Opinion No. 13-12 Re:Application of Control Test to Manning Companies

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

Office of the General Counsel

November 27. 2013

SEC-OGC Opinion No. 13-12 Re: Application of Control Test to Manning Companies

Del Rosario & Del Rosario Law Offices Makati Avenue corner Sen. Gil Puyat Avenue 1200 Makati City Atty. Saben Loyola/Atty. Joseph Rebano 15/F Pacific Star Building

Dear Atty. Loyola and Atty. Rebano.

the Application of the Control Test to Manning Companies." This refers to your letter dated 22 February 2012 requesting for "Opinion on

paid. You have also presented the sharehoidings in the Company as follows: Corporation (`Company") was incorporated under Philippine laws on 13 July 1993 and is engaged in the business of recruitment of Filipino seafarers for deployment on board the vessel of its foreign principals. You further stated that the Company has an authorized capital stock of Four Million Philippine Pesos (Php4,000,000), divided into forty thousand common shares with a par value of One Hundred Pesos (Php100.00) per share wherein 20,000 shares of which have been issued and fully In your letter, you stated that your client, Anscor Swire Ship Management

(60% Filipino-40% Foreign) Management Corporation Serrata Investments Inc. Eduardo P. Pertierra Edmund G. Menez Angel A. Penalosa Swire Pacific Ship Colin John Payne ['Serrata"] TOTAL Name Nationality Fili pino Filipino Filipino Filipino British British Common Common Common Common Common Common Type Subscribed Number of Shares 14,994 20,000 4, 98 2 2 2 2 Subscribed 1, 499,400 2,000,000 Amount 499,800 200 200 200 200 Ownership 24.990 74. 970 0.010 100% 0.010 0.010 0.010 %

Re: Application of Control Test to SEC-OGC Opinion No. 13-11 Manning Companies

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according to your letter is a company whose Filipino equity is only 60%, you seek the Commission's definitive stance on whether the "Control Test" or the "Grandfather Rule" should be applied for purposes of determining the Company's compliance with the 75% Filipino equity requirement for manning agencies. Considering that 74.97% of the Company is owned by Serrata, which

Grandfather Rule in determining the eligibility of a corporation, which has foreign equity participation in its ownership structure, to engage in nationalized or partly nationalized activities, viz: The Commission, in a plethora of opinions, utilized the Control Test or the

corresponding to such percentage shall be counted as of Philippine Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60% only the number of shares corporation or partnership at least 6o% of the capital stock or capital respectively, of which belong to Filipino citizens, all of the 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shares shall be recorded as belonging to aliens capital of which is owned by Filipino citizens shall be considered as of nationality. Thus, if 100,000 shares are registered in the name of al said shares shall be recorded as owned by Filipino citizens.1 But if less than 60%, or, say, only 50% of the capital stock or capital of the corporation or partnership, respectively belongs to Filipino citizens, only Shares belonging to corporations or partnerships at least 60% of the

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Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, (s)hares belonging to corporations or partnerships at Ieast 60% of the capital of which is owned by Filipino citizens 'shall be is no need to further trace the ownership of the 60% (or more) Filipino Stockholdings of the Investing Corporation since a corporation which is at Ieast 60% Filipino-owned is considered as Filipino. determining the nationality of the Investee Corporation. The first case is the 'liberal rule,' later coined by the SEC as the Control Test in its 30 May 1990 considered as of Philippine nationality.' Under the liberal Control Test, there Under the above-quoted SEC Rules, there are' two cases in

pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which The second case is the Strict Rule or the Grandfather Rule Proper and

Emphasis ours.

Re: Application of Control Test to SEC-OGC Opinion No. 13-11 Manning Companies

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states, "but if the percentage of Filipino ownership in the corporation or Corporation and the Investee Corporation must be traced (i.e., partnership is less than 60%, only the number of shares corresponding to Strict Rule or Grandfather Rule Proper, the combined totals in the Investing "grandfathered") to determine the total percentage of Filipino ownership. such percentage. shali be counted as of Philippine nationality." Under the

traced to the level of the Investing Corporation and added to the shares directly owned in the Investee Corporation. xxx Moreover, the ultimate Filipino ownership of the shares must first be

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differently, where the 60-40% Filipino-foreign equity ownership is the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity is in doubt. xxx Stated not in doubt, the Grandfather rule will not apply."? In other words, based on the said SEC Rule and DOJ Opinion.

Act as follows: In relation to this, a "Philippine national" is defined by the Foreign Investment

of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each domestic partnership or association wholly owned by the citizens of the where the trustee is a Philippine national and at least sixty percent [60%] of [60%] of the capital stock outstanding and entitled to vote of both applied for this purpose." "Philippine national" shall mean a citizen of the Philippines or a

Penaflor 3 Section 1(b) of the Implementing Rules and Regulations of the Foreign Investment Act of 1991. Santiago, citing SEC Opinion No. 11-44 dated 27 October 2011 addressed to Atty. Wilfredo M. 2 SEC-OGC Opinion No. 12-02 dated 02 February 2012 addressed to Ms. Carlota Christina G. Laino-

Re: Application of Control Test to SEC-OGC Opinion No. 13-11 Manning Companies

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74.97% in the Company is considered owned by Filipinos for purposes of computing the required seventy-five percent Filipino equity for manning agencies. If the shareholdings of the Filipino individuals, then the Company is 75% Filipino-owned in 74.97% sharehoidings of Serrata in the Company is added to the .030% compliance with the law. Consequently since Serrata is 60% owned by Filipinos, its shareholdings of

based solely on the facts and circumstances disclosed and relevant solely to the relied upon are different, this opinion shall be rendered null and void. particular issues raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon courts, whether of similar or dissimilar circumstances. If upon investigation, it will be disclosed that the facts Nevertheless, it shall be understood that the foregoing opinion is rendered

Very truly yours,

Camilo S: RREA

General Whse

4 Article 27, Labor Code of the Philippines; Section 2 Rule IV, Omnibus Rules Implementing the Labor Code; Ninth Foreign Negative List.