Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the articles of incorporation:
Sec. 16. Amendment of Articles of Incorporation. — Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two thirds (2/3) of the members if it be a non-stock corporation.
FACTS:
Presidential Commission on Good Government (PCGG) conducted an ETPI stockholders meeting during which a PCGG controlled board of directors was elected. A special stockholders meeting was later convened by the registered ETPI stockholders wherein another set of board of directors was elected, as a result of which two sets of such board and officers were elected. Africa, a stockholder of ETPI, alleging that the PCGG had been "illegally 'exercising' the rights of stockholders of ETPI, "especially in the election of the members of the board of directors, filed before the Sandiganbayan which ordered the "calling and holding of the Eastern Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting for 1992 under the [c]ourt's control and supervision and prescribed guidelines.".
PCGG, in early 1995, filed a "VERY URGENT PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE OF INCREASING [ETPI's] AUTHORIZED CAPITAL STOCK," it claiming that the increase in authorized capital stock was necessary in light of the requirements laid down by EO 1097 and RA 7975. The Court resolved to refer the PCGG's very urgent petition to hold the special stockholders' meeting to the Sandiganbayan for reception of evidence and resolution. Sandiganbayan granted.
The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and Corporate Secretary to call the special stockholders meeting and the increase in ETPI's authorized capital stock from P250 Million to P2.6 Billion was "unanimously approved."
Africa filed before this Court a motion to cite the PCGG "and its accomplices" in contempt and "to nullify the 'stockholders meeting' called/conducted by PCGG and its accomplices," he contending that only this Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares.
ISSUE:
WON PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the election of the board of directors.
WON Sandiganbayan gravely abused discretion for ordering the holding of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI
HELD:
NO. except when there are "demonstrably weighty and defensible grounds" or "when essential to prevent disappearance or wastage of corporate property."
PCGG may vote the sequestered shares in SMC necessitates a determination of at least two factual matters:
PCGG, in early 1995, filed a "VERY URGENT PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR [THE] SOLE PURPOSE OF INCREASING [ETPI's] AUTHORIZED CAPITAL STOCK," it claiming that the increase in authorized capital stock was necessary in light of the requirements laid down by EO 1097 and RA 7975. The Court resolved to refer the PCGG's very urgent petition to hold the special stockholders' meeting to the Sandiganbayan for reception of evidence and resolution. Sandiganbayan granted.
The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and Corporate Secretary to call the special stockholders meeting and the increase in ETPI's authorized capital stock from P250 Million to P2.6 Billion was "unanimously approved."
Africa filed before this Court a motion to cite the PCGG "and its accomplices" in contempt and "to nullify the 'stockholders meeting' called/conducted by PCGG and its accomplices," he contending that only this Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares.
ISSUE:
WON PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the election of the board of directors.
WON Sandiganbayan gravely abused discretion for ordering the holding of a stockholders meeting to elect the ETPI board of directors without first setting in place, through the amendment of the articles of incorporation and the by-laws of ETPI
HELD:
NO. except when there are "demonstrably weighty and defensible grounds" or "when essential to prevent disappearance or wastage of corporate property."
PCGG may vote the sequestered shares in SMC necessitates a determination of at least two factual matters:
1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the state; and
2. whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of "public character."
SC summed up the rule in the determination of whether the PCGG has the right to vote sequestered shares as follows:
In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered test does not apply.
YES. The Court laid down safeguards in Cojuangco, Jr. v. Roxas because of the obvious need to reconcile the rights of the stockholder whose shares have been sequestered and the duty of the conservator to preserve what could be ill-gotten wealth. There is nothing in the Cojuangco case that would suggest that the above measures should be incorporated in the articles and by-laws before a stockholders meeting for the election of the board of directors is held. That could be a possibility, but the peculiar circumstances of this case require that the election of the board of directors first be held before the articles of incorporation are amended.
Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the articles of incorporation.
At the time Africa filed his motion for the holding of the annual stockholders meeting, there were two sets of ETPI directors, one controlled by the PCGG and the other by the registered stockholders. Which of them is the legitimate board of directors? Which of them may rightfully vote to amend the articles of incorporation and integrate the safeguards laid down in Cojuangco? It is essential, therefore, to cure this aberration of two boards of directors sitting in a single corporation before the articles of incorporation are amended to set in place the Cojuangco safeguards.
The danger of the so-called Marcos cronies taking control of the corporation and dissipating its assets is, of course, a legitimate concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless, such danger may be averted by the "substantially contemporaneous" amendment of the articles after the election of the board.
PCGG's "VERY URGENT PETITION TO HOLD SPECIAL STOCKHOLDERS MEETING . . . " was referred to the Sandiganbayan, this Court gave the latter full authority to decide the issue of whether a stockholders meeting should be held. Implicit in this authority was the power to grant (or deny) the petition. There is thus no need for the parties to seek this Court's imprimatur to hold the same.
Section 16 of the Corporation Code requires the majority vote of the board of directors to amend the articles of incorporation.
At the time Africa filed his motion for the holding of the annual stockholders meeting, there were two sets of ETPI directors, one controlled by the PCGG and the other by the registered stockholders. Which of them is the legitimate board of directors? Which of them may rightfully vote to amend the articles of incorporation and integrate the safeguards laid down in Cojuangco? It is essential, therefore, to cure this aberration of two boards of directors sitting in a single corporation before the articles of incorporation are amended to set in place the Cojuangco safeguards.
The danger of the so-called Marcos cronies taking control of the corporation and dissipating its assets is, of course, a legitimate concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless, such danger may be averted by the "substantially contemporaneous" amendment of the articles after the election of the board.
PCGG's "VERY URGENT PETITION TO HOLD SPECIAL STOCKHOLDERS MEETING . . . " was referred to the Sandiganbayan, this Court gave the latter full authority to decide the issue of whether a stockholders meeting should be held. Implicit in this authority was the power to grant (or deny) the petition. There is thus no need for the parties to seek this Court's imprimatur to hold the same.
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