SEC En Banc Case No. 06-13-294 In the matter of Revoking the Approved Decrease of the Authorized Capital Stock of Sinophil Corporation

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance

In the Matter of Revoking the Approved Decrease of the Authorized Capital Stock of Sinophil Corporation

SINOPHIL CORPORATION, Appellant,

- versus -

MONITORING DEPARTMENT, COMPANY REGISTRATION AND Appellee. SEC En Banc Case No. 06-13-294

DECISION

filed by Sinophil Corporation (Sinophil) on 20 June 2013 assailing the Order dated 4 June 2013 of the Company Registration and Monitoring Department (CRMD) of the Commission which denied Sinophil's request to revoke the approval by the CRMD of its Hecrease in authorized capital stock. For the consideration of the Commission En Banc is the Memorandum on Appeal'

Registration No. ASO93-009289. Sinophil filed three (3) applications for the decrease of its authorized capital stock as follows: Sinophil was registered with the Commission on 26 November 1993 with SEC

Decrease of Capital Issued Date of the Certificate of 2. by the Commission 28 March 20062 (First Decrease) 24 June 2008 (Second Decrease) 9 July 2009 Computation in the Reduction From 17,130,000,000 shares to From 20,000,000,000 shares to From 18,130,000,000 shares to of the Authorized Capital 18,130,000,000 shares 17,130,000,000 shares Stock Number of Shares Reduced 1.000,000,000 shares 1,870,000,000 shares 1,000,000,000 shares reduced reduced

3

(Third Decrease) 16,130,000,000 shares reduced

2 Id, Annex "D(Certificate of Decrease of Capital Stock dated 28 March 2006 issued by the . Id., Annex "E (Certificate of Decrease of Capital Stock dated 24 June 2008 issued by the Commission). 4 Id., Annex "F (Certificate of Decrease of Capital Stock dated 9 July 2009 issued by the Commission). I Memorandum on Appeal dated 20 June 2013. Commission).

Page 2 of 8 Sinophil v. Company Registration and Monitoring Department SEC En Banc Case No. 06-13-294

Share Swap Agreement with Paxell Investments Limited (Paxell), Metroplex Berhad the Metroplex Group an aggregate of 3.870 billion of its own shares.5 (Metroplex) and Legend International Resorts Limited (Legend). Metroplex and Paxell are collectively referred to as the "Metroplex Group". In the Share Swap Agreement, the Metroplex Group agreed to transfer to Sinophil 40%, or a total of 46,381,600 outstanding shares, in Legend. In exchange for the shares of stock in Legend, Sinophil shall issue to On 18 August 1998, Sinophil, together with Belle Corporation, entered into a

agreed, in a Memorandum of Agreement (Unwinding Agreement), to rescind it in its entirety and to cancel all obligations stated therein after a dispute on the implementation and compliance thereof. Under the Unwinding Agreement, the Metroplex Group was to surrender the certificates for the Sinophil Shares to Sinophil as follows: (i) 1,870,000,000 shares to be surrendered upon the execution thereof; and (ii) 2,000,000,000 shares which were pledged by the Metroplex Group to the International Exchange Bank and Global Bank shall be surrendered to Sinophil within five (5) days from the release by said banks. On the other hand, Sinophil shall surrender the shares in Legend to the Metroplex Group. However, on 23 August 2001, the parties to the Share Swap Agreement mutually

Sinophil shares. the 1,870,000,000 Sinophil shares but it was not able to recover the other 2,000,000,000 Sinophil alleges that it only had in its possession the stock certificates covering

stock by 1,870,000,000 shares which the Commission approved on 28 March 2006. stockholders and board of directors approved the first decrease of its authorized capital Thereafter, in order to fully implement the Unwinding Agreement, Sinophil's

loan obligation from Union Bank of the Philippines, which was secured by a pledge of 1,000,000,000 Sinophil shares, and was able to acquire said shares. Sinophil further alleges that it was able to negotiate the acquisition of Legend's

remaining One Billion shares are subsequently acquired or otherwise cancelled". June 2007 approved the following proposals: (i) to decrease Sinophil's authorized capital stock by 1,000,000,000 common shares; and (ii) to further reduce the authorized capital stock by another 1,000,000,000 shares "in the event that the Metroplex Group's As a consequence, its board of directors on 3 May 2007 and its stockholders on 21

9 Id., par. 14. 5. Id., pars. 7-8 and Annex "B" (Share Swap Agreement). Id., par. 9 and Annex "C"(Unwinding Agreement). Id., Annex D (Certificate of Decrease of Capital dated 28 March 2006 issued by the Commission). Id., pars.14-15.

Sinophil v. Company Registration and Monitoring Department SEC En Banc Case No. 06-13-294 Page 3 of8

of Sinophil by 1,000,000,000 shares which had the effect of decreasing its authorized capital stock from 18,130,000,000 to 17,130,000,000 shares.10 On 24 June 2008, the Commission approved the second decrease of capital stock

stock on 9 July 2009 from 17,130,000,000 to 16,130,000,000 shares.12 shares."1 The Commission approved the third reduction of Sinophil's authorized capital 1,000,000,000 Sinophil shares which were held by one of the creditors of the Metroplex Group as collateral. It claims that, since it believed that the deal was imminent, it filed an application with the Commission for the third decrease of another 1,000,000,000 Sinophil also alleges that it entered into negotiations to reacquire the

Revoke the Approved Decrease of Capital Stock (Petition) on 11 May 2012 with the CRMD praying for the revocation of the Commission's approval of the third decrease of Sinophil held by one of the creditors of the Metroplex Group. It filed a Petition to Sinophil's authorized capital stock. Sinophil, however, claims that it failed to reacquire the 1,000,000,000 shares of

decrease.13 that the latter's application for the third decrease was complete and regular on its face, and complied with all the requirements under Section 38 of the Corporation Code, and that the decrease in capital stock were certified by the latter's board of directors and corporate secretary. Thus, it denied Sinophil's Petition for the revocation of the third The CRMD issued the assailed Order denying the Petition of Sinophil holding

Hence, this Appeal.

decrease in capital stock. The suspensive condition allegedly lies in the statement in the Director's Certificate which states: "in the event that Metroplex Group's remaining One the Philippine Stock Exchange. condition accompanying the approval by its board of directors and stockholders of the Billion shares are subsequently acquired or otherwise cancelled; and x x x". Moreover, Sinophil's application for the reduction of its authorized capital stock was made in good shares may result in deleterious consequences since it is a listed company and traded in faith and in the belief that the acquisition of the subject shares was imminent and forthcoming. Lastly, Sinophil argues that the approval of the decrease of the Sinophil In its Memorandum on Appeal, Sinophil argues that there is a suspensive

1 Id. Annex (Certificate of Decrease of Capital Stock dated 9 July 2009. 13 Id., Annex "A"(Order of the CRMD dated 4'June 2013). 10 Id., Annex "E" (Certificate of Decrease of Capital Stock dated 24 June 2008). 14 Id., pp. 5-10. I Id., par. 16.

Sinophil v. Company Registration SEC En Banc Case No. 06-13-294 and Monitoring Department Page 4 of 8

the approval of the Sinophil shares may result in deleterious consequences. July 2013 in which it submitted additional documentary proof to support its ground that Sinophil filed a Supplement to the Memorandum on Appeal (Supplement) on 31

holding the shares in pledge and that the same is still being negotiated.16 processing of Sinophil's application for the third decrease of its authorized capital stock has not made any declaration that it has not yet acquired the shares from the creditor and that it has all fair reasons to assume that all the conditions were already complied with. Moreover, the CRMD avers that Sinophil, during the course of its third decrease, In response, the CRMD maintains that it followed established procedures in the

or reconsideration of the Commission is not unprecedented.t by Sinophil on 28 November 2013 before the Commission, which cited SEC Memorandum Circular No. 14, Series of 2013 (Memorandum), claiming that the reversal A Second Supplement to the Memorandum on Appeal (2nd Supplement) was filed

Ownership Registration as Paid-up Capital of Corporations" and cannot be made to apply Memorandum refers to the Guidelines Covering the Use of Properties that Requires to the application for the reduction of capital stock. In its Comment filed on 26 February 2014, the CRMD claims that the

clarify its position and arguments in its earlier submissions. Moreover, Sinophil claims the third decrease. Lastly, Sinophil claims that there was no consideration for the third decrease.19 was filed by Sinophil on 1 April 2014 in order to synthesize, re-emphasize, amplify and that Clause 1(a) was inaccurately stated and gave the impression that it was the basis for A Memorandum of Arguments with Clarification (Memorandum of Arguments)

Clarification)20 (Supplemental Manifestation) was filed by Sinophil on 7 April 2014 in order to clarify that the issues involved in this instant case do not touch upon the issues in the case pending before the Supreme Court entitled "Metroplex Berhard and Paxell Investment Limited v. Sinophil Corporation, et al.".2 Thereafter, a Supplemental Manifestation (re: Memorandum of Arguments with

comment on the Memorandum of Arguments filed by Sinophil. The Commission issued an Order dated 16 April 2014 directing the CRMD to

21 G.R. No. 208281. 20 Supplemental Manifestation filed on 7 April 2014. is Supplement, par. 2. 1 Reply Memorandum dated 27 August 2013 filed by the CRMD on 2 September 2013, p. 2. 18 Comment dated 26 February 2014. Memorandum of Arguments filed on 1 April 2014, pp. 9 and 10. 2nd Supplement dated 25 November 2013, par. 7.

Sinophil v. Company Registration Page 5 of 8 and Monitoring Department SEC En Banc Case No. 06-13-294

it can no longer hold off the implementation of its pressing business objectives. has decided to withdraw the instant appeal and explore other options since, in almost two (2) years of pursuing the petition and subsequent appeal, its corporate actions and plans had to be deferred due to the pending resolution of this instant appeal. As a consequence, On 22 April 2014, Sinophil filed a Notice of Withdrawal of Appeal stating that it

Sinophil, it is of the view that it is no longer necessary to comment further on the Memorandum on Arguments. 16 April 2014 stating that, in view of the Notice of Withdrawal of Appeal filed by On 30 April 2014, the CRMD filed a Manifestation in response to the Order dated

rule on the merits of the case due to the novelty of the subject matter and to provide 5.1(g) of the Securities Regulation Code (SRC).22 Moreover, we would like to note that following: Supplement filed on 31 July 2013, 2nd Supplement filed on 28 November 2013, Memorandum of Arguments filed on 1 April 2014, and Supplemental Manifestation filed on 7 April 2014. the Commission is not in delay in resolving the appeal considering that Sinophil filed the guidance on the rules, regulations and orders of the Commission pursuant to Section Despite the filing of the Notice of Withdrawal of Appeal, we deem it necessary to

is whether the approval by the Commission of the third decrease of capital stock of Sinophil on 9 July 2009 should be revoked based on the suspensive condition stated in the Director's Certificate. Thus, the main issue to be resolved, which is a factual issue and not a legal issue.

and stockholders of the decrease in the capital stock, which is the bone of contention in this case. of capital stock of a corporation. One of the documents required to be submitted pursuant to Section 38 of the Corporation Code is the director's sworn statement signed by a majority of the directors and countersigned by the chairman and secretary of the stockholders' meeting evidencing, among others, the approval of the board of directors Section 38 of the Corporation Code provides for the requirements for the decrease

capital stock as follows: To reiterate, Sinophil filed three (3) applications for the decrease of its authorized

Decrease of Capital Issued Date of the Certificate of by the Commission 28 March 20062 (First Decrease) Computation in the Reduction From 20,000,000,000 shares to of the Authorized Capital 18,130,000,000 shares Stock Number of Shares Reduced 1,870,000,000 shares reduced

22 Republic Act No. 8799 (2000). 23 Id, Annex D (Certificate of Decrease of Capital Stock dated 28 March 2006 issued by the

Commission)

Sinophil v. Company Registration Page 6 of 8 and Monitoring Department SEC En Banc Case No.06-13-294

9 July 20092 24 June 200824 Second Decrease (Third Decrease) From 17,130,000,000 shares to From 18,130,000,000 shares to 17,130,000,000 shares 16,130,000,000 shares 1,000,000,000 shares 1,000,000,000 shares reduced reduced

board of directors and stockholders of the decrease in capital stock. The suspensive condition in the reduction of authorized capital stock by 1,000,000,000 shares lies in the statement in the Director's Certificate which reads: in the event that Metroplex Group's remaining One Billion shares are subsequently acquired or otherwise cancelled; and x x shares held by the Metroplex Group, was not fulfilled and that Section 38 of the Sinophil argues that there was a suspensive condition accompanying the approval by its x". Sinophil claims that the suspensive condition, i.e., subsequent acquisition by it of its Corporation Code was not complied with.That the non-fulfillment effectively places it in the same situation as if the conditional approval was never given.26 With respect to the third decrease of capital stock of Sinophil on 9 July 2009.

18 July 2008 which was submitted specifically for the third decrease, states the following: We are not convinced. The Director's Sworn Statement of Sinophil executed on

complied with, the following proposals were presented for consideration: Corporation, the requirements of Section 38 of the Corporation Code having been "1.At the aforesaid meetings of the Board of Directors and Stockholders of the

To DECREASE the authorized capital stock of the Corporation from (P 16,130,000,000.00), Philippine Currency; 17,130,000,000.00), to Sixteen Billion One Hundred Thirty Million Pesos Seventeen Billion OneHundredThirtyMillion Pesos(P

b. To FURTHER REDUCE the authorized capital stock of the Corporation by

(1,000,000,000) Common Shares, in the event that the Metroplex Group's remaining One Billion shares are subsequently acquired or otherwise AN0THER One Billion Pesos (P 1,000,000,000), or One Billion cancelled; and x x x"27 (Emphasis Ours)

stated, the suspensive condition will only apply to Clause 1(b) and not to Clause 1(a) clearly reveals that there is no suspensive condition in Clause 1(a) therein. Otherwise therein. Clause 1(a mentions the decrease of authorized capital stock from Php 17,130,000,000.00 to Php 16,130,000,000.00, as indicated by the Certificate of Decrease A closer evaluation of Sinophil's Director's Sworn Statement, above-stated,

27 Id., Annex "G" (Sinophil's Director's Sworm Statement dated 18 July 2008). 24 Id., Annex "E" (Certificate of Decrease of Capital Stock dated 24 June 2008 issued by the Commission). 25 Id., Annex "F (Certificate of Decrease of Capital Stock dated 9 July 2009 issued by the Commission). 26 Id., par. 26-30.

