China Banking Corporation

March 18, 1991 China Banking Corporation Dasmarias, Corner Juan Luna Sts. M a n i l a Attention : Mr . Arsenio L . Lim, Jr . ( Vice-President & Corporate Secretary ) Gentlemen : This refers to your letter of February 18, 1991 requesting opinion on the query posed therein. LexLib As stated, on March 7, 1990, the Board of Directors of China Banking Corporation approved the increase of its capital stock from P500 Million to 1 Billion. On May 3, 1990, the Bank's stockholders likewise approved said proposed increase of capital stock. The stockholders of the Bank were given the preemptive right to subscribe to one (1) share at the par value of P100.00 each for every 2 3/4 share held or fraction thereof, payable as follows: 25% on or before September 30, 1990, the balance subject to call by the Board of Directors but payable in at least four (4) installments at interval of at least thirty (30) days each installment. Your query is, assuming that after the approval by the Central Bank and the Commission of said proposed increase of capital stock, the Bank has sufficient unrestricted retained earnings and the Bank declares cash dividend, may the Bank's Board provide that said dividend will be automatically applied to the partial and/or full payment of the unpaid subscriptions of the stockholders who exercised their preemptive rights and who have not fully paid as yet their respective subscriptions in accordance with a call for payment by the Board or even without making a call for such payment? The pertinent provision of the Corporation Code provides in part: "SECTION 43. Power to declare dividends . The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, that any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus cost and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid. ...." (Emphasis supplied) LibLex It is clear from the aforecited provision that when a corporation distributes cash dividends, the same cannot be withheld from the subscribers who have not fully paid their subscriptions unless they are delinquent on their unpaid subscriptions. The corporation may use the cash dividends to pay off stockholders' unpaid subscriptions which are not declared delinquent only if the stockholders concerned individually consent thereto. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner