Agcaoili & Associates

August 10, 1984 Agcaoili & Associates 18th Floor, Citibank Center Paseo de Roxas, Makati Metro Manila Attention : Atty . Antonio V . Agcaoili Gentlemen: This refers to your letter dated August 8, 1984 requesting for clarification on the following points relative to the Commission's opinion dated July 24, 1984: 1. Whether or not Radiowealth Finance Company (RFC) can immediately engage in direct lending without amending its articles of incorporation; and 2. Whether or not RFC can engage in direct lending if and when it so amends its articles of incorporation, without any further authorization by the SEC. Section 148 of the Corporation Code of the Philippines provides that existing corporation affected by the requirements of the Code are given a period of two (2) years from its effectivity (May 1, 1980) within which to comply with the same. The Commission, in several opinions has ruled that if a corporation does not file an amendment to its articles of incorporation on or before May 1, 1982, the Commission will consider the requirement as written into the articles of incorporation on May 1, 1980 (SEC opinion dated April 26, 1982). Thus, the Commission has to consider the requirement under Section 14 of the Corporation Code as written thereto, thereby making "direct lending" as one of the secondary purposes of the corporation. However, to enable the corporation to engage in any of its secondary purposes, it is necessary that the procedure laid down in Section 42 of the Corporation Code should be complied with. The law provides, thus: "SECTION 42. Power to invest corporate funds in another corporation or business or for any other purpose . Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock , or by at least two-thirds (2/3) of the members in the case of non-stock corporations, at a stockholders or members' meeting duly called for the purpose. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid or served personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: . . . ." (Emphasis supplied) Moreover, it is to be noted that under Section 2B * of the General Banking Act (R.A. 337, as amended), "financial intermediaries" are subject to the regulation by the Central Bank of the Philippines. The law provides, thus: "SECTION 2.B * . The operation and activities of non-bank financial intermediaries ,except insurance companies, shall be subject to regulation by the Monetary Board ...." (Emphasis supplied) Considering that in the enumeration of non-banking financial intermediaries in Section 4101 Q.1 of the Manual of Regulations for banks and other Financial Intermediaries of the Central Bank, "lending investor" is included, the instant case is therefore subject to prior approval by the Central Bank of the Philippines. The Manual provides, to wit: "Non-banking financial intermediaries shall include the following: (a) A person or entity licensed and/or registered with any government regulatory body as a non-bank financial intermediary, such as investment house, investment company, financing company, securities dealer/broker lending investor ,pawnshop, money broker, fund manager, cooperative, insurance company, non-stock savings and loan association and building and loan association." (Emphasis supplied) Thus, to enable the corporation to engage in "direct lending", Section 42 of the Corporation Code must be complied with and prior authority/license from the Central Bank must first be secured. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .