In the Matter of Queen Star Corporation

February 9, 2012 SEC ADMINISTRATIVE CASE NO. 0408-94 IN THE MATTER OF QUEEN STAR CORPORATION ENFORCEMENT AND PROSECUTION DEPARTMENT (Formerly COMPLIANCE AND ENFORCEMENT DEPARTMENT) , petitioner . Petition for Revocation of Certificate of Registration ORDER For consideration of the Commission is the Petition dated 31 March 2008 of the Compliance and Enforcement Department of the Commission, henceforth referred to as the Enforcement and Prosecution Department (EPD), for the revocation of the Certificate of Registration of Queen Star Corporation (Queen Star), based on Section 6, par. i (1) and par. l (6) of P.D. 902-A. AHcaDC FACTS OF THE CASE Queen Star is a domestic stock corporation with SEC Registration No. A1997-18142. When it was registered on 26 September 1997, the name reflected in its Articles of Incorporation (AOI) was Hua Cheng Hot Pot Seafoods Restaurant Corporation , 1 and its primary purpose was to engage in the restaurant business on wholesale/retail basis. 2 Its Certificate of Filing of Amended Articles of Incorporation (AAOI) dated 31 August 1999 3 shows that the corporation changed its name to its present name, Queen Star Corporation, and also amended its primary purpose to: "To engage in, conduct, and carry on the business of buying, selling, distributing, marketing at wholesale insofar as may be permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description; to enter into all kinds contracts for the export, import, purchase, acquisition, sale at wholesale and other disposition for its own account, as principal or representative capacity as manufacturer's representative, merchandise broker, indentor, commission merchant, factors or agents, upon consignment of all kinds of goods, wares, merchandise or products whether natural or artificial." 4 The AAOI of Queen Star lists the following as its Incorporators: 5 Name Nationality Residence Rolando R. Hao Filipino 24-A Mabini St. RT Subdivision, Valenzuela, Metro Manila Norman Hao Filipino 24-A Mabini St. RT Subdivision, (Emphasis ours) Valenzuela, Metro Manila Antonio R. Hao Filipino 24-A Mabini St. RT Subdivision, Valenzuela, Metro Manila Danilo Hao Filipino 24-A Mabini St. RT Subdivision, Valenzuela, Metro Manila Yuen Chu Wang Filipino 18-D Avelino St.,Brgy. Tambo, Bay View (Emphasis ours) Village Paraaque, Metro Manila The AAOI also shows that Queen Star's authorized capital stock is ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000.00) divided into FIFTEEN THOUSAND (15,000) shares with a par value of ONE HUNDRED PESOS (P100.00) per share. THREE THOUSAND SEVEN HUNDRED FIFTY SHARES were subscribed (worth P375,000.00) and TWO HUNDRED SIX THOUSAND TWO HUNDRED FIFTY PESOS (P206,250.00) were duly paid. aEcADH Verification of the records show that on 21 July 1999, the Commission, through what was then the Corporate Reorganization Division, acknowledged the receipt of the Deeds of Assignment 6 executed by the following incorporators: Assignor Assignee No. of Shares Date Rolando R. Hao Jean Viloria 750 02-04-99 Norman Hao Agnes Manglalian 7 750 02-04-99 Antonio S. [ sic ] Felicitas D. Uy 750 02-04-99 Hao Danilo Hao Cheng Kun Liu 750 02-04-99 It appears that there are two sets of Deeds of Assignments between the same parties: one set, executed on 08 March 1998, annexed to the Petition, and another set, executed on 04 February 1999, submitted to the Commission. The Deed of Sale and Assignment dated 08 March 1998 executed between Norman Hao and Agnes Manglalian stated that Norman Hao is a British citizen 8 and not a Filipino citizen as stated in the Certificate of Incorporation dated 26 September 1997 and the AAOI dated 31 August 1999. However, in the 04 February 1999 Deed of Assignment, Norman's citizenship is again stated as Filipino. In a letter to the Commission dated 15 September 1999, the President of Queen Star, Chen Kun Liu, confirmed that, "the true Citizenship of Norman Hao is British (HK) and not Flipino. His citizenship was inadvertently written as Filipino in the Articles of Incorporation of Hua Cheng Hot Pot Seafoods Rest. Corp. To correct all error made and to avoid further questions Norman Hao unloaded his shares to Agnes Manglalan [ sic ] a Filipino on March 8, 1998 by way of Deed of Assignment and Sale and was filed with your office on September 15, 1998." 9 Norman Hao executed an Affidavit dated 29 September 1999 where he stated that: "2. ...our accountant without my knowledge change [ sic ] my Nationality as Filipino Citizen instead of British National which my true and actual Nationality ;(Emphasis ours) 3. That the said documents were not shown to me until the registrations [ sic ] was approved by the office of SEC and the restaurant was opened for business; CTaIHE Hao also stated that as of 08 March 1998, he ceased being an owner of the said corporation, but on 12 February 1999, he received a letter from the Commission and found that "there was falsification of my nationality." 10 Likewise, Yuen Chu Wang, another incorporator of Queen Star, submitted her Affidavit dated 27 September 1999, which indicated that she is a Taiwanese .In the Affidavit, she stated that she submitted a photo-copy of her "Passport to Master Public Agency the bookkeeping agency that processed the Articles of Incorporation and By-Laws of the said corporation" and that she "was not aware, informed nor brief [ sic ]" by the said agency of the provision of R.A. 1180 as amended. 11 She added that when the corporation's "Auditor discovered the differences upon seeing the Certified Machine copy from SEC as compared with the Original Articles of Incorporation the Board immediately amended the primary purpose from restaurant to wholesale trading of general merchandise." They also amended the name of the corporation to its present name, "to correct all error and avoid technical violations." 12 On 16 September 2003, EPD referred the matter to the Office of the General Counsel (OGC) of the Commission. In a Memorandum to EPD dated 08 July 2004, 13 OGC opined that the violation committed by Queen Star was not cured by the amendment of its articles of incorporation, the transgression being already a fait accompli. OGC added that the violation of the company in itself calls for the imposition of the consequent penalty even if corrective measures were already undertaken by the company . Citing the Foreign Investments Act 14 and the Anti-Dummy Law, 15 OGC pointed out that penalties can be imposed for such violations at any one instance. In addition, in a letter dated 22 January 2008 to the EPD, the Chief of the Alien Registration Division of the Bureau of Immigration confirmed that Hao, Yeen Din Norman, Male, is a British national ,a Permanent Resident under Section 13 (E) and was issued Alien Certificate of Registration Identity Card dated 16 October 2007, and Immigrant Certificate of Residence dated 12 December 1976; while Wang, Yueh Chun, Female, is a Chinese national, a Permanent Resident under RA 7919 and was issued Alien Certificate of Registration Identity Card dated 12 April 2007 and Immigrant Certificate of Residence dated 14 November 1997. 16 ECTAHc A Notice of Conference (NC) dated 05 October 2006 was sent to Queen Star by the Company Registration and Monitoring Department (CRMD) of the Commission, clearly reminding the corporation that it has failed to file its General Information Sheet for the period 2001-2006 and Financial Statements for the period 2001-2005. The NC also informed Queen Star that under Section 5 (m) of the Securities Regulation Code (SRC) 17 and Section 6 (i) of Presidential Decree No. 902-A, as amended, the Commission has the power to suspend or revoke the Certificate of Registration of any corporation on any of the following grounds: 1. Continuous inoperation for a period of at least five (5) years; ...; 2. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period. The CRMD directed the President and the Corporate Secretary of Queen Star to appear at a conference at the CRMD office on 09 November, and bring the corporation's General Information Sheet (GIS) for the period 2001-2006 and Financial Statements (FS) for period 2001-2005, and show cause why its Certificate of Incorporation should not be revoked. However, records show that Queen Star has not responded. The Order of the Commission dated 04 April 2008, directing Queen Star to file its Answer to EPD's Petition, sent to the corporation by registered mail, to its principal office address at 4th Floor, Robinson's Place M. Adriatico Ermita, Manila, was stamped with "Return to Sender Unclaimed." 18 In addition, the Order dated 04 April 2008 sent to Queen Star has the notation "No longer occupying this address" dated 11 April 2008. 