Re: Effectivity of the Merger

June 15, 2004 SEC OPINION NO. 36-04 Re: Effectivity of the Merger SGV & Co. 6760 Ayala Ave., 1226 Makati City Attention: Mr. Joel L. Tan-Torres Partner, Tax Division Gentlemen : This refers to your letter dated 03 December 2003 requesting confirmation on issues posed therein. Records show that on 11 September 2003 the Commission approved the merger of LHC Real Estate Philippines ("absorbed corporation" for brevity) and HFS Philippines, Inc. ("surviving corporation" for brevity). AcDHCS On 05 June 2003, the agreed cut-off date, the absorbed corporation has a net asset value of P5,042,179.00 and as stipulated therein, the stockholders of the absorbed corporation will receive P5,000,000.00 worth of shares (50,000 shares with a par value of P100 per share) from the surviving corporation which shall be divided in proportion to their stockholdings in the absorbed corporation. After 05 June 2003, while the merger application is pending for approval before the Commission, the absorbed corporation incurred losses from operations causing its net asset value to decline to P3,901,302.00. Hence, this letter-confirmation. Section 79 of the Corporation Code provides: "Where the Commission is satisfied that the merger or consolidation of the corporation concerned is not inconsistent with the provisions of this Code and existing laws, it shall issue a certificate of merger or of consolidation, as the case may be, at which time the merger or consolidation shall be effective" 2004cdtai Further, in the exercise of supervisory and regulatory functions over corporations and partnerships registered with the Commission, the Corporation Code should be given a reasonable or liberal construction which will best execute its purpose, even though such construction is not within its strict literal interpretation. A strict construction should not be permitted to defeat the policy and purpose of the Code. Therefore, " a literal interpretation is to be rejected if it would be unjust or lead to absurd results " ( Soriano v. Offshore Shipping and Manning Corp .177 SCRA 513, 519 (1989). EITcaD In this connection, the Supreme Court ruled that statutes should be construed in the light of the object to be achieved and the evil or mischief to be suppressed. ( LVN Pictures, Inc. v. Phil. Musicians Guild ,110 Phil. 725; People vs. Purisima ,G.R. No. 52050, Nov. 20, 1978, 86 SCRA 542 (1978); Commissioner of Internal Revenue v. Filipina Compania de Seguros ,107 Phil. 1055 (1960). It is worthy to mention that decisions of our courts have frequently enunciated the principle that the intent of the legislature will govern. Thus, the Corporation Code should be given a judicious, not stern and discordant interpretation, which will promote and uplift the development of trade relations and which will encourage friendly commercial intercourse among corporations provided that its primordial end (protection of public interests) is served. In the instant case, the Commission had passed upon the legality/validity of the Plan and the Articles of Merger executed between the surviving corporation and the absorbed corporation which provides that the cut-off date of the merger shall be on 05 June 2003, as agreed upon by the parties. Admittedly, the stipulated cut-off date shall be binding on the parties to the merger agreement. Consequently, we confirm your view that all transactions of the absorbed corporation and the surviving corporation shall be deemed for the account of the surviving corporation (HFS Philippines, Inc.) and that the net asset value of the absorbed corporation as of the cut-off date of 05 June 2003 will be controlling. HcACST It shall be understood that the opinion rendered is based solely on facts disclosed in the query and relevant solely to the particular issues raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases whether of similar or dissimilar circumstances. 1 Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel Footnotes 1. SEC Memorandum Circular No. 15 (2003).