Corporation of Eastern Rizal Transport, Inc.

August 17, 1984 Corporation of Eastern Rizal Transport, Inc. 1012 Chico St., Saint Anthony Subd. Cainta, Rizal Attention : Atty . Jose F . Maacop Corporate Secretary Sir : This has reference to your letter dated March 21, 1984, requesting for the opinion of this Commission on the query posed therein. It appears therein that the Corporation of Eastern Rizal Transport, Inc. (CERT) is engaged in the transportation business and has a capital stock of P3,000,000.00 of which P1,000,000.00 has been subscribed and paid-up. llcd Due to business requirements, CERT would like to issue the remaining unissued shares of the corporation in the amount of P2,000,000.00. Only the De Guia Enterprises, Inc., one of CERT's stockholders, responded to the call for the infusion of more capital although it requested that it be allowed to use its own passenger buses in paying for the unissued shares. Aside from being a stockholder of CERT, Inc., the De Guia Enterprises, Inc. has its own fleet of buses which it operates as passenger buses known as the G Liner. Pursuant to its program of rationalizing the transport system in Metro Manila, the government under LOI No. 1343, has required the De Guia Enterprises, Inc. to join a bus consortium, which is CERT, Inc. It further appears that during a meeting of the board of directors of CERT, INC., the issue arose on whether the act of the De Guia Enterprises, Inc. in joining CERT, Inc. as required by the government by subscribing to the unissued shares of CERT, Inc., is a merger or consolidation which would require the consent of the qualified majority of the stockholders of CERT, Inc. You now request for the opinion of this Commission on the matter. In a previous opinion, this Commission has ruled that: "Mergers as actually observed and practised in the Philippines necessitate a transfer of all assets and the assumption of the debts and liabilities of the absorbed corporation by the acquiring corporation followed by a separate act on the part of the absorbed corporation of dissolving itself generally by amendment of its articles of incorporation shortening its term of existence . In return for the transfer of all the assets and assumption of the liabilities of the absorbed corporation (the latter with the consent of the creditors), the acquiring entity issues a block of shares equal to the net asset value transferred, which stocks are in turn distributed to the stockholders of the absorbed corporation." ( Ltr. to Southern Marketing Corp. dtd. Nov. 9, 1961 , emphasis supplied) From the aforequoted opinion, it is clear, therefore, that the mere act of the De Guia Enterprises, Inc. in subscribing to the shares of CERT, does not amount to a merger without the concurrent transfer by the former of all of its assets and the assumption of all of its debts by the latter coupled with the dissolution of the former, by means of amendment of its articles of incorporation shortening the term of existence. "Where there is a mere sale or transfer of the assets to another corporation, a new corporation is not created, and the respective companies still remain distinct legal entities,." (Fletcher's p. 20 citing St. Louis & S.F.R Co. v. Cross, 171 Fed. 480) Finally, please be informed that under Section 6(a) 11 of the Revised Securities Act, "any issuance of any security by a public utility or service corporation which, in compliance with or pursuant to law, regulation or decree, is intended to broaden its equity base as well as to finance a part of the capital investment thereof through the issuance and sale of stocks" constitutes an exempt transaction. Accordingly, the requirement of registration under Section 4(a) of said Act shall not apply to the sale of security in such transaction. Please be advised accordingly. prcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman