ASG Law

Tag: Dividends

  • Local Business Tax: Dividends and Interests Earned by Holding Companies

    The Supreme Court has ruled that a holding company managing dividends from shares, even if it places those dividends in interest-yielding markets, is not automatically considered to be ‘doing business’ as a bank or other financial institution for local business tax (LBT) purposes. The Court emphasized that the key is whether these activities are the company’s primary purpose or merely incidental to its role as a holding company. This decision clarifies the scope of local government taxing powers and protects holding companies from being unfairly taxed as financial institutions.

    Taxing Passive Income? Davao’s Fight for Local Business Tax on Holding Company Dividends

    This case revolves around the City of Davao’s attempt to collect local business taxes (LBT) from ARC Investors, Inc. (ARCII), a holding company, based on dividends and interests it earned in 2010. The city assessed ARCII P4,381,431.90, arguing that these earnings qualified ARCII as a financial institution subject to LBT under Section 143(f) of the Local Government Code (LGC). ARCII contested the assessment, arguing that it was not a bank or financial institution and that its receipt of dividends and interests was merely incidental to its ownership of shares in San Miguel Corporation (SMC) and money market placements. The legal question at the heart of the matter is whether ARCII, by virtue of its investment activities and the income derived therefrom, could be considered a “bank or other financial institution” as defined under the LGC, making it liable for LBT.

    The Local Government Code grants local government units the power to impose LBT on the privilege of doing business within their jurisdictions. Section 143(f) of the LGC allows municipalities to tax banks and other financial institutions based on their gross receipts derived from various sources, including interest and dividends. The definition of “banks and other financial institutions” is found in Section 131(e) of the LGC, which includes “non-bank financial intermediaries, lending investors, finance and investment companies, pawnshops, money shops, insurance companies, stock markets, stock brokers and dealers in securities and foreign exchange.” The Supreme Court has consistently held that the term ‘doing business’ implies a trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.

    However, to be classified as a non-bank financial intermediary (NBFI) and thus subject to LBT, an entity must meet specific criteria. These requisites, as identified by the Supreme Court, include authorization from the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking functions, the entity’s principal functions must include lending, investing, or placement of funds, and the entity must perform these functions on a regular and recurring basis, not just occasionally. In this case, the Court found that ARCII did not meet these requirements. ARCII was not authorized by the BSP to perform quasi-banking activities, and its primary purpose, as defined in its Articles of Incorporation (AOI), did not principally relate to NBFI activities.

    Furthermore, the Court emphasized that ARCII’s functions were not performed on a regular and recurring basis. ARCII’s activities were connected to its role as one of the Coconut Industry Investment Fund (CIIF) holding companies, established to own and hold SMC shares of stock. In the landmark case of COCOFED v. Republic of the Philippines, the Supreme Court characterized the SMC preferred shares held by CIIF holding companies and their derivative dividends as assets owned by the National Government, to be used solely for the benefit of coconut farmers and the development of the coconut industry. This underlying purpose, the Court noted, distinguished ARCII’s activities from those of a typical financial institution, where the management of dividends, even through interest-yielding placements, did not, by itself, constitute “doing business” as an NBFI.

    The Supreme Court, citing its ruling in City of Davao v. Randy Allied Ventures, Inc., drew a clear distinction between a holding company and a financial intermediary. It emphasized that a holding company invests in the equity securities of other companies to control their policies, whereas a financial intermediary actively deals with public funds and is regulated by the BSP. Investment activities by holding companies are considered incidental to their primary purpose, unlike financial intermediaries whose core business involves the active management and lending of funds. The critical distinction lies in the regularity of function for the purpose of earning a profit, which was lacking in ARCII’s case.

    The court also gave weight to a Bureau of Local Government Finance Opinion, which stated that unless a tax is imposed on banks and other financial institutions, any tax on interest, dividends, and gains from the sale of shares of non-bank and non-financial institutions assumes the nature of income tax. This is because, unlike banks and financial institutions, non-bank and non-financial institutions receive interest, dividends, and gains from the sale of shares as passive investment income, not as part of their ordinary course of business. The Court found that the City of Davao had acted beyond its taxing authority in assessing ARCII for LBT, given that ARCII’s activities did not qualify it as an NBFI engaged in doing business within the meaning of the LGC.

    FAQs

    What was the key issue in this case? The key issue was whether ARC Investors, Inc. (ARCII), a holding company, could be considered a non-bank financial intermediary (NBFI) subject to local business tax (LBT) based on dividends and interests it earned.
    What is a holding company? A holding company is a company that owns a controlling interest in other companies. Its primary purpose is to control the policies of those companies rather than directly engaging in operating activities.
    What is a non-bank financial intermediary (NBFI)? An NBFI is an entity authorized to perform quasi-banking functions, whose principal functions include lending, investing, or placement of funds on a regular and recurring basis. These entities are regulated by the Bangko Sentral ng Pilipinas (BSP).
    What is the Local Government Code (LGC)? The LGC is a law that grants local government units the power to impose local business taxes on the privilege of doing business within their territorial jurisdictions.
    What did the Court rule about ARCII’s tax liability? The Supreme Court ruled that ARCII was not liable for LBT because its investment activities were merely incidental to its role as a holding company and did not qualify it as an NBFI.
    What is the significance of the COCOFED case? The COCOFED case established that the SMC preferred shares held by CIIF holding companies and their derivative dividends are assets owned by the National Government and should be used solely for the benefit of coconut farmers and the development of the coconut industry.
    What is the difference between a holding company and a financial intermediary? A holding company invests in other companies to control their policies, while a financial intermediary actively deals with public funds and is regulated by the BSP due to its quasi-banking functions.
    What was the basis of the City of Davao’s assessment? The City of Davao assessed ARCII based on Section 143(f) of the LGC, which allows municipalities to tax banks and other financial institutions on their gross receipts, including interest and dividends.

    This ruling clarifies the distinction between holding companies and financial institutions for local tax purposes. It reinforces the principle that incidental investment activities by holding companies do not automatically subject them to LBT as financial intermediaries. This decision provides valuable guidance for local government units and holding companies alike.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: City of Davao vs. ARC Investors, Inc., G.R. No. 249668, July 13, 2022

  • Dividends vs. Capital Gains: Taxing Share Redemptions Under the RP-US Treaty

    The Supreme Court ruled that the redemption of preferred shares by Goodyear Philippines from its US-based parent company, Goodyear Tire and Rubber Company (GTRC), was not subject to the 15% final withholding tax (FWT) on dividends. The Court clarified that the redemption price, which included an amount above the par value of the shares, could not be considered dividends because Goodyear Philippines did not have unrestricted retained earnings from which dividends could be declared. This decision clarifies the tax treatment of share redemptions involving foreign entities and the application of the RP-US Tax Treaty.

    Redeeming Shares: When is a Gain Not a Dividend?

    Goodyear Philippines, Inc. (respondent), sought a refund for erroneously withheld and remitted final withholding tax (FWT) related to the redemption of preferred shares held by its parent company, Goodyear Tire and Rubber Company (GTRC), a US resident. The core legal question was whether the gains derived by GTRC from the redemption of these shares should be subject to the 15% FWT on dividends, or if the transaction qualified for tax exemption under the RP-US Tax Treaty. Understanding this distinction is vital for multinational corporations operating in the Philippines to properly manage their tax obligations.

    The controversy began when respondent increased its authorized capital stock, with the preferred shares being exclusively subscribed by GTRC. Later, the respondent authorized the redemption of these shares at a price exceeding their par value. Respondent withheld and remitted FWT on the difference between the redemption price and the par value, taking a conservative approach. Subsequently, the respondent filed for a refund, arguing that the gains were not taxable in the Philippines under the RP-US Tax Treaty. The Commissioner of Internal Revenue (petitioner) contested the claim, asserting that the gain was essentially accumulated dividends and therefore subject to the 15% FWT.

