Rural Bank of Mabalacat Inc.

March 20, 1996 Rural Bank of Mabalacat Inc. Mabalacat, Pampanga Attention : Mr . Filoteo C . Manabat Corporate Secretary S i r : This refers to your letter dated March 1, 1996, which was received by this Commission on March 18, 1996, requesting opinion on the queries posed therein. LibLex As stated, Land Bank of the Philippines (LBP) owns preferred shares in the Rural Bank of Mabalacat, Inc. amounting to P1,500,000.00, and as such, it is supposed to be represented in its Board of Directors. Inasmuch as the membership of the Board of the Bank is presently composed of only nine (9) you would like to request for opinion on the following queries: 1. To accommodate one (1) director as LBP representative, would it be necessary for the Rural Bank of Mabalacat, Inc. to amend its Articles of Incorporation? 2. Would it be sufficient to just pass a resolution electing/appointing the LBP representative as a non-voting Ex-Officio director, without amending the Articles of Incorporation? RA No. 7353, otherwise known as the Rural Bank Act of 1992, provides: "SECTION 8. . . . Stocks held by the Land Bank of the Philippines, the Development Bank of the Philippines or by any government owned or controlled bank or financial institutions, under the terms of this section, shall be made preferred only as to assets upon liquidation and without the power to vote . . .. " The above provision is explicit that preferred shares owned by LBP are "non-voting". Such being the case, LBP cannot participate in the corporate management of the Bank, and, consequently, its representative cannot be elected as a " regular Director " inasmuch as the members of the Board are elected as such purposely to participate in the management of the corporate affairs. However, the representative of LBP may be appointed by the regular Board as an "ex officio member", without any voting right. In such a case, there is no need to amend the articles of incorporation, as the status of ''ex-officio member" of the Board is only an "honorary member", whose rule would be to act as mere adviser or observer during Board meetings. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner