being considered creditors, shall have, vis-à-vis common stock
shareholders, preference in the corporate assets of the insolvent or dissolved
corporation. In the case of the SMC Series 1 Preferred Shares, these
preferential features are made available to buyers of said shares and are amply
protected in the investment.
In the light of the above findings, the Court holds that respondent
Republic has satisfactorily hurdled the onus of showing that the conversion is
advantageous to the public interest or will result in clear and material benefit to
the eventually declared stock owners, be they the coconut farmers or the
government itself.
The claim that the Cojuangco, Jr. group will be able to oust the
government nominees from the SMC Board, buy the sequestered shares without
encumbrances, and do so with SMC funds is inaccurate and even speculative.
Intervenors completely miss the point. The genuine issue is whether or not the
desired conversion will be beneficial and advantageous to the government or the
eventual owners of the shares. The perceived full control by Cojuangco, Jr. over
SMC after the common shares are released from sequestration is hardly relevant
to the propriety of the conversion. Intervenors have not been able to
demonstrate how the domination of SMC by Cojuangco, Jr., if that should come
to pass, will prejudice or impair the interests of respondent Republic in the
preferred shares. The more important consideration in the exercise at hand is the
preservation and conservation of the preferred shares and the innumerable
benefits and substantial financial gains that will redound to the owner of these
shares.
The only interest of PCGG in SMC is to protect the CIIF SMC common
shares from dissipation. PCGG is neither tasked to bar Cojuangco, Jr., or any
individual for that matter, from securing domination of the SMC Board, nor
avert Cojuangco, Jr.’s acquisition of the CIIF SMC common shares once
released from sequestration. Even if the conversion is approved, nothing can
prevent the government from prosecuting the people whom intervenors tag as
responsible for “greasing the government and the coconut farmers of billions of
pesos.”
On the other hand, COCOFED does not stand to benefit from the
conversion, because portions of the dividends or proceeds from the redemption
cannot be allocated directly to proposed beneficiaries, as this will be contrary to
Sec. 2 of Presidential Decree No. (PD) 961, as amended by PD 1468. In
addition, the preferred shares which will be placed in the names of the CIIF
companies, or the dividends derived from said shares, shall remain as
sequestered assets until final resolution of the ownership issue.
Furthermore,
WHEREAS, in its regular meeting on June 26, 2009, the UCPB Board
of Directors instructed the UCPB-TBG to undertake a study on the financial
and economic viability of the proposed SMC share conversion;
WHEREAS, apart from the legal issues surrounding the CIIF SMC
shares and considering the immediate concern to preserve the value of the
said shares, taking into account the current global financial crisis and its
effects on the Philippine financial situation, and as recommended by the
UCPB-TBG, the proposed SMC share conversion is financially and
economically advantageous;
(4) The letter of the OSG dated July 30, 2009 opined that the proposed
conversion is legally allowable as long as PCGG approval is obtained, thus:
It is also our considered view that the conversion of the CIIF SMC
common shares to SMC Series 1 preferred shares does not take them away
from the jurisdiction of the courts. In conversion, the SMC common shares
are merely reclassified into SMC Series 1 preferred shares without changing
the proportional interest of the stockholder in San Miguel Corporation.
Verily, the conversion of the SMC common shares to SMC Series 1 preferred
shares does not involve a change in the condition of said shares.
[T]he dividend rate shall be adjusted to the higher of (i) the Dividend
Rate, and (ii) the prevailing 10-year PDST-F Rate (or such successor
benchmark rate) as displayed under the heading “Bid Yield” as published on
the PDEx Page (or such successor page) of Bloomberg (or such successor
electronic service provider) at approximately 11:30 a.m. Manila time on the
date corresponding to the end of the fifth year from the Issue Date (or if not
available, the PDST-F Rate on the banking day prior to such date, or if still not
available, the nearest preceding date on which the PDST-F Rate is available,
but if such nearest preceding date is more than five days prior to the date
corresponding to the end of the fifth year from the Issue Date, the Board of
Directors at its reasonable discretion shall determine the appropriate substitute
rate), plus a spread of up to 300 basis points, in either case calculated in
respect of each share by reference to the Issue Price.
The mere presence of four (4) PCGG nominated directors in the SMC
Board does not mean it can prevent board actions that are viewed to fritter away
the company assets. Even under the status quo, PCGG has no controlling sway
in the SMC Board, let alone a veto power at 24% of the stockholdings. In
relinquishing the voting rights, the government, through PCGG, is not in reality
ceding control.
It is also not correct to say that the holders of the preferred shares lose all
their voting rights. Sec. 6 of the Corporation Code provides for the situations
where non-voting shares like preferred shares are granted voting rights, viz:
xxxx
In addition, the holders of the preferred shares retain the right to dissent
and demand payment of the fair value of their shares, to wit:
Thus, the loss of four (4) board seats would not in reality prejudice the
rights and interests of the holders of the preferred shares. And such loss is
compensated by the tremendous financial gains and benefits and enormous
protection from loss or deterioration of the value of the CIIF SMC shares. The
advantages accorded to the preferred shares are undeniable, namely: the
significant premium in the price being offered; the preference enjoyed in the
dividends as well as in the liquidation of assets; and the voting rights still
retained by preferred shares in major corporate actions. All things considered,
conversion to preferred shares would best serve the interests and rights of the
government or the eventual owner of the CIIF SMC shares.
On the issue of the net dividends accruing to COCOFED, the Court rules
that the dividends shall be placed in escrow either at the Land Bank of the
Philippines or at the Development Bank of the Philippines in the name of
respondent Republic and not COCOFED.
Salonga, et al. also contend that PCGG cannot pursue the exchange offer
of SMC for want of power to exercise acts of strict dominion over the
sequestered shares.
This is incorrect.
The Court, to be sure, has not barred the conversion of any sequestered
common shares of a corporation into preferred shares. It may be argued that the
conversion scheme under consideration may later on be treated as an indirect
sale of the common shares from the registered owner to another person if and
when SMC decides to redeem the Series 1 preferred shares on the third
anniversary from the issue date of the preferred shares. Still, given the
circumstances of the pending incident, the Court can validly allow the proposed
conversion in accordance with Rule 57, Sec. 11, in relation to Rule 59, Sec. 6 of
the Rules of Court. Sec. 11 reads:
SEC. 11. When attached property may be sold after levy on attachment
and before entry of judgment.—Whenever it shall be made to appear to the
court in which the action is pending, upon hearing with notice to both parties,
that the property attached is perishable, or that the interests of all the parties
to the action will be subserved by the sale thereof, the court may order
such property to be sold at public auction in such manner as it may
direct, and the proceeds of such sale to be deposited in court to abide the
judgment in the action. (Emphasis supplied.)
Republic v. Sandiganbayan teaches that sequestration is akin to
preliminary attachment or receivership, thus:
The net dividend earnings and/or redemption proceeds from the Series 1
Preferred Shares shall be deposited in an escrow account with the Land Bank of
the Philippines or the Development Bank of the Philippines.
Respondent Republic, thru the PCGG, is hereby directed to cause the
CIIF companies, including their respective directors, officers, employees,
agents, and all other persons acting in their behalf, to perform such acts and
execute such documents as required to effectuate the conversion of the common
shares into SMC Series 1 Preferred Shares, within ten (10) days from receipt of
this Resolution.
SO ORDERED.
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
(On official leave)
ROBERTO A. ABAD
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby
certified that the conclusions in the above Resolution were reached in
consultation before the case was assigned to the writer of the opinion of the
Court.
REYNATO S. PUNO
Chief Justice
* On official leave.
