DOJ Opinion No. 161, s. 1994

DOJ OPINION NO. 161 , s. 1994 November 16, 1994 Chairman Rosario N. Lopez Securities and Exchange Commission SEC Building EDSA, Greenhills Mandaluyong, Metro Manila M a d a m : This has reference to your request for opinion concerning the interpretation of the following provisions of Section 2-A of Commonwealth Act No. 108, as amended by P.D. No. 715 ("The Anti-dummy Law"): prcd "SEC. 2-A. ...That the election of aliens as members of the board of directors or governing body of the corporation or associations engaging partially nationalized activities shall be allowed in proportion to their allowable participation of share in the capital of such entities." You state that with the upsurge of foreign investments in the domestic trade, your office has encountered difficulty in determining the allowable representation of alien stockholders in the board of directors of corporations engaged in partially nationalized activities in the light of the aforequoted provision of the Anti-Dummy Law. Specifically, you wish to know whether the number of board seats which may be given to alien investors in a partially nationalized activity should be determined on the basis of their allowable participation or share in the capital thereof as provided by law or their actual investment is such activity which may be less than the allowable participation of aliens therein. To illustrate your point, you cite as an example a situation involving a mining firm where the allowable participation of aliens under the law is up to 40% of the capital stock. You state that if there are two (2) alien investors owning 40% of the outstanding capital stock, both of them can sit in the board of five (5) directors, because 40% of 5 is 2. However, if their total equity is only 20% or even less than 20%,5% you ask if you could allow one or both of them to sit in the board of directors since their allowable participation in the mining firm under the law is 40%. It is believed that when the law speaks of alien representation in the board of a partially nationalized activity proportionate to their allowable participation or share in such activity, what is intended is the proportional representation of the alien investors in relation to their actual investment therein. In other words, in the situation given in your basic letter, where the actual alien investment is less than 20%,the alien investor is not entitled to any representation in the board of five (5) directors. It should be noted that aforequoted provision of Section 2-A of the Anti-Dummy Law is an amendatory provision introduced thereto by P.D. No. 715 in line with the constitutional policy then embodied in Section 5, Article XIV of the 1973 Constitution (now Section 11, Article XII of the 1987 Constitution) allowing foreign investors to have limited representation in the governing body of any public utility enterprise in proportion to their allowable participation in the capital thereof (see 2nd Whereas Clause of P.D. No. 715). The respective provisions of the 1973 and 1987 Constitutions, which are couched in identical language, aptly read as follows: "SEC. 5. ...That the participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof ." (Art. XIV, 1973 Constitution) "SEC. 11. ... The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital . . ." (Art. XII, 1987 Constitution). The terms of the aforequoted constitutional provisions are clear and unambiguous to the effect that the participation of foreign investors in the governing body of any public utility or enterprise shall be limited to their proportionate share (meaning "actual share") in its capital . It follows that the election of aliens as members of the governing body of a partially nationalized corporation or association under Section 2-A of the Anti-Dummy Law shall likewise be limited to the proportionate share of the alien in the capital of said corporation or association, consistent with the policy enunciated in the cited provision of the Constitution. Thus, in determining the "representation of alien stockholders in the board of directors of corporations engaged in partially nationalized activities", the basis should be the actual share of the alien stockholders in the capital of the corporation which share, however, should not exceed the foreign equity ceiling, prescribed by law for a particular corporation or association. Please be guided accordingly. Very truly yours, (SGD.) FRANKLIN M. DRILON Secretary