Opinion No. 24-14 Re: Inspection Rights of Shareholders

Exchange Securities and Commission

BACONG PILIPINAS

OFFICE OF THE GENERAL COUNSEL

21 May 2024

SEC OGC Opinion No.24-14 Re: Inspection Rights of Shareholders

3rd Flr,CIFC Tower,Juan Luna Ave.Extension MR.ARIEL CONDAT Corporate Secretary, Flexi Finance Asia, Inc. Cebu City,Central Visayas Philippines

Dear Sir:

an opinion on inspection of corporate books and records. This refers to your letter requesting,on behalf of Flexi Finance Asia, Inc.(FFAI or Corporation,for

inspection of the following records and documents of the corporation: In your letter,you stated that Mr. Ronnie Katona,one of the shareholders of FFAI,demanded for the

C. d e D G Detailed accounting books and information (Including Journal, Balance Sheet, P/L for the years Articles of Incorporation, By-Laws, and Stock and Transfer Book Auditors Report 2016-2018; Contracts with current directors and officers and past directors or officers including Board Resolutions Company valid procedures and policies; 2016-2019;

h D Contracts with Supplies; Contracts with Employees independent directors;

K Contracts with Customers (Soft Copies) Organizational Structure and Corporate Governance Read-only access to database of customers,employees,and accounting records;

A. n. p. T S. 0 Report on the status of cash in HQ and other subsidiaries where cash is stored regularly Originals of Bank Account statements of all corporate bank accounts; Archives with hard copies of the customer's agreements; Risk reports with credit policy events; Detailed collection performance reports; Cash Flow Reports; Sales Reports Tax Returns since 2016

I S List of Open Legal Cases with its statuses;and Status of Existing Credit Lines.

Property Code of the Philippines as amended and the Data Privacy Act of 2012.Moreover,you averred that you asked Mr. Katona the justifications for his request but he only gave sweeping general grounds (i.e., to that it covers areas that are not allowed to be disclosed pursuant to relevant laws such as the Intellectual You further stated that the list of documents Mr. Katona requested is, to your opinion,so extensive

www.sec.gov.ph |imessagemo@sec.gov.ph Dated 05 December 2019. The SEC Headquarters7907 Makati Avenue +63 253227696 Salcedo Village,Be-air,Makati City INVESTORS We invest in peopl PEOPLE

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ensure that the documents requested are in accordance with the by-laws and the laws of the country.

inspection and if the reasons he gave for inspection are sufficient. Your query is, whether the documents requested by Mr. Katona are covered by the right to

render an opinion on: (a) litigious issues which may eventually be litigated in the future in an intra- corporate,2 civil, and/or administrative case such as matters which involve the substantive and contractual rights of private parties who would, in all probability, contest the same in court or the appropriate body if the opinion turns out to be adverse to their interest;3 (b) questions which are too general in scope or hypothetical, abstract, speculative and anticipatory in character and those pertaining to undisclosed entities;4 and (c) requests that will entail the gathering of legal materials or writing abstract essay for the requesting party since the Commission should not function or resemble as legal counsel of private firms.s At the outset, please be advised that as a matter of policy,the Commission refrains from or does not

abstract essays to advise or counsel on proper courses of action, especially those involving substantial rights of private parties, the Commission shall refrain from categorically rendering an opinion on the Act (RA) No. 11232 otherwise known as the Revised Corporation Code (RCC), and that we cannot write issues presented. Considering that the issue may already be the proper subject of a case under Section 73 of Republic

However, for purpose of information only, the following may be imparted

as well as to keep track of its assets. The common law origins of the right to inspect was recognized by the proposition that those in charge of the corporation are merely the agents of the stockholders who are the real legal title to assets and properties of the corporation are lodged with it being a separate legal entity. stockholders/members are nevertheless granted the right to inspect, in their capacity as the ultimate US Supreme Court in the case of Guthrie vs. Harkness which ruled that, "the right of inspection rests upon the beneficial owners of the corporation.This right allows them to know how the corporation is being managed owners of the property, 7" The right to inspect corporate records is rooted in common law which dates back to the 1700s. While

duly authorized representatives) to inspect and/or reproduce corporate books and records,to wit; Thus,Section 73 of the RCC provides the right of a stockholder,member,director or trustee (or their

SEC.73.Books to be Kept;Stock Transfer Agent-Every corporation shall keep and carefully preserve at its principal office all information relating to the corporation including. but not limited to:

b The current ownership structure and voting rights of the corporation,including lists of stockholders or members, group structures, intra-group relations, ownership data, and executive officers (d) A record of all business transactions; (g) The minutes of all meetings of stockholders or members, or of the board of directors or the minutes; and on a similar demand, the yeas and nays must be taken on any motion or a)The articles of incorporation and bylaws of the corporation and all their amendments; (c) The names and addresses of all the members of the board of directors or trustees and the (e) A record of the resolutions of the board of directors or trustees and of the stockholders or f Copies of the latest reportorial requirements submitted to the Commission;and trustees. Such minutes shall set forth in detail, among others: the time and place of the meeting held, how it was authorized, the notice given, the agenda therefor, whether the meeting was beneficial ownership regular or special, its object if special, those present and absent, and every act done or ordered done at the meeting. Upon the demand of a director, trustee,stockholder or member, the time when any director, trustee,stockholder or member entered or left the meeting must be noted in members:

Robin Hui Huang and Randall Thomas,The Law and Practice of Shareholder Inspection Right: A Comparative Analysis ofthe United States and China. Vanderbilt Journal of Transnational Law., Vol. 53. Pursuant to Section 5.2ofthe Securities Regulation Code (SRC),the Commissions jurisdiction overall ntra-corporate disputes under Ibid.No.5.4. Ibid. No. 5.10. Section 5 of Presidential Decree No.902-A has been transferred to the courts of general jurisdiction or the appropriate Regional Trial 3SEC Memorandum Circular No.15,Series of 2003,No.5.2. 7199 U.S.148 (1905). Accessed at: htps://supreme.justia.com/cases/federal/us/199/148/on 29 April 2024 at 1:30 p.m. Courts.

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proposition, and a record thereof carefully made. The protest of a director, trustee, stockholder or member on any action or proposed action must be recorded in full upon their demand. Corporate records,regardless of the form in which they are stored,shall be open to inspection by any director, business days, and a demand in writing may be made by such director,trustee or stockholder at their expense,for trustee, stockholder or member of the corporation in person or by a representative at reasonable hours on copies of such records or excerpts from said records.x xx

X X x XXX XXX A requesting party who is not a stockholder or member of record, or is a competitor, director, officer,controlling stockholder or otherwise represents the interests of a competitor shall have no right to inspect or demand reproduction of corporate records.

damages,and in addition, shall be guilty of an offense which shall be punishable under Section 161 of this Code Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the Any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the provisions of this Code shall be liable to such director, trustee, stockholder or member for liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: Provided, further, That it shall be a defense to any action under this section that the person demanding to examine any prior examination of the records or minutes of such corporation or of any other corporation,or was not acting in good faith or for a legitimate purpose in making the demand to examine or reproduce corporate records, or is a and copy excerpts from the corporation's records and minutes has improperly used any information secured through competitor, director,officer,controlling stockholder or otherwise represents the interests of a competitor If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may report such to the Commission. Within five (5) days from receipt of such report, the Commission shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records.

for inspection by any director or stockholder of the corporation at reasonable hours on business days. the date thereof, by and to whom made;and such other entries as the bylaws may prescribe. The stock and transfer book shall bekept in the principalfficeof the corporation or in theofficeof itsstock transfer agent and shallbe open Stock corporations must also keep a stock and transfer book,which shall contain a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stocks for which subscription has been made,and the date of payment of any installment;a statement of every alienation,sale or transfer of stock made,

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that shareholders/members are fully aware of the state of a corporation as well as to assist shareholders/members in making informed business decisions and in exercising their right as shareholders/members. It is evident that Section 73 recognizes the role that corporate data and information plays in ensuring

governance and protect minority investors through, among others, the issuance of rules and regulations consistent with international best practices.8 Section 73 implements the Commission's mandate under the RCC of promoting corporate

the exercise of the right to inspect, or the right of the shareholders/members to have full access to information on the affairs and finances of the corporation to wit: In Gokongwei v. SEC,9 the Supreme Court emphasized that the general rule is to recognize and uphold

The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation..

XXX XXX XXX It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and themanner of expenditure ofits funds and to inspection to obtain such information especially where it appears that the company is being mismanaged or that it is being managed for the benefit of officers or directors or certain of the stockholders to the exclusion of others.

by any stockholder,member,director or trustee of the corporation. Thus,"all information relating to the corporation"shall be open for inspection and/or reproduction

G.R. No. L-45911, April 11, 1979. RCC,Sec179

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recognizes the defense available to a director, trustee, or officer for refusing to allow a shareholder or member to exercise the right to inspect or reproduce corporate records,namely,when However, Section 73 of the RCC specifically provides that the right to inspect can be limited. it

a) The person demanding to examine has improperly used any information secured through any b) The one requesting to inspect was not acting in good faith or for a legitimate purpose in making c The requesting party is a competitor, director, officer, controlling shareholder or otherwise prior examination of the records or minutes of such corporation or for any other corporation; his demand; or represents the interests of a competitor.

The Supreme Court, in the case of Terelay Investment and Development Corp.v. Yulo1, held that:

condition of a showing of any particular dispute or of proving any mismanagement or other occasion rendering an of the shareholder is improper, by way of defense. According to a recognized commentator "The right of the shareholder to inspect the books and records of the Petitioner should not be made subject to the examination proper,but if the right is denied, the burden of proof is upon the corporation to show that the purpose

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In general, however, officers and directors have no legal authority to close the office doors against examination or that the refusal by the officers or directors was wrongful except under statutory provisions. furnishes the most effective method of gaining information which the law has provided, on mere doubt or suspicion as to the motives of the shareholder. While there is some conflict of authority, when an inspection by a shareholder is contested, the burden is usually held to be upon the corporation to establish a probability that the applicant is attempting to gain inspection for a purpose not connected with his interests as a shareholder, or that shareholders for whom they are only agents, and withhold from them the right to inspect the books which his purpose is otherwise improper. The burden is not upon the petitioner to show the propriety of his

otherwise open to corporate outsiders [i.e. those deemed confidential such as trade secrets or processes under the Intellectual Property Code (Republic Act No.8293) or personal information under the Data Privacy Act of 2012(Republic Act No.10173)],he shall remain bound by confidentiality rules under prevailing laws.Section 73 of the RCC is explicit, providing thus Finally, it is also worthy to note that while an inspecting or reproducing party may obtain corporate information not

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Code of the Philippinesas amended, Republic Act No.10173,otherwise known as theData Privacy Act of 2012 xx.The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws,such as the rules on trade secrets or processes under Republic Act No. 8293, otherwise known as the Intellectual Property Republic Act No. 8799, otherwise known as The Securities Regulation Code,and the Rules of Court.

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Series of 2020, provide that any stockholder who abuses his right to inspect shall be penalized under the RCC, to wit Lastly, Section 73 of the RCC and its implementing guidelines, SEC Memorandum Circular No. 25,

"Any stockholder who shall abuse the rights granted under this section shall be penalized under Section Intellectual Property Code of the Philippinesas amended,and Republic Act No. 10173,otherwise known as the Data Privacy Act of 2012. 158 of this Code, without prejudice to the provisions of Republic Act No.8293, otherwise known as the

We hope you find the foregoing in order.

ery truly yours

UmLm Roinuald C. Hadilla General Coynsel

10 G.R. No. 160924, August 05, 2015