DOJ Opinion No. 113, s. 1992

DOJ OPINION NO. 113 , s. 1992 September 3, 1992 Secretary Ramon R. del Rosario, Jr. Department of Finance Manila Sir : This refers to your request for confirmation of your view regarding the proposed sale of government-owned shares of stock in the Philippine National Bank ("PNB") to the Social Security System ("SSS"). You state that the National Government ("NG") intends to sell eleven per cent (11%) of PNB's outstanding shares of stock to the SSS; that this acquisition will entitle SSS to one seat in PNB's governing board; that to date private investors hold forty-three per cent (43%) of PNB's equity; that the projected sale cannot be deemed a privatization transaction since SSS is a government financial institution; and that despite such sale, the Philippine Government shall continue to hold the majority shares in PNB with the NG holding forty-six per cent (46%) of the total shares, while the SSS, eleven per cent (11%). prcd It is your view that under the abovementioned circumstances, "(a) PNB can still accept government deposits and be treated as a government corporation" "and (b) will continue to be covered by the Commission on Audit." The pertinent provisions of the PNB charter (E.O. No. 80) read: "SEC. 6. Change in Ownership of the Majority of the Voting Equity of the Bank . When the ownership of the majority of the issued common voting shares passes to private investors, the stockholders shall cause the adoption and registration with the Securities and Exchange Commission of the appropriate Articles of Incorporation and revised by-laws within three (3) months from such transfer of ownership. Upon the issuance of the certificate of incorporation under the provisions of the Corporation Code, this Charter shall cease to have force and effect, and shall be deemed repealed. Any special privileges granted to the Bank such as the authority to act as official government depository, or restrictions imposed upon the Bank; shall be withdrawn, and the Bank shall thereafter be considered a privately organized bank subject to the laws and regulations generally applicable to private banks. The Bank shall likewise cease to be a government-owned or controlled corporation subject to the coverage of the service-wide agencies such as the commission on Audit and the Civil Service Commission. The fact of the change of the nature of the bank from a government-owned and controlled financial institution to a privately-owned entity shall be given publicity." (Emphasis supplied) The language of the foregoing provisions of law is clear and unmistakable. Once PNB is organized as a corporation under the Corporation Code, as a result of the transfer of the ownership of the majority of its shares to private investors, and is issued a certificate of incorporation by the Securities and Exchange Commission, it will lose all its special privileges, including the authority to acts as an official government depository, and ceases to be a government corporation, thereby excluded from the audit jurisdiction of the auditing commission. prcd None, however, of the foregoing shall take place if the proposed sale in question materializes. For the acquisition of PNB shares by SSS, while reducing the NG's equity in the bank to only 46%, will not result in the transfer of majority ownership of PNB to private investors since SSS, the prospective new stockholder, is a government-owned and controlled corporation (SSS Employees Assn. vs. Soriano, 9 SCRA 511). Hence, with the NG owning 46% of the PNB shares and SSS holding 11%, the Philippine Government remains firmly in control of the bank. Wherefore, this Department hereby confirms your opinion that the proposed sale of the certain government-owned shares in PNB to the SSS will not diminish the government's majority ownership of said bank and therefore (1) PNB is still authorized to act as official government depository and (2) PNB will remain a government corporation which is subject to the jurisdiction of the Commission on Audit. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary