Mr. Victor Africa

November 6, 1990 Mr. Victor Africa Oceanic Wireless Network, Inc. Telecoms Plaza, 316 Gil J. Puyat Ave. Salcedo Village, Makati Metro Manila S i r : This refers to your letters relative to the inclusion of some members of the Presidential Commission on Good Government (PCGG) to the Board of Directors of Oceanic Wireless Network, Inc. (OWNI),wherein you raised the following issues; cdlex 1. Installation of PCGG representatives in the Board of Directors of OWNI who are not registered stockholders of the corporation; and 2. Issuance of qualifying shares to the PCGG representatives in the Board from the unissued capital stocks of the corporation. Claiming that under PD 902-A, as amended, the SEC has jurisdiction, supervision and control over all corporations, you request SEC's intervention on the matter to avoid adverse effects on the operation of OWNI. Relative to the first issue, Section 23 of the Corporation Code expressly provides that "every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which shall stand in his name on the books of the corporation". However, under the Case entitled: Bataan Shipyard & Engineering Co., Inc. (BASECO) versus Presidential Commission on Good Government, Chairman Jovito Salonga, Commissioner Mary Conception Bautista, Commissioner Ramon Diaz, Commissioner Raul R. Daza, Commissioner Quintin S. Doromal, Captain Jorge B. Siacunco, et al., G.R. No. 75885, May 27, 1987., the Supreme Court ruled that the PCGG may properly exercise the prerogative to vote in sequestered stock corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. Said Memorandum authorizes the PCGG, pending the outcome of proceedings to determine the ownership of sequestered shares of stock, to vote such shares of stock as it may have sequestered in corporations at all stockholder's meeting called for the election of directors, etc. However, directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without adequate justification to vote the incumbent directors out of office and elect others in their stead. (G.R. No. 75885, May 27, 1987) Regarding the alleged directive of the PCGG to issue qualifying shares of the unissued capital of the corporation, Section 62 of the Corporation Code provides that "stocks shall not be issued for a consideration less than par or issued price thereof. . . .". Shares of stock, therefore, cannot be issued by a corporation under the agreement that nothing at all shall be paid for the corporation for this would result in "watering of shares". Thus, assuming that there is already a Sequestration Order, the qualifying shares should not come from the "Unissued" capital, but from the "issued" shares owned by the stockholders whose shares have been sequestered and shall be transferred to the nominees only for the purpose of qualifying them to vote and be voted for as directors. Anent your request for SEC's intervention, please be advised that while under PD 902-A, as amended, the SEC has the original and exclusive jurisdiction to heal and decide cases involving controversies in the election of directors/officers of corporations, it is not clothed with the power to enjoin the PCGG from installing government representatives in the Board of Directors of sequestered corporations. Likewise, taking into consideration that the party involved is a Government Agency, the Commission, in its meeting on October 31, 1990, resolved not to intervene on the matter: However, it is advised that should you believe you have a cause of action against the PCGG, you may file your protest or objection before the Sandiganbayan which, under Executive Order No. 14 dated May 7, 1986, has jurisdiction over sequestration cases filed by the PCGG pursuant to Executive Order Nos. 1 and 2. (SGD.) GONZALO T. SANTOS, JR. Associate Commissioner