Sinophil v. Company Registration and Monitoring Department SEC En Banc Case No. 06-13-294 Page 7 of 8

third decrease. Hence, the third decrease was not subject to the suspensive condition. of Capital Stock dated 9 July 2009 issued by the Commission, and is thus referring to the

indicated in Clause 1(a). July 2008, a date subsequent to the approval by the Commission of the second decrease on 24 June 2008. This clearly indicates the intention of Sinophil's board of directors and stockholders to approve the third reduction, without any qualification or condition, as Subject Sinophil's Director's Sworn Statement was executed and submitted on 18

application for the third reduction which clearly do not reveal the intention of imposing a Secretary Certificate executed on 3 July 2009; and (iii) Publisher's Affidavit of the suspensive condition thereon: (i) Letter of Sinophil's counsel dated 18 July 2008; (ii) publication of the Notice of the Decrease of Capital. Moreover, Sinophil submitted the following documents in support of its

apprise the Commission that there was any suspensive condition imposed on the third reduction. Therein stated "request for the Commission's approval of the Amendment to Article Seventh of its Articles of Incorporation of the Corporation, decreasing its authorized capital stock from Seventeen Billion One and Hundred Thirty Million Pesos (17,130,000,000.00) x x x to Sixteen Billion One and Hundred Thirty Million Pesos (16,130,000.00) x x x" is unequivocal and unqualified. In the Letter of Sinophil's counsel dated 18 July 2008, the said counsel28 did not

the third reduction. She merely stated that Sinophil filed an application for the decrease of authorized capital stock and that the approval of the decrease will not result in the of Sinophil on 3 July 2009,29 she did not mention any suspensive condition imposed on damage or prejudice to the rights of its stockholders. Next, in the Secretary's Certificate executed by the Assistant Corporate Secretary

imposed on the third reduction. The said Notice only mentioned that Sinophil will there any indication in the documents in support of its application of the first and second Commission any suspensive condition imposed on any of the reductions in its on 17 July 2008, the said Notice likewise did not mention any suspensive condition decrease its authorized capital stock from Php 17,130,000,000.00 to Php 16,130,000.00 reduction of its authorized capital stock.Clearly, Sinophil did not reveal to the which was approved by its board of directors and stockholders. Moreover, neither is application. Further, in the Notice of the Decrease of Capital published in the Manila Times

inaccurately stated which gave the impression that it was the basis for the third decrease. Lastly, Sinophil claims that Clause 1(@) of its Director's Sworn Statement was

28 Atty. Jason C. Nalupta 29 Michelle B. San Buenaventura-Dy.

Sinophil v. Company Registration and Monitoring Department Page 8 of 8 SEC En Banc Case No. 06-13-294

However, the following rule shall apply: "El que es causa de la causa es causa del mal] causado." He, who is the cause of the cause is the cause of the evil caused.30 Thus, we Cannot give credence to the claim of Sinophil with respect to Clause l(a).

application for the third decrease and was justified in relying on the representations made by Sinophil in its application for the same. As above-stated, Sinophil has not made any declaration in the documents submitted in support of its application that there is a suspensive condition attached thereto. Worse, and as aptly pointed out by CRMD. revocation of the third decrease, which smacks of bad faith. The Commission agrees Sinophil, after these unqualified representations, took three (3) years to request for the with the CRMD that Sinophil should not be permitted to make a mockery of the Commission's procedures. Thus, the CRMD clearly followed the procedures in the processing of Sinophil's

with prejudice and the Order of the Company Registration and Monitoring Department dated 4 June 2013 is hereby AFFIRMED WHEREFORE, premises considered, the instant appeal is hereby DISMISSED

SO ORDERED.

Mandaluyong City, 3 June 2014.

TERESITA J. HERBOSA* Chairperson

Co MA UANITAE.CUETO Commissioner MANUI Commissioner B.GAITE

ANTONIETA F. IBE* Commissioner EPHYRO LUIS B.AMATONG Commissioner

* Away On Official Business

30 Padilla v. Sto. Tomas, et al., G.R. 109444 (1995), citing 1 Cuello Calon, Codigo Penal, 12th ed. 1968, pp. 335-336.

C