19 The Commission issued another Order dated 25 June 2008 directing Yueh Chu Wang, an incorporator, and who, in 2000 was President and Chairperson of the Board, to file an Answer to the Petition 20 which was sent to her address indicated in the AOI. 21 The envelope containing the Order and all the other pertinent documents was returned, stamped with: "Moved, Left No Address." 22 The same 25 June 2008 Order was not sent to the address of the Board of Directors indicated in the latest General Information Sheet (GIS), i.e. ,Level 4, Robinson's Place, Manila, M. Adriatico St.,Ermita, Manila, because the said address was no longer occupied per note on the 04 April 2008 Order. 23 The same Order, dated 25 June 2008 was also sent to the incorporators, Danilo, Norman, Antonio, and Roland all surnamed Hao, who filed their Answer 24 dated 05 August 2008, where they prayed that they be excluded as parties in this case. They admitted being incorporators and former shareholders of Queen Star, but since they have transferred their shares in the corporation via Deeds of Sale and Assignment, they are no longer directors or shareholders of the same, who will stand to be benefited or prejudiced by whatever action, may be taken in the case. 25 aACHDS Regarding the inconsistency between Norman Hao's citizenship in the AOI and the Deed of Sale and Assignment, he alleged that he personally reviewed the AOI prior to affixing his signature thereto, and he did not see that his citizenship was indicated therein as Filipino. Accordingly it was only after the registration papers were approved that the Respondents Hao discovered the irregularities surrounding the registration of the corporation, including what they referred to as the unauthorized change in the respondent Norman Hao's citizenship in the AOI. 26 ISSUE Whether or not the certification of registration of Queen Star should be revoked based on Section 6 par. i (1) and (6) of Presidential Decree No. 902-A. RULING The petition is meritorious. On the issue of fraud, under Section 6 par. i (1) of P.D. 902-A, the OGC has already opined on 08 July 2004 that "that the violation committed by Queen Star was not cured by the amendment of its articles of incorporation, the transgression being already a fait accompli." As narrated above, documents reveal that Queen Star violated the following laws: 1) R.A. No. 1180 [An Act To Regulate The Retail Business (1954)], 27 the applicable law at the time of its incorporation, 28 which provides in part: "Section 1. No person who is not a citizen of the Philippines ,and no association, partnership, or corporation the capital of which is not wholly owned by citizens of the Philippines, shall engage directly or indirectly in the retail business ...;" (Emphasis ours) 2) Republic Act No. 7042 (1991), as amended by Republic Act No. 8179 (1996) (Foreign Investments Act), which provides: Section 7. Foreign Investments in Domestic Market Enterprises. Non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited by existing law ....(Emphasis ours) The Commission has the power, under SRC Section 5.1 (m) of the Securities Regulation Code (SRC) 29 to suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law. Therefore, the Commission may revoke the registration of Queen Star based on Section 6, par. i (1) and par. i (6) of P.D. 902-A which provides: cAEaSC SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx (l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: 1. Fraud in procuring its certificate of registration; xxx xxx xxx 6. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period; To find out the existence of fraud in the procurement of its certificate of registration, a determination of what constitutes fraud must first be made. In the case of Spouses Prisco, Jr. and Alice Cal vs. Mariano A. Zosa, et al., 30 the Supreme Court clarified that: Fraud is of two kinds: actual or constructive. Actual or positive fraud proceeds from an intentional deception practiced by means of the misrepresentation or concealment of a material fact. Constructive fraud is construed as a fraud because of its detrimental effect upon public interests and public or private confidence, even though the act is not done with an actual design to commit positive fraud or