Opinion No. 16-19 Re: Application of Control Test to Manning Companies

OFFICE OF THE GENERAL COUNSEL Securities and Exchange Commission Republic of the Philippines Department of Finance

to Manning Companies RE: Application of Control Test SEC OGC Opinion No.16-19

11 August 2016

Bonifacio Global City 1630 Taguig, Metro Manila 14th Floor Del Rosario Law Centre 21st Drive Corner 20th Drive DEL ROSARIO & DEL ROSARIO

Attention: Atty. Saben Loyola and Atty. Joseph Rebano

Gentlemen:

Scanmar Maritime Services, Inc. ("Scanmar"), requesting an opinion on the application of the Control Test to manning companies. This is in reply to your letter dated 10 March 2016, on behalf of your client.

required under the law to be 75% owned by Filipino citizens. board the vessels of its foreign principals. You also stated that Scanmar has an authorized capital stock of Ten Million Pesos (Php 10,000,000.00) divided into One Hundred Thousand (100,000) shares, out of which 35,970 shares have been issued and fully paid. While you did not present the actual shareholding of Scanmar, you aver that Scanmar is 1989 and is engaged in the business of recruiting of Filipino seafarers for deployment on You stated that Scanmar was incorporated under Philippine law on 27 February

corporation. The shareholdings of Navigo, as shown in its General Information Sheet, is as follows: corporate investor of Scanmar. Navigo is a 60% Filipino-40% Foreign owned domestic Further, you disclosed that Navigo Management Services, Inc. ("Navigo") is a

Jose Mario C. Buniag Per Olof Oweson Alejo S.Dimailig Imelda Ramilo Hans J. Haase Leslie Nacional Wharmby Skarp Limited Name Nationality Hongkong Swedish Swedish Filipino Filipino Filipino Filipino Common Common Common Common Common Common Common Type Number of Subscribed Shares 9 8 600 29 9 600 1 1 1 600,000.00 600,000.00 1,000.00 299,000.00 998,000.00 1,000.00 1,000.00 Subscribed Amount 24.00% 0.04% 0.04% 0.04% 39.92% 24.00% 11.96% Ownership Percent of

prevailing rule in determining the nationality of corporations in the Philippines, and as such, all of the existing and would-be shares of Navigo in Scanmar being 60% Filipino- Hence, you seek confirmation of your position that the Control Test is the

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owned, are considered Filipino, for purposes of determining whether Scanmar complied with the nationality requirements for manning companies.

Redmont Consolidated Mines Corporation,1 to wit: Court in the recent case of Narra Nickel Mining and Development Corporation, et.al. v. Going now to your query, we find instructive the pronouncements of the Supreme

7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides: nationality of a corporation: the control test and the grandfather rule. Paragraph implemented the requirement of the Constitution and other laws pertaining to "Basically, there are two acknowledged tests in determining the

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

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Likewise, paragraph 7, D0J Opinion No. 020, Series of 2005 provides:

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

in the corporation or partnership is less than 60%, only the number Philippine nationality." Under the Strict Rule or Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership of shares corresponding to such percentage shall be counted as of The second case is the Strict Rule or the Grandfather Rule

1 G.R. No. 195580, 21 April 2014.

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Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership. Proper, the combined totals in the Investing Corporation and the

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

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not apply. 40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino).Stated differently,where the 60 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino In other words, based on the said SEC Rule and DOJ Opinion, the

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ownership in the corporation, then it may apply the "grandfather rule." determining whether or not a corporation is a Filipino corporation, within attendant facts and circumstances of the case, in the 60-40 Filipino-equity the ambit of Sec.2, Art. II of the 1987 Constitution,entitled to undertake the Philippines. When in the mind of the Court there is doubt, based on the exploration, development and utilization of the natural resources of the In ending, the control test' is still the prevailing mode of

manning agencies, provided that 75% of Scanmar is owned by Filipinos. 60% owned by Filipinos, its existing and would-be shareholdings in Scanmar is considered owned by Filipinos for purposes of computing the required Filipino equity for shall be used in determining the nationality of a corporation specially in cases where foreign ownership restrictions apply. Consequently, because, and as long as, Navigo is Thus, we answer your query in the affirmative. Absent any doubt, the Control Test

it will be disclosed that the facts relied upon are different, this opinion shall be rendered shall not be used in the nature of a standing rule binding upon the courts, or upon the facts disclosed in the query and relevant solely to the particular issues raised therein and Commission in other cases of similar or dissimilar circumstances.2 If upon investigation null and void. It shall be understood that the foregoing opinion is rendered based solely on the

Please be guided accordingly.

CAMIL S!CORREA General Counsel

2 SEC Memorandum Circular 2003-15, No. 7.