SEC Jurisdiction Over Government-Owned Corporations: The PNCC Case

The Supreme Court's 1999 ruling in Philippine National Construction Corporation v. Pabion settled a recurring question in Philippine corporate law: does the Securities and Exchange Commission (SEC) have jurisdiction over corporations owned or controlled by the government? The case clarifies that the SEC's authority depends on how the corporation was created, not merely on who owns its shares.

The Dispute

Private stockholders of the Philippine National Construction Corporation (PNCC) filed a petition with the SEC in 1994, alleging that the company had not held a stockholders' meeting since 1982 to elect its board of directors. This meant directors held office well beyond their one-year term, contrary to the corporation's by-laws and the Corporation Code.

PNCC resisted, arguing that it was a government-owned and controlled corporation (GOCC) whose directors were appointed by the President of the Philippines, not elected by stockholders. It cited Administrative Order No. 59, which governed the organizational management of GOCCs and provided for presidential appointment of their governing boards.

The SEC's Authority

The SEC ordered PNCC to call a special stockholders' meeting for the purpose of electing directors. PNCC challenged this order, questioning whether the SEC even had jurisdiction over a corporation it claimed was a GOCC.

The Supreme Court rejected PNCC's position. The Court held that the SEC can determine whether a corporation is a GOCC as an incident of its jurisdiction over intra-corporate controversies. The President does not which is excluded from the GOCC definition under Administrative Order No. 59.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.