Atty. Waldo Q. Flores

December 22, 1995 Atty. Waldo Q. Flores Philippine National Bank PNB Financial Center, Roxas Blvd., Pasay City S i r : This refers to your letter dated December 12, 1995 requesting for opinions on the four (4) queries posed therein relative to the privatization of Philippine National Bank (PNB) as mandated under Section 6 of Executive Order No. 80 (1986 Revised PNB Charter) which provides as follows: "SECTION 6. CHANGE IN OWNERSHIP of the Majority of the Voting Equity of the Bank . When the ownership of the majority of the issued common voting shares passes to private investors, the shareholders shall cause the adoption and registration with the Securities and Exchange Commission of the appropriate Articles of Incorporation and revised by-laws within three (3) months from such transfer of ownership. Upon the issuance of the certificate of incorporation under the provisions of the Corporation Code, this Charter shall cease to have force and effect , and shall be deemed repealed . Any special privileges granted to the Bank such as the authority to act as official government depository, or restrictions imposed upon the Bank shall be withdrawn, and the Bank shall thereafter be considered a privately organized bank subject to the laws and regulations generally applicable to private banks. The bank shall likewise cease to be a government owned or controlled corporation subject to the coverage or service-wide agencies such as the Commission on Audit and the Civil Service Commission. The fact of the CHANGE OF THE NATURE of the Bank from a government-owned and controlled financial institution to a privately-owned entity shall be given publicity." (Emphasis supplied) PNB's tranche public offering is presently ongoing. This third offering will reduce the government's stake in the Bank to 45.8%, thus, increasing private investors' ownership to 54.2%. Accordingly, the above-quoted provision of the PNB Charter will come into operation resulting in PNB's filing of Articles of Incorporation and By-laws under the provisions of the Corporation Code. Your queries are as follows: 1. Will the change in ownership of the majority of the shares of stock of PNB from the National Government to private stockholders have the effect of dissolving the old PNB and creating a new PNB, without the old PNB actually going through the process of dissolution, or is it the case that there is continuity in the existence of PNB, the only effect of its filing of Articles of Incorporation and By-laws with the Securities and Exchange Commission (SEC) being that E.O. No. 80 shall cease to have force and effect and shall be deemed repealed and the Bank shall thereafter be considered a privately organized bank subject to the laws and regulations generally applicable to private banks? 2. Can the privatized PNB continue its business under the same business name (i.e. "Philippine National Bank")? 3. Will the reckoning date for the privatized PNB's 50-year corporate life under the Articles of Incorporation which will be filed with the SEC be the date of the approval of said Articles by the SEC? 4. When will PNB cease to fall within the coverage of the Commission on Audit and the Civil Service Commission, upon the transfer of the majority of the Bank's equity to private investors, or upon the issuance by the SEC of a Certificate of Incorporation in favor of PNB? Corollary to this, when will the special privileges granted to PNB and the restrictions imposed upon it as a government-owned bank be considered withdrawn? The aforecited provision speaks of " change of ownership " or " change of nature " of the PNB from government-owned and controlled to a privately-owned financial institution. The intention of E.O. No. 80 therefore is not to dissolve the corporation but merely to transfer government ownership to private investors. It is a basic corporate principle that the continued existence of a "corporation" is not affected by any change of its ownership as a consequence of transfer of shares by a stockholder to third persons. The phrase in the provisions stating that the PNB Charter " shall be deemed repealed " upon the issuance of the certificate of incorporation under the provision of the Corporation Code does not in itself cause the dissolution of PNB. The repeal, in effect, only makes PNB subject to the provisions of the Corporation Code after its registration with the SEC, thereby effectively preventing an interruption in its corporate existence. Since PNB was created by legislative fiat, the SEC has no jurisdiction to dissolve the same. It is to be noted that the operation of PNB is vested with public interest as its shares of stock are listed in the Philippine Stock Exchange. Its dissolution would only result to disorder, confusion and embarrassment and may endanger the rights and interests of those dealing with the corporation, if the legality of its existence could be drawn in question. There would be a possibility that several investors, instead of remaining as stockholders in the new corporation, might demand for the liquidation of the corporate assets, since the existing stockholders of a dissolved corporation are entitled, as a matter of right, to his proportionate share in the assets of a dissolved corporation. Consequently, there would be tax implications and corresponding transfer of certificates of titles. Registration with the SEC would require an individual deed of assignment from each stockholder before the corporate assets of the dissolved corporation can be transferred to the new corporation. This registration requirement would be very difficult to comply with taking into consideration the huge number of existing stockholders of PNB. To resolve the issue in favor of its dissolution may thus lead to adverse economic consequences. It is a settled principle in statutory construction that interpretations of laws are not always to be hedged in by the literal meaning of the language of the statute; the spirit and intent thereof must prevail over its letter, especially where the adherence to the latter would result in absurdity and injustice (Alcantara, Statutes, Sec. 31, citing several cases) In other words, where the literal import of the language of a statute is not consistent with the legislative intent or where a literal construction would lead to absurd result, the words of the statute will be modified by the legislative intent. (Martin, Statutory Construction, citing 2 Sutherland, Stat. Const. 3d. ed. pp. 333-334) In the light of the foregoing, it is opined that the transfer of the ownership of PNB from the National Government to private investors does not in any way affect the identity or existence of PNB and its subsequent registration with the SEC pursuant to the mandate of E.O. No. 80 does not result in its dissolution nor in the creation of a new corporation, and consequently, the privatized PNB can continue its business under the same corporate name. Regarding your third query, the maximum 50-year term of existence under the Corporation Code shall be reckoned from the issuance of the certificate of registration by the SEC. In order to avoid confusion, it is suggested that since there is a continuity in the existence of the old PNB, the provisions of its Articles of Incorporation relative to its term of existence should read as follows: " That the corporation shall continue to exist for fifty (50) years from and after the date of issuance of the certificate of incorporation under the Corporation Code ." Further, it is suggested that in the prefatory clause of the Articles of Incorporation to be filed with the SEC, a manifestation stating that the registration of the Articles of Incorporation of PNB under the Corporation Code is in pursuance to Section 6 of the Executive Order No. 80, should be clearly indicated therein. Such a proviso is an indication that the PNB registered under the Corporation Code is the same PNB previously governed by E.O. No. 80. Relative to the last query, please be advised that the issue raised therein is not within the jurisdiction of the SEC to resolve. It is therefore suggested that you refer the matter to the appropriate government agency. Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Acting Chairman