Kuehne & Nagel (Philippines), Inc.

March 3, 1988 Kuehne & Nagel (Philippines),Inc. 2nd Flr.,Philcox Building Domestic Road, Pasay City Metro Manila Gentlemen : This refers to your letter, dated February 9, 1988, requesting the opinion of this Commission on the query posed therein. It appears that Kuehne & Nagel (Philippines), Inc. has an authorized capital stock of 5,000,000 divided into 30,000 Class a common shares and 20,000 Class B common shares, both of the par value of P100.00 each. All shares of common stock, whether Class A or B enjoy the same rights and privileges, except that only individual, partnership, corporations or associations who are deemed to be Philippine citizens or nationals within the purview of the Constitution and other statutes shall be qualified to acquire Class A common shares. LexLib As declared in your letter, the equity of the corporation is owned as follows: Stockholders No. of shares Paid-Up Subscribed Honesto M. Raquipizo 25,001 P100. Class A & B Kuehne & Nagel (Far East) 14,995 Class B 1,499,500. Pedro Aguilar 10,000 Class A - Cesar Catalan 1 Class B 100. Renato Magadia 1 Class B 100. Klaus Herms 1 Class B 100. Uwe Hesse 1 Class B 100. 50,000 P1,500,000. ====== ========= As alleged in your letter, Kuehne & Nagel (Philippines),Inc. is a holder of an authority to operate as an international and domestic air freight forwarder issued by the Civil Aeronautics Board. You have received a report that the C.A.B. has adopted a policy that only Filipino owned corporations are qualified to operate as an air freight forwarder. Hence, your query is, has the company lost is Filipino nationality considering that its Filipino stockholders merely hold .02% of its paid-up capital stock? Or, has it remained a Filipino corporation inasmuch as Filipinos control 60% of its subscribed capital stock? Republic Act No. 776, otherwise known as "the Civil Aeronautics Act of the Philippines" defines "citizen of the Philippines" as: "(a) an individual who is a citizen of the Philippines or (b) a partnership of which each member is such an individual; or (c) a corporation or association created or organized under the laws of the Philippines of which the directing head and two-thirds or more of the Board of Directors and other managing officers are citizens of the Philippines, and in which sixty per centum of the voting interest is owned or controlled by persons who are citizens of the Philippines ." (Section 3, par. r, Chapter 11 * , R.A. 776). We believe that the phrase "sixty per centum of the voting interest" as used in the above law, in connection with the nationality requirement refers to the total voting shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares. Thus, 60% of the voting interest would refer to 60% of the number of the voting issued and outstanding shares of stock of a corporation. It is submitted that the purpose of the nationality requirement in Section 3(r) of RA 776 is to ensure that corporations engaged in international and domestic airfreight forwarding shall be controlled by citizens of the Philippines, such control to be effected through ownership by such citizens of at least 60% of the outstanding capital stock entitled to vote. As holders of at least 60% of the voting outstanding capital stock, the Filipino stockholders would have the power in their own right to elect a majority of the members of the board of directors, and, as a general rule, the position they adapt with respect to any matter submitted for stockholders' vote or approval would prevail. The foregoing position finds support in the SEC " Rules to Implement the Requirement of the Constitution and other Laws that the Controlling Interest in Enterprises Engaged in the Exploitation of Natural Resources shall be Owned by Filipino Citizens " which were issued by the Commission on February 28, 1967. Pursuant to said implementing rules, the percentage of ownership of citizens of the Philippines in corporations engaged in natural resources, at least 60% of the capital of which is required by the Constitution to be owned by such citizens, is determined by the proportion which the number of shares held by them bears to the outstanding capital stock. It is therefore our view with respect to nationality requirement for corporations covered by RA 776, that the 60% Filipino ownership requirement is complied with if at least 60% of the outstanding capital stock entitled to vote is owned by Filipinos. This view is further supported by Section 72 of the Corporation Code to the effect that "Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder". Considering that 60% of the outstanding capital stock of Kuehne & Nagel (Philippines), Inc. is owned by Filipino citizens, whose stocks enjoy equal voting rights, said corporation is deemed to be of Philippine nationality, notwithstanding the allegation that only 0.02% thereof have been paid by Filipino citizens. Anent thereto, "debts due to a corporation constitute a portion of its assets, and may be reached by creditors. Among these are unpaid subscriptions to stock." (Agbayani, Commercial Laws of the Phil., Vol. 3, 1984 ed., p. 457, citing Phil. Bank of Commerce v. Empire Motors Inc., (CA) 55 O.G. No. 50, p. 10413). "Consequently, an unpaid subscription is an asset to which corporate creditors look for payment, and they have the right to insist upon its collection in the same way as any other debt due the corporation." (Agbayani, Supra., citing Phil. Nat. Bank v. Bitulok Sawmill, Inc., G.R. No. L-24177-85; June 29, 1968). In addition, to qualify the corporation one of Philippine nationality under RA 776, the directing head of the corporation as well as 2/3 of the members of the Board of directors and other managing officers should be citizens of the Philippines. cdlex Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman * Copied verbatim from documents obtained directly from the Securities and Exchange Commission .