** No part.
Annex “A,” Urgent Motion: To Approve the Conversion of the SMC Common Shares into SMC
Series 1 Preferred Shares, pp. 15-16 provides:
The Series “I” Preferred Shares will be Philippine Peso-denominated, perpetual, cumulative and non-
voting. The shares will have a par value of Five Pesos (P5.00) per share and the following features;
(a) Dividends – The Board of Directors of the Company shall have the sole discretion to declare
dividends on the Series “I” Preferred shares. The annual dividends shall be based on the five (5)- year
Philippine Dealing System Treasury Fixing treasury securities benchmark rate (“PDST-F Rate”), plus a spread
which the Board of Directors of the Company has authorized Management to determine (“Dividend Rate”). On
this basis and pursuant to such authority granted to Management, the dividend Rate has been determined to be
eight percent (8%) per annum. The dividends are payable quarterly, beginning on the third month after the issue
date thereof (“Issue Date”) and every three months thereafter (“Dividend Payment Date”) and calculated by
reference to the Issue Price. Unless the Series “I” Preferred shares are redeemed by the Company at the end of
the fifth year from the Issue Date, the Dividend Rate shall be adjusted at the end of the fifth year to the higher of
(a) the Dividend Rate, and (b) the prevailing ten (10)-year PDST-F Rate (or such successor benchmark rate) as
displayed under the heading “Bid Yield” as published on the PDEx Page (or such successor page) of Bloomberg
(or such successor electronic service provider) at approximately 11:30 a.m. Manila time on the date
corresponding to the end of the fifth year from the Issue Date (or if not available, the PDST-F Rate on the
banking day prior to such date, or if still not available, the nearest preceding date on which the PDST-F Rate is
available, but if such nearest preceding date is more than five [5] days prior to the date corresponding to the end
of the fifth year from the Issue Date, the Board of Directors, at its reasonable discretion, shall determine the
appropriate substitute rate) plus a spread of up to 300 basis points. The holders of Series “I” Preferred shares
shall not be entitled to any participation or share in the retained earnings remaining after dividend payment shall
have been made on the said shares.
(b) Redemption – The Company has the option, but not the obligation, to redeem all or part of
the Series “I” Preferred shares on the third anniversary from the Issue Date or on any Dividend Payment Date
thereafter, at a redemption price equal to the Issue Price of the Series “I” Preferred shares plus all accumulated
and unpaid cash dividends. The Series “I” Preferred shares, when redeemed, shall not be considered retired and
may be re-issued by the Company at a price to be determined by the board of Directors.
(d) Voting Rights – Holders of the Series “I” Preferred shares shall not be entitled to vote except
in cases expressly provided by law.
(e) Pre-emptive Rights – Holders of the Series “I” Preferred shares shall have no pre-emptive
right to any issue or disposition of any class of the Company.
The Series “I” Preferred shares will be listed on The Philippine Stock Exchange,
Inc. within one year from the date of their issuance.
Id.
Republic v. Sandiganbayan, G.R. No. 118661, January 22, 2007, 514 SCRA 25, 34.
Id. at 481-482.
Id. at 491-492.
Annex “A” of COCOFED’s Urgent Motion to Approve the Conversion of the SMC
Common Shares into Series 1 Preferred Shares, p. 20.s
S.H. Gufis, BARON’S DICTIONARY OF LEGAL TERMS 508 (3rd ed., 1998).
An Act to Codify the Laws Dealing with the Development of the Coconut and Other Palm Oil Industry
and for Other Purposes (1976).
Bengzon v. Drilon, G.R. No. 103524, April 15, 1992, 208 SCRA 133.
G.R. No. 124293, January 31, 2005, 450 SCRA 169; citing Bureau Veritas v.
Office of the President, G.R. No. 101678, February 3, 1992, 205 SCRA 705, 717-719.
G.R. Nos. 135688-89, October 18, 2007, 536 SCRA 518, 530.
Annex “A,” Urgent Motion: To Approve the Conversion of the SMC Common
Shares into SMC Series 1 Preferred Shares.
Supra note 3.
Uy v. Sandiganbayan, G.R. No. 111544, July 6, 2004, 433 SCRA 424, 431.