Applicability of the Corporation Code on the Implementation of RA 7656 (GOCC Dividends Law)

DOJ OPINION NO. 056 , s. 2009 October 23, 2009 Secretary Margarito B. Teves Department of Finance Roxas Boulevard corner Pablo Ocampo, Sr. Street, Manila Sir : This refers to your request for confirmation of your Office's position relative to the applicability of the provisions of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines, vis--vis the implementation of Republic Act No. 7656, or the Government-Owned or Controlled Corporations (GOCC) Dividends Law. Specifically, you want us to confirm your Department's view that B.P. Blg. 68, otherwise known as the Corporation Code of the Philippines, shall apply in suppletory character in so far as the treatment of retained earnings in excess of one hundred percent (100%) of the paid-up capital stock of the Philippine National Oil Corporation (PNOC), a GOCC with original charter, for purposes of the implementation of R.A. No. 7656, and that there are no other requirements in order for PNOC to declare dividends out of its retained earnings. Your request, it appears, was precipitated by the policy of the National Government (NG) to realize additional revenues in line with the fiscal consolidation efforts. Quoting Section 3 of R.A. No. 7656, and Section 5 of its Revised Implementing Rules and Regulations, it is your Office's position that the law is clear that a GOCC may remit at least 50% of its annual net earnings, as cash dividends, to the NG; that this Department, in its Opinion dated July 2, 2009, confirmed the said position of the DOF, adding that a Presidential Directive under Section 5 of the law's IRR is required only if a GOCC will request that it be allowed to declare less than 50% of its annual net earnings as dividends to the National Government; and that pursuant to said policy, the DOF requested all GOCC to declare and remit additional dividends above the minimum fifty percent (50%) provided by R.A. No. 7656 to the Bureau of Treasury. EDCIcH You also state that it is PNOC's position, however, that it cannot declare dividends in excess of its annual net earnings for the year despite having retained earnings in excess of one hundred percent (100%) of their paid-in capital stock 1 since there is no express provision in its charter or the Dividend Law regarding retained earnings. Maintaining that since R.A. No. 7656 and the PNOC Charter are silent with regard to retained earnings, the provisions regarding retained earnings under the Corporation Code shall apply in suppletory character, you now come to Us for confirmation of your said position. Evidently, the issue to be resolved herein is whether the provisions of the Corporation Code, specifically relative to the treatment of retained earnings, apply to the case of GOCC, e.g., the PNOC, in view of the silence of both the PNOC Charter and the GOCC Dividend Law. We rule in the affirmative. Basic is the rule in statutory interpretation that when the law is clear, plain and free from ambiguity, it must be given its literal meaning without attempted interpretation (Ramos vs. Court of Appeals, 108 SCRA 728, 733). Known as the plain meaning rule, or verba legis, this rule, which was derived from the maxim index animi sermo est (speech is the index of intention), rests on the valid presumption that the words employed by the legislature in a statute correctly express its intent or will and preclude a different construction (see also, PNB vs. Garcia, 388 SCRA 485, 491). The rationale is because the legislature is presumed to know the meaning of the words, to have used the words advisedly, and to have expressed its intent by the use of such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute there should be no departure ( Globe-Mackay Cable and Radio Corporation vs. NLRC, 206 SCRA 701, 711). 2 (No. 41, 27, 17, 15, 14, 1, s. 2009; No. 72, 20, 1, s. 2008) CITaSA Section 4 of the Corporation Code of the Philippines provides, thus: Sec. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (stress ours) The supplementary applicability of the provisions of the Corporation Code to corporations created by special laws or charters is clear and categorical enough that interpretation does not apply only application. For the same reason, the provisions of Section 43 of the Corporation Code, which is equally clear and, therefore, also defies construction, likewise applies. The said section, insofar as pertinent, specifically states: Sec. 43. Power to declare dividends. . . . . Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock, except: (1) when justified by definite corporate expansion projects or programs approved by the board of directors; or (2) when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or (3) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is a need for special reserve for probable contingencies. DTSaHI The foregoing considered, we, thus, favorably confirm your position. Very truly yours, (SGD.) AGNES VST DEVANADERA Acting Secretary Footnotes 1. The Paid-In Capital of PNOC is P3.11 Billion Pesos and its retained earnings as of 31 December 2008 amounted to P25.36 Billion Pesos. 2. Secretary of Justice Op. No. 41, 27 & 17, s. 2009; No. 72, 20 & 1, s. 2008.