Philippines – Power Of The Minority.

26 May 2021
 

In the corporate realm, it cannot be denied that stockholders representing majority of the outstanding capital stock are given more rights and privileges, particularly in matters of voting.
 

The Revised Corporation Code (RCC), however, affords greater protection to minority stockholders. It expands the list of books and records required to be kept by the corporation available for examination, and increase the remedies available in case of violation of stockholders’ right of inspection. An important amendment is that the RCC prohibits removal of directors that will effectively deprive minority stockholders of the right of representation.
 

Thus, to further protect minority stockholders and promote corporate governance, the Securities and Exchange Commission (SEC) issued on 23 April 2021, Memorandum Circular No. 07, Series of 2021 allowing minority shareholders in publicly listed companies (PLC) to call special stockholder’s meetings, subject to the guidelines provided under the RCC, and other relevant laws, rules and regulations.
 

To be qualified to call for a special stockholders’ meeting, the Memorandum Circular provides that shareholders must have continuously held at least ten percent or more of the outstanding capital stock of a PLC for a period of at least one year prior to the receipt by the Corporate Secretary of the written call for the said meeting.
 

The call for a special stockholders’ meeting should be in writing, signed by all the qualified shareholders, addressed to the company’s board of directors, and transmitted through the corporate secretary at least 45 days prior to the proposed date of the special meeting.
 

The written call for the meeting must include:
 

• the name of the qualified stockholders and their respective percentage of shareholdings (with proof of their shareholdings and at least one government-issued ID);
   

• the purpose of the meeting;
   

• proposed date and time of the meeting; and
   

• the proposed agenda items to be discussed during the meeting.
   

The proposed agenda items, however, cannot be any subject matter. The agenda items should be matters that affect the legitimate interests of the shareholders on corporate actions, to which stockholders’ approval is required under the RCC, with the exception of the right to remove a director.
 

The Memorandum Circular prohibits qualified stockholders from calling for a special meeting within 60 days from the previous meeting of the same nature where the same matter was discussed. An exception to this is when such meeting is allowed in the by-laws of the corporation or approved by the Board of Directors.
 

Also, it prohibits qualified stockholders from calling for a special meeting if the agenda will be covered in the next regular or special meeting scheduled not later than 30 days from the date of the request, or if the agenda has already been discussed and resolved with finality in previous meetings.
 

The Board of Directors is tasked to determine if the objectives and conditions in the call for special stockholders’ meeting are consistent with the requirements of the Memorandum Circular. If the requirements are met, the Board shall issue a notice to convene the special stockholders’ meeting at least 7 prior to the proposed date of the said meeting. However, if the call does not meet the requirements, the Board shall send a notice to inform the requesting stockholders within 20 days from receiving the request that the call was denied for failure to comply with the requirements set therein.
 

In urgent matters, the Board of Directors may set the special stockholders’ meeting earlier than 45 days, if it determines that the matters raised by the qualifying shareholders necessitate a quick resolution to prevent undue damage to the company.
 

The special stockholders’ meeting may be done physically or remotely through allowed means of remote communication, in accordance with the RCC, SEC Memorandum Circular No. 6, Series of 2020 (Teleconferencing, Videoconferencing, and Other Remote or Electronic Means of Communication), and other relevant laws.
 

Any officer or agent of a corporation who refuses to allow a qualifying shareholder to exercise his or her right to call a meeting shall be made liable for administrative sanctions under Section 158 of the RCC, which allows the SEC to impose a fine ranging from P5,000 to P2 million, issue a permanent cease and desist order, suspend or revoke the corporation’s certificate of incorporation, dissolve the corporation, and forfeit its assets.