Philippines: Foreign equity ownership decision

Author: | Published: 23 Feb 2017
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SyCip Salazar Hernandez & Gatmaitan

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Jose Florante M Pamfilo

Recently, the Philippine supreme court voted to deny the petition made in the case of Roy vs Herbosa (GR number 207246) to invalidate SEC Memorandum Circular number 8-2013 (guidelines on compliance with the Filipino-foreign ownership requirements prescribed in the constitution and/or existing laws by corporations engaged in nationalised and partly-nationalised activities) (MC 8-2013) issued by the Philippine securities and exchange commission (SEC).

MC 8-2013 provides that, for purposes of determining compliance with nationality restrictions, the required percentage of Filipino ownership will be applied to both (a) the total number of outstanding shares of stock entitled to vote in the election of directors, and, (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. MC 8-2013 was issued by the SEC following the decision of the supreme court in the earlier case of Gamboa vs Teves (GR number 176579). In the Gamboa case, the court construed the term 'capital' as used in article XII, section 11 of the Philippine Constitution, which provides that no franchise for the operation of a public utility may be granted except to Philippine citizens or to corporations whose capital is at least 60% owned by Philippine citizens. The dispositive portion of the court's decision in the Gamboa case stated that the term 'capital' referred only to shares of stock entitled to vote in the election of directors. However, certain statements were made in the body of the decision as well as in the resolution on the motion for reconsideration in the same case to the effect that the 60 to 40 Filipino-foreign ownership requirement applied to each class of shares, whether voting or non-voting.

In the Roy case, the petitioner alleged that MC 8-2013 did not conform to the letter and spirit of the Gamboa decision and resolution, because it did not apply the 60 to 40 Filipino-foreign ownership requirement separately to each class of shares. Voting eight to five (with two abstentions), the court found that the SEC had not gravely abused its discretion as it had simply implemented the decision and resolution of the Gamboa case. The court reiterated that 'capital' referred only to shares of stock that could vote in the election of directors, and clarified that statements to the contrary in the Gamboa case decision and resolution were obiter dictum.

The decision in the Roy case is not yet final and is the subject of a motion for reconsideration by the petitioner.

Jose Florante M Pamfilo