Cooperatives not exempt from SRC

June 30, 2003 SEC OPINION NO. 35-03 Ms. Marietta B. Valleser 8917 San Judas Tadeo Street San Antonio Valley 2, Sucat Paraaque City SUBJECT : Cooperatives not exempt from S R C M a d a m : This refers to your request for opinion on the issue whether or not cooperatives are exempt from the provisions of the Securities Regulation Code (SRC). 1 Specifically, your query is premised on Article 62(8) of the Cooperative Code of the Philippines, 2 which provides: "(8) Any security issued by cooperatives shall be exempt from the provisions of the Securities Act provided such security shall not be speculative." We answer your query in the negative. Previously, securities issued by cooperative marketing associations are exempt from registration requirement. The exemption is pursuant to Section 5(a)(4) of the Revised Securities Act (RSA), 3 which reads: "SEC. 5. Exempt Securities . (a) Except as expressly provided, the "requirement of registration under Subsection (a) of Section four of this Act shall not apply to any of the following classes of securities: xxx xxx xxx (4) Any security issued by a building and loan association, non-stock savings and loan association, or similar institution, substantially all the business of which is confined to the making of loans to members but does not include any such security where the issuer takes from the total amount paid or deposited by the purchaser, by way of any fee, cash value, or other devise whatsoever, either upon termination of the investment or maturity or before maturity an aggregate amount its excess of three per centum (3%) of the face value of such security; or any security issued by rural credit associations or by cooperative marketing associations which are subject to regulation and supervision by the proper government agency ." However, the RSA was repealed in its entirety by the SRC 4 and the exemption accorded to cooperative marketing associations under Section 5(a)(4) of the RSA was not reproduced in the SRC. It is axiomatic that provisions of an old law, like RSA, that were not replicated in the revision thereof covering the same subject are deemed repealed and discarded. 5 It indicates the manifest intention of the legislature to suppress the exemption. Clearly, the exemption from registration requirement previously granted to cooperative marketing associations no longer exists. It may be argued that the Article 62(8) is a specific provision in the Cooperative Code which cannot be overruled by the SRC. We do not subscribe to that proposition. Article 62(8) of the Cooperative Code is inconsistent with the intent and purpose of the SRC, 6 hence, it is deemed repealed by the SRC. Statutes should be construed in the light of the objective to be achieved and the evil to be suppressed. 7 SRC was enacted to protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate fraudulent or manipulative devices and practices which create distortions in the free market. The primary means of accomplishing this goal is the disclosure of important financial information through registration of securities. In general, registration calls for a description of the company's properties and business, description of the security to be offered for sale, effect of the securities issue on the ownership and key points characterizing the risks of the offering. This information enables investors to make informed judgment whether to purchase a company's securities. cDAITS Without registration, SEC could not inquire into the qualification of securities and would not be able to regulate public distribution and trading of securities. Consequently, SEC could not protect the public from issuers of worthless securities and curb fraudulent transactions. In enacting the SRC, the legislature is presumed to have been aware of and have taken into account, prior laws on the subject of legislation including exemption privileges of cooperatives from the securities law. Congress cannot be said to have intended to leave in force provision of a prior law, like Article 62(8), which may thwart and overthrow the avowed purpose of the new law. 8 Please be guided accordingly. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. Republic Act No. 8799, which took effect on August 8, 2000. 2. Republic Act No. 6938, approved on March 10, 1990. 3. Batas Pambansa Blg. 178; Repealed in its entirety by R.A. 8799. 4. SEC. 76. Repealing Clause . The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its entirety , and Sections 2, 4 and 8 of Presidential Decree 902-A as amended, are hereby repealed . All other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are hereby repealed or modified accordingly. 5. Tung Chin Hui vs. Rodriguez , G.R. -137571, September 21, 2000. 6. SEC. 2. Declaration of State Policy . The state shall establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market , protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. 7. Intia Jr. vs. COA , G.R. -131529, April 30, 1999. 8. Bagatsing vs. Ramirez , G.R. -L-41631, December 17, 1976.