SEC En Banc Case No. 08-10-209 Kalahi Realty, Inc. Appellant - versus - Corporation Finance Department (now Corporate Governance and Finance Department) Appellee.

Republic of the Philippines

Department of Finance Securities and Exchange Commission

KALAHI REALTY, INC.

Appellant,

versus - SEC En Banc Case No.08-10-209

CORPORATION FINANCE DEPARTMENT (now Corporate Governance and Finance Department)

Appellee.

Yx

DECISION

2007 by Kalahi Realty, Inc. (KRI), assailing the Letter-Order dated 30 July 2007 Before the Commission En Banc is a Letter-Appeali filed on 17 August

(Assailed Order) by the then Corporation Finance Department (CFD), now the Corporate Governance and Finance Department (CGFD). The pertinent portions of the Assailed Order is read as follows:

"In light of the foregoing considerations, the penalty of P782,200.00 imposed against Kalahi Realty, Inc. for the late filing of various reports, in violation of SRC Rules 17 and 20 is hereby AFFIRMED. The company is hereby directed to pay said penalty within five (5) business days from receipt of the letter by way cash, Manager or Cashier's check."

The Facts

subdivide, sell, mortgage, exchange, lease, develop and hold for investment or otherwise, real estate of all kinds, whether (to) improve, manage or otherwise, together with their appurtenances." 1989 with SEC Registration No. 0000161872. Its primary purpose is "to acquire by purchase, lease, donation or otherwise, and to own, use, improve, develop dispose of buildings, houses, apartments, and other structures of whatever kind KRI is a stock corporation registered with the Commission on 03 April

that it was not previously registered with the Commission as a reporting Sometime in 2006, KRI filed SEC Forms 17-L2 and 17-Q3 despite the fact

on or before the required due date of filing of the Annual or Quarterly Report. in a Memorandum dated 22.November 2007. 2 Filed on May 9 and August I1, 2006; Notification of Inability to File All or Any portion of SEC Form I 7-A or 17-Q.. It is filed ' Letter dated 15 August 2007, this was forwarded to the Office of the General Counsel, on 23 November 2007 by the CFD

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company.CFD, in a Letter dated 28 August 2006, directed KRI to submit an updated list of its stockholders with their corresponding shareholdings. KRI submitted,on 14 September 2006, the list of its stockholders as of 30 April 20064.

with 2,335 stockholders holding at least 100 shares each5. on the fact that it has a total assets of P118,180,112.00 and 2,641 stockholders As a result, CFD was able to confirm that KRI is a "public company" based

2005 Annual Report (SEC Form 17-A), 2006 1st, 2nd, and 3rd Quarter Reports (SEC Form 17-Q), 2006 Information Sheet (SEC Form 20-IS) and a written explanation why it should not be held liable for violation of Securities Regulation Code (SRC) and its implementing rules for failure to file the required reports pursuant to Section 17.2 of the Securities Regulation Code (SRC) in relation to SRC Rule 3 (1) (M)7 CFD,in a Letter6 dated 06 November 2006, directed KRI to submit its

receipt of CGFD's letter8 on 20 November 2006 and stating that it already submitted its SEC Forms 17-Q (for the periods ended on 31 March 2005, 30 June 2006 and 30 September 2006) On 05 December 2006, KRI replied to CFD's directive acknowledging the and SEG Form 17-A (for the year ended 31 December 2005). It also informed FD that used to be a 100% wholly-owned subsidiary of Dizon Copper-Silver Mine M It stated that on 09 July 2004, DCSMI's Board of Dire 1 property dividend9 all its investments in KRI as property dividends on 4 one to one basis" to its stockholders of record as of 13 January 200510

following reports: In a Letterl1 dated 23 January 2007, CFD cited KRI for the late filing of the

Quarterly ReportMarch 31,2005 Report For the period ended May Date filed 22, 2006May15,2005 Due date

7 Section 17.2.The reportorial requirements of Subsection I7.I shallapply to the following: c) An issuerwith assets of at Management Discussion. It is filed within 45 calendar days after the end of the quarter. SRC Rule 3 (1) (M) - Public company means any corporation with a class of equity securities listed on an Exchange or with least Fifty Million Pesos (P50.000,000.00) or such other amounts as the Commission shall prescribe, and having Two hundred (200) or more holders each holding One hundred (100) shares of a class of its equity securities: Provided, however, that the obligation of such issuer to file reports shall be terminated ninety (90) days after notification to the Commission by the issuer (200) of which are holding at lest one hundred (100) shares of a class of its equity securities. 8 Dated 06 November 2006. 9 To its stockholder of record as of 13 January 2005. 3 Filed on May 22 and August 1 1, 2006; Quarterly report which contains Interim Financial State 4 Records, Pages 17-19. 5 bid. 6 Records, page 1. that the number of its holders holding at least one hundred (100) shares is reduced to less than One hundred (i00). assets in excess of Fifty Million Pesos (P50.000.000.00) and having two hundred (200) or more holders, at least two hundred I1 Records, page 4-5. 10 Records.page 2 nts and Interim

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3 Quarterly Report Quarterly Report (SEC Form 17-Q) (SEC Form 17-Q) Sept. 30, 2006 June 30,2006 (late) submitted on Aug. August 22, 2006 Form Nov.7, 2006 (not late; with SEC 11, 2006 17-L August 14, 2006 Nov.14, 2006

SEC Form 17-Q) Annual (SEC Form 17-A) Report December 31, 2005 May (late) 13 2006May2,2006 granted Commission) (Special extension by the

requirements: CFD also discovered that KRI failed to submit the following reportorial

1.First Quarter Report (SEC Form 17-Q) 2.Second Quarter Report (SEC Form 17-Q) 3.Third Quarter Report (SEC Form 17-Q) 4.Information Statements (SEC Form 20-IS) 5. Annual Report SEC Form 17-A Report For the period ended 2005 and 2006 2006 2005 2005 2004

862,700.0012 and required it to pay the same within 5 days from receipt of the letter. Based on the above-stated deficiencies, CFD assessed KRI a penalty of Php

requested that it be given consideration as a newly-released subsidiary. It also Iatter filed the same report. Further, it claimed that there was an error as to the the assessed penalties. It claimed that on 13 January 2005 it was officially separated from its mother company DCSMI. KRI's sudden separation from DCSMI showed its unpreparedness to handle the reportorial requirements. Thus, it pointed out that its 2004 Annual Report was consolidated with DCSMI when the mistakenly encoded as "March 31, 2005" when it should be "March 31, 2006" date of its 2006 First Quarter Report (SEC Form 17-Q) wherein the date was KRI, in a Letter13 dated 13 February 2007, sought for a reconsideration of

justifications. CFD reduced the assessed penalty to Php 782,200.00, citing for the following violations pursuant to SRC Rule 17 and 20: CFD, in a Letteri4 dated 13 March 2007, found merit in some of KRI's

2005 Reports Ending March1st Covered Period Reprimand Penalty Basic Filed on 01Reprimand Penalty per Day Total

14 Records, pages 9-10. 2 bid 13 Records. page 7.

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1st Report 2 nd Report Total 3rd Report Statement Information Statement 2006 Information Quarter Quarter Quarter 31, 2005 Ending 30, 2005 Ending 30, 2005 Stockholders; Wed of May May 25,2005 Stockholders; Annual Meeting(last Annual Meeting (last May 25,2006) Wed of May -- June Sept. 2nd violation 3rd violation violation 1st violation 2 nd violation 50.000.00 60.000.00 100,000.00 February (536 Feb 2007] x 2007 160,800 days[from 2005 to 01 266,400 14 300 (444days Nov 2005 to 01 2007] 600 145,000 [from (290days Apr 2006 to 09 2007] 500 [from Aug Feb Feb 14 25 X X 210,800 326.400.00 245,000.00 Reprimand 782,200.00

assessed penalties for the late filing of the three (3) 2005 quarterly reports were based on SEC Memorandum Circular No. 6, series of 2005 (MC No. 6-05), which took effect only on 15 October 2005.Further,it claims that it was not given due notice before the Commission penalized it for non-filing of reports.15 On 02 April 2007, KRI sought for a clarification with CFD on why the

hence it is not necessary to inform KRI that it should promptly file the required application of MC No. 6-05 is more favorable to KRI. CFD informed KRI that if they would be assessed the penalties under the prior rule (Revised Scale of Fines higher by Php 37,700.00. As to due notice, CFD explained that the SRC and its Implementing Rules were duly published in newspapers of general circulation, reports. SEC Memorandum Circular No. 2, series of 2003), the amount of penalties is CFD, in a Letteri6 dated 03 May 2007, explained that the retroactive

1b Record pages 12-1 3. I5 Records, page II.

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notified of the 1st and 2nd violations but still the Commission assessed corresponding penalties for such violations. KRI added that notice by any intended to be imparted. KRI argues that corporations would be meted the huge penalties if the Commission would not timely and properly notify them of their violations. Also, KRI requested for clarification on whether Saturdays, Sundays and non-working holidays are included in the computation of the assessed standard is the information actually received by the person to whom it is penalties. KRI, in a Letter17 dated 28 June 2007, raised the issue that they were not

In a Letteri8 dated 30 July 2007, CFD explained that it is the duty of KRI's

not comply with SRC Rule 68 (1) (d) which requires all external auditors to issue a supplemental written statement indicating the total number of its stockholders each owning more than one hundred or more shares. CFD further explained that MC No. 6-05 charges an additional day of penalty per day of delay and does not exclude Saturdays, Sundays and legal holidays, thus, included in the computation corporate secretary to inform the Commission that it has attained a status of a public company. This requirement is mandated under SEc Memorandum Circular No. 5, series of 200519 (MC No.5-05). Likewise, CFD stated that KRI did of penalties.

pointed out that upon learning of its status and being categorized as a "Public said reports. Thus, it requested for a re-computation and reduction the assessed Company", it voluntarily complied with its reportorial requirements without notice from the Commission. It also averred that all the figures and data needed to prepare reports for 2005 were already established in its books. It is therefore only a manner of utilizing the format and forms of the Commission in filing the penalties to Php 330,300.00. It proposes to pay the amount of Php 300,000.00 in installment basis. On 17 August 2007, KRI filed with CFD the instant Letter-Appeal20. It

to the Commission En Banc, through the Office of the General Counsel. This time CFD treated the said letter as an Appeal and forwarded the same

to file its Reply Memorandum. On 22 April 2014, CFD filed its Reply recomputed the assessed penalties and recommended for the reduction of the Memorandum22 reiterating its position in the Assailed Order. However, it same to Php 162,200.00. In an Order21 dated 19 March 2014, the Commission En Banc directed CFD

22 Records, pages 60-75. 17 Records, page 14. 19 MC No. 5-05 -- Notification to all Corporate Secretaries of Philippine Corporations - 20 Records, page 24. 21 Records. pages 57. 18 Records, pages 15-16. secretaries of corporations that meet the foregoing criteria (also known as "public comp the Commission in writing. not later than November 30. 2005, of that fact and the date said status was attained x x As part of that obligation are hereby directed to advise

(now Corporate Governance and Finance Department) Corporation Finance Department SEC En Banc Case No. 08-10-209 Kalahi Realty. Inc. vs. Page 6 of 9

The Issue

penalties against KRI for late and non-filing of the reportorial requirements as a public company. The issue is whether or not then CFD correctly imposed the appropriate

The Ruling

from DCSMI, all of its reportorial requirements were consolidated with DCSMI. When it learned that it was classified as a public company, it immediately consideration since it is not yet fully operational and the assessed penalties will burden the company. Furthermore, it argues that it was not immediately notified by CFD of its violations as a public company which resulted in the increased accomplished the said requirements. Thus, it requeststhat it be given penalties. In its Appeal, KRI claims that since its incorporation up to its separation

or from 05 December 2006 which is within 15 days from CFD's notice. This is in view of the case of Philippine Veterans Bank vs. Callangan24 where the court ruled the SRC. However, it recommends that KRI's assessed penalties should be status as a public company and was required to submit the required reports. The rationale is that a corporation is in good faith when it believe that it is not a Reply Memorandum, the following modified assessment: recomputed from the time it was required by the Commission to file its reports that a corporation could only be held liable from the time it was informed of its public company defined under the SRC. Thus,CFD recommends,as stated in their On the other hand,CFD claims that KRI violated Sections 1723 and 20 of

2005 Report Report 1st 2nd Reports Quarter Quarter Ending March1st 31, 2005 Ending 30, 2005 Covered Period June 2nd violation violation Reprimand 50.000.00 Penalty Basic filed its report on 01 February Feb 2007] No 2007 17,400.00 Dec 2006 to 01 penalty, days[from 300 Penalty per monetary Day KRI (58 05 X Reprimand 67.400.00 Total

23 tion I7. Perodic and Other Reors f isuer.I..Every isuer saising the requirentsin SusectionI7.2 herof 24 G.R. No. 1 91995, 03 August 2011: CA-G.R. No. 96391, 06 March 2008. shall file with the Commission: (a) Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such other time as the Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year. certified public accountant. an a management discussion and analysis of results of operation; and (b) Such other periodical reports for interim fiscal periods and current reports on Significant developments of the issuer as the Commission may prescribe as necessary to keep current information on the operation of the business and financial condition of the issue

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Total 3rd Sheet Report 2006 Information Quarter 30, 2005 Annual Meeting Ending Stockholders Sept. 3rd violation 1st violation 60,000.00 600 34,800 Feb 2007] x days [from 05 Dec 2006 to 01 (58 94,800.00 Reprimand 162,200.00

MC No. 06-05 provides that:

Provision Section 17.1;SRC Rule 17.1 SRC/IRR CURRENT LATE (SEC FORM 17-C) Description FILING REPORT OF Reprimand/ warning Offense First P30,000 P200 per day of delay Second Offense plus P40,000 plus P400 per day Third Offense of delay

INCOMPLETE This shall be addition to the penalty report per due date under the Rules. for late filing of the CURRENT (SEC FORM 17-C) LATE (SEC FORM 17-Q) QUARTERLY REPORT FILING REPORT in OF warning Reprimand/ Reprimand/ warning P200 per day of amended report P10,000 delay of filing the P50,000 delay P300 per day of plus plus P20,000 plus P400 per day amended of delay report P600 per day filing P60,000 plus of delay the of

QUARTERLY : REPORT under the Rules. (SEC FORM 17-Q) This shall . be addition to the penalty for late filing of the INCOMPLETE report per due date in warning Reprimand/ P20,000 P300 per day of amended report delay of filing the plus P40,000 plus P600 per day of delay amended filing report the of

FORM 17-A) LATE ANNUAL REPORT (SEC FILING OF Reprimand/ warning P500 per day of delay P100,000 plus P200,000 plus P1,000 day of delay per

for late filing of the under the Rules. INCOMPLETE ANNUAL 17-A) addition to the penalty REPORT (SEC FORM This -shall report per due date be in warning Reprimand/ P500 per day of delay of filing the amended report P30,000 plus P60,000 plus P1,000 day of delay report of filing the amended per

(now Corporate Governance and Finance Department) SEC En Banc Case No. 08-10-209 Corporation Finance Department Kalahi Realty. Inc. Page 8 of 9

Section relation with 17.1 20 (b)]; SRC Rule 20 [in LATE STATEMENT INFORMATION FORM 20-IS) INFORMATION STATEMENT INCOMPLETE FORM 20-IS) FILING (SEC (SEC OF Reprimand. warning warning Reprimand/ P100,000 P500 per day of delay P30,000 P500 per day of delay of filing the amended report plus plus P200,000 plus P60,000 plus P1,000 day of delay amended P1,000 day of delay of filing the report per per

FAILURE TO COMPLY WITH ANY OF THE OTHER PROCEDURAL SRC RULE 20 REQUIREMENTS OF Reprimand/ warning P50,000 P500 per day of amended report delay of filing the plus day of delay P100,000 plus P1,000 of filing the amended report per

Based on the facts and evidence presented, it is apparent that KRI belatedly filed the required reports (2005 Annual Report-SEC Form 17-A; 2005 1st, 2nd, 3rd, Quarter Report-SEC Form 17-Q; 2006 Information Statement-SEC Form 20-IS) for a public company. However, KRI became aware of its status as a public company only on 06 November 2006 when it was directed by CFD, in a single notice, to submit the required reports and an explanation for its non- compliance.

Furthermore, CFD, in its letter dated 06 November 2006 (first notice), only required KRI to file its 2006 SEC Forms 17-Q for the 1st, 2nd and 3rd quarters. When KRI responded to CFD's notice, the former informed the latter that it already filed its 2006 SEC Forms 17-Q. During this time, CFD discovered that KRI did not also file its 2005 SEC Forms 17-Q. For this reason, KRI was assessed penalties for non-filing of the reports.

The Supreme Court in its resolution affirmed the decision of the Court of Appeals in the case of Philippine Veterans Bank vs. Callangan25, as to the payment of penalty. A corporation believing in good faith that it is not a public company should be held liable only from the time of its failure to submit the required reports after being informed by the Commission that it qualifies as a public company.

25 Note 23, Supra.

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the 2005 SEC Form 17-Q for three (3) consecutive quarters should be considered as the latter's first citation for an offense. Therefore, the appropriate penalty to public company on 06 November 2006, its liability for late filing should be counted only from the said time. Likewise, CFD, in a single notice, informed KRI of all its violations. Hence, CFD's assessment of KRI's violation for non-filing of be imposed should by reprimand, as provided in SEC Memorandum Circular No. 6, series of 2005 Applying the foregoing ruling, since KRI became aware of its status as a

Order dated 30 July 2007, as amended by CFD's Reply Memorandum, is hereby MODIFIED to read as follows: Department's (now Corporate Governance and Finance Department) Letter- WHEREFORE,premisesconsidered,theCorporation Finance

"the penalty of reprimand is imposed against Kalahi Realty, Inc. for the:

1.) Late filing of SEC Form 17-Q for 1st, 2nd and 3rd quarters in 2005."

SO ORDERED.

Pasay City, 29 June 2017.

a

TERESITA J.HERBOSA Chairperson

ANTONIETA F. IBE Commissioner dnuita Aautun EPHYRO LUIS B.AMATONG Commissioner 1WA

BLASJAMES G. Cbmmissioner 3VMmb ERBC EMILIO Commissioner UINO