injury upon other persons. In actual fraud, there must be the element of deceit or intentional deception; it includes the intentional and successful employment of cunning, deception, or schemes to cheat, circumvent, or deceive another. In constructive fraud, otherwise known as legal fraud, the act is done or omitted, which in the contemplation of the courts and tribunals is a fraud because of its detrimental effect on public interests, even though the act is not done with an actual intent to perpetrate fraud or injury upon another. Constructive fraud generally involves a mere mistake of fact. It does not require dishonesty nor intent to deceive, it is contemplated by law as a fraud, irrespective of the moral guilt of the wrongdoer, because of its tendency to deceive others, to injure the public interests, or to violate public or private confidence. Thus, in certain cases, fraud exists where there is a misrepresentation made even without knowledge of falsity. In short, constructive fraud may result from reckless and heedless representations although they are not made with a deliberate intent to deceive. 31 EcHIDT In the case of Mygame.ph, Inc., the Commission has explicitly stated that "fraud" as used in Section 6, paragraph i (1) of P.D. 902-A includes constructive or legal fraud, and not just actual or moral fraud. The subject provision is not concerned with a crime or felony. And thus, criminal intent or intent to deceive is not essential. 32 In the case of Charyn Marketing Enterprise Corporation , 33 the Commission pronounced that, fraud mentioned in Section 6 par. i (1) of P. D. 902-A as one of the grounds for the revocation of a certificate of registration of a corporation, partnership or association refers to fraud attendant in the registration of the corporation, partnership or association and the same must be contained or connected with the documents or papers presented to the Commission for the registration of the same. Section 14 of the Corporation Code 34 provides: SECTION 14. Contents of the articles of incorporation. All corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and acknowledged by all of the incorporators , containing substantially the following matters, except as otherwise prescribed by this Code or by special law: . . . 5. The names, nationalities and residences of the incorporators; ...(Emphasis ours) The AOI of Queen Star (Hua Cheng Hot Pot Seafoods Restaurant Corporation at the time of incorporation), duly signed and acknowledged by all of the incorporators before a Notary Public on 28 August 1997, unmistakably shows that the nationalities of all the incorporators are Filipinos, which was later proven to be false statements. It was only on 24 February 1999, when Queen Star filed its Deeds of Sale and Assignment, wherein Rolando Hao, Norman Hao, Antonio S. Hao and Danilo Hao assigned their shares, that the true nationality of Norman Hao as a British national surfaced. Yeuh Chu Wang, another incorporator, admitted in an Affidavit dated 27 September 1999 that she is a Taiwanese. The confirmation letter from the Bureau of Immigration that indeed, Norman Hao is a British national and Yeuh Chu Wang is a Chinese national removed all doubts as to the citizenship of the two incorporators. The Republic Act No. 1180 (the Retail Trading Law) and Republic Act No. 7042 (the Foreign Investments Act), as amended, which were the applicable laws at the time of its incorporation in 1997, both prohibit non-Filipino citizens to engage in the retail business. The Commission approved the registration of Hua Cheng Hot Pot Seafoods Restaurant Corporation ( amended as "Queen Star Corporation" in 1999),even if its primary purpose was to engage in the restaurant business on wholesale/ retail basis, because it relied on the representations of the incorporators that the citizenship of all the incorporators were indicated as "Filipino" in the AOI, which were proven later as false statements. Thus, Queen Star could not then engage in the retail business, because despite the indication in the AOI that all the incorporators were Filipinos, two of its incorporators were actually non-Filipinos at the time of its incorporation. The act of amending the AOI by changing the purpose of the corporation after the fait accompli ,can no longer cure the defect which occurred during incorporation. Had the Commission known the defect, it would not have issued the certificate of registration of the company. AaSCTD In sum, constructive or legal fraud was present at the time of the registration of Queen Star, which was contained or connected with the documents or papers presented to the Commission for the registration of the same. This is a ground for revocation of its certificate of registration, under Section 6, par. i (1) of P.D. 902-A. The allegation of Norman Hao that he had no intention nor knowledge that his nationality was written as "Filipino" when in fact he is a British national is of no moment, because criminal intent or intent to deceive is not essential in constructive fraud. Moreover, this claim is self-serving and unsubstantiated. Norman Hao's claim that no one advised him of the Retail Trading Law which prohibits non-Filipinos from engaging in the retail trade, is not a valid defense that would save Queen Star from revocation, applying the legal maxim that "Ignorance of the law excuses no one from compliance therewith." 35 Moreover, in a Memorandum dated 12 December 2011, 36 Director Benito A. Cataran of the Company Registration and Monitoring Department confirmed that per verification with the Commission's data base, Queen Star's latest General Information Sheet was for the year 2000, and the status of the subject corporation is revoked. Queen Star was included in the Revocation Order dated 15 April 2009 published on 25 April 2009, and said Order has become final and executory thirty (30) days after publication. WHEREFORE, premises considered, the REVOCATION of the Certificate of Registration of Queen Star Corporation (formerly Hua Cheng Hot Pot Seafoods Restaurant Corporation ), with Company Registration No. A1997-18142, is hereby CONFIRMED based on the grounds provided under Section 6 (i) (pars. 1 and 6) of Presidential Decree 902-A, as amended. Queen Star Corporation is hereby being DISQUALIFIED from filing a Petition to Set Aside the Revocation Order dated 15 April 2009. SO ORDERED. Mandaluyong City, February 9, 2012. cHaCAS (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner Footnotes 1. Record, p. 76, Certificate of Incorporation dated 26 September 1997. 2. Record, p. 75, Articles of Incorporation Article II dated 26 September 1997. 3. Record, p. 23 Petition dated 31 March 2008, Annex "A". 4. Record, p. 19, Id. ,Annex "B". 5. Record, p. 18, Id. ,Annex "B". 6. Copies of the Deeds of Sale and Assignment were attached to the Petition as Annexes "C" to "C-3." Except for the Deed of Assignment between Antonio S. Hao and Felicitas D. Uy (Annex "C-3"),which does not bear any date, all the other Deeds of Assignment are dated 08 March 1998. 7. Record, p. 11, In the Deed of Assignment, this is spelled as "Manglallan." 8. Record, p. 11, Petition dated 31 March 2008, Annex "C-2." 9. Id. ,Annex "D." 10. Record, p. 6, Id. ,Annex "E" Norman Hao's Affidavit dated 29 September 1999. 11. Record, p. 5, Id. ,Annex "F" Yueh Chu Wang's Affidavit dated 27 September 1999 pars. 2 & 3. 12. Record, p. 5, Id. ,Annex "F" Yueh Chu Wang's Affidavit dated 27 September 1999 pars. 2 & 3. 13. Record, p. 4, Id. ,Annex "G." 14. Republic Act No. 7042 (Foreign Investments Act of 1991). 15. Commonwealth Act No. 108 approved October 30, 1936. 16. Record, p. 2, Id. Annex "H". 17. Republic Act 8799 (2000). 18. Record, p. 33. 19. Record p. 32. 20. President and Chairperson of the Board as indicated in the latest General Information Sheet (GIS) filed by Queen Star for the year 2000, Record, p. 112. 21. 18-D Avelino Street, Tambo, Bay Village, Paraaque City, Record, p. 77. 22. Record, p. 48. 23. Supra ,note 19. 24. Record, p. 62. 25. Record, p. 60. 26. Record, p. 59. 27. Approved and effective June 19, 1954. 28. This was amended by Section 13 of Republic Act No. 8762 the "Retail Trade Liberalization Act of 2000." 29. Republic Act 8799 (2000). 30. G.R. No. 152518, July 31, 2006, citing Heirs of Roxas v. Court of Appeals, G.R. No. 118436, March 21, 1997, 270 SCRA 309. 31. Mygame.ph Inc. SEC Adm. Case No. 05-09-106 citing 37 Am Jur 2d, Fraud and Deceit 4. 32. Id. 33. In the Matter of Charyn Marketing Enterprise Corporation, SEC Case No. 03-05-49. 34. Batas Pambansa Blg. 68 (May 1, 1980). 35. Article 3 of the Civil Code, Republic Act No. 386 (1950). 36. Record, pp. 118-119.