    The Court of Tax Appeals (CTA) Division and En Banc both sided with the respondent, prompting the petitioner to elevate the case to the Supreme Court. The petitioner argued that the judicial claim was premature due to the non-exhaustion of administrative remedies. Moreover, the petitioner insisted that the portion of the redemption price exceeding the par value of the shares represented accumulated dividends in arrears and should be taxed accordingly.

    The Supreme Court addressed the procedural issue first, emphasizing that the administrative claim’s primary purpose is to notify the CIR of potential court action. According to Section 229 of the Tax Code:

    SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

    In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment  x x x.

    The Court reiterated that taxpayers are not required to await the final resolution of their administrative claims before seeking judicial recourse, especially as the two-year prescriptive period nears expiration. Therefore, the respondent’s judicial claim was deemed timely filed, notwithstanding the short interval between the administrative and judicial filings.

    Turning to the substantive issue, the Court examined whether the gains derived by GTRC from the share redemption should be considered dividends subject to the 15% FWT. Section 28 (B) (5) (b) of the Tax Code addresses this issue:

    SEC. 28. Rates of Income Tax on Foreign Corporations. –

    xxxx

    (B) Tax on Nonresident Foreign Corporation. –

    xxxx

    (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –

    (b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57 (A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends;

    xxxx

    However, since GTRC is a US resident, the RP-US Tax Treaty also plays a crucial role. Article 11(5) of the RP-US Tax Treaty provides that the term “dividends” should be interpreted according to the taxation laws of the state where the distributing corporation resides. In this case, that means the Philippines. Section 73 (A) of the Tax Code defines dividends as:

    [T]he term ‘dividends’ when used in this Title means any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders, whether in money or in other property.

    The Supreme Court concluded that the redemption price exceeding the par value could not be deemed accumulated dividends subject to the 15% FWT. Crucially, the respondent’s financial statements showed that it lacked unrestricted retained earnings during the relevant period. As such, the board of directors could not have legally declared dividends, as mandated by Section 43 of the Corporation Code:

    Section 43. Power to Declare Dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose.

    x x x x

    The court also noted that dividends typically represent a recurring return on stock, which was not the case here. The payment was a one-time redemption of shares, not a periodic dividend distribution. As cited in Wise & Co., Inc. v. Meer:

    The amounts thus distributed among the plaintiffs were not in the nature of a recurring return on stock — in fact, they surrendered and relinquished their stock in return for said distributions, thus ceasing to be stockholders of the Hongkong Company, which in turn ceased to exist in its own right as a going concern during its more or less brief administration of the business as trustee for the Manila Company, and finally disappeared even as such trustee.

    “The distinction between a distribution in liquidation and an ordinary dividend is factual; the result in each case depending on the particular circumstances of the case and the intent of the parties. If the distribution is in the nature of a recurring return on stock it is an ordinary dividend. However, if the corporation is really winding up its business or recapitalizing and narrowing its activities, the distribution may properly be treated as in complete or partial liquidation and as payment by the corporation to the stockholder for his stock. The corporation is, in the latter instances, wiping out all parts of the stockholders’ interest in the company * * * .”

    In summary, the Supreme Court denied the petition, affirming the CTA’s decision that the gains realized by GTRC from the redemption of its preferred shares were not subject to the 15% FWT on dividends. This ruling underscores the importance of analyzing the specific circumstances and the intent of the parties when classifying distributions as dividends or capital gains, especially in cross-border transactions governed by tax treaties.

    FAQs

    What was the key issue in this case? The primary issue was whether the gains derived by a US-based company from the redemption of its preferred shares in a Philippine corporation should be taxed as dividends. The Commissioner of Internal Revenue argued that the gains were essentially accumulated dividends and subject to 15% final withholding tax (FWT).
    What did the Supreme Court rule? The Supreme Court ruled that the gains were not taxable as dividends because the Philippine corporation did not have unrestricted retained earnings from which dividends could be declared. Therefore, the redemption price was not subject to 15% FWT on dividends.
    What is the significance of the RP-US Tax Treaty in this case? The RP-US Tax Treaty was crucial because it dictates that the definition of “dividends” should be based on the tax laws of the country where the distributing corporation is a resident, which in this case is the Philippines. The Tax Code defines dividends as distributions from earnings or profits.
    What are unrestricted retained earnings? Unrestricted retained earnings are the accumulated profits of a corporation that are available for distribution to shareholders as dividends. If a company has a deficit or its retained earnings are restricted, it cannot legally declare dividends.
    Why was the timing of the administrative and judicial claims important? The administrative claim had to be filed with the CIR before a judicial claim could be made. However, the judicial claim had to be filed within two years of the tax payment, regardless of whether the CIR had acted on the administrative claim.
    What is the difference between dividends and capital gains in this context? Dividends are distributions of a corporation’s earnings or profits to its shareholders, while capital gains are profits from the sale or exchange of property, such as shares of stock. They are taxed differently, with dividends often subject to a final withholding tax.
    What is a final withholding tax (FWT)? A final withholding tax is a tax that is withheld at the source of income, and the recipient does not need to declare it further in their income tax return. It is a final tax on that particular income.
    What factors did the court consider in determining whether the redemption price was a dividend? The court considered (1) the availability of unrestricted retained earnings, (2) whether the distribution was a recurring return on stock, and (3) the intent of the parties. Here, the payment was a one-time redemption, not a periodic dividend distribution, and the company had no unrestricted retained earnings.

    This case provides valuable guidance on the tax treatment of share redemptions involving foreign entities and highlights the interplay between domestic tax laws and international tax treaties. Taxpayers should carefully consider the availability of unrestricted retained earnings and the nature of the distribution when determining the appropriate tax treatment.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Commissioner of Internal Revenue v. Goodyear Philippines, Inc., G.R. No. 216130, August 03, 2016

  • Lifting the Veil: Dividends and the Rights of Non-Sequested Shareholders

    The Supreme Court has affirmed that shareholders of a corporation are entitled to cash dividends declared by the company, especially when their shares are not subject to a valid sequestration order. This ruling clarifies that the Presidential Commission on Good Government (PCGG) cannot claim dividends from shares it does not validly control, reinforcing the principle that corporations have separate legal personalities from their shareholders. The decision underscores the importance of due process and the protection of shareholder rights, even in cases involving the recovery of ill-gotten wealth. It also provides guidance on the limits of PCGG’s authority and the necessity of adhering to constitutional requirements for sequestration.

    When Good Governance Encounters Corporate Dividends: Whose Shares Are These Anyway?

    The cases of Presidential Commission on Good Government vs. Silangan Investors and Managers, Inc. and Sandiganbayan and Presidential Commission on Good Government vs. Polygon Investors and Managers, Incorporated and Sandiganbayan, consolidated under G.R. Nos. 167055-56 and G.R. No. 170673, revolve around the Sandiganbayan’s orders to release cash dividends, with interest, to Silangan Investors and Managers, Inc. (Silangan) and Polygon Investors and Managers, Inc. (Polygon) from Oceanic Wireless Network, Inc. (Oceanic). The PCGG challenged these orders, arguing that the dividends were under custodia legis and that its acts in managing Oceanic, including declaring dividends, were void. At the heart of the matter was whether PCGG had the right to withhold dividends from shareholders whose shares were not validly sequestered.

    The facts reveal that Silangan and Polygon held significant shares in Oceanic. In 1986 and 1988, the PCGG issued sequestration orders against several individuals and corporations, including Roberto S. Benedicto and, at one point, Polygon and Aerocom Investors and Managers, Inc. (Aerocom). These actions led PCGG to take over Oceanic’s management and declare cash dividends. However, a crucial compromise agreement between Benedicto and PCGG in 1990 ceded only Benedicto’s 51% equity in Silangan to the government, not his shares in Oceanic directly. This distinction would become critical in the subsequent legal battles.

    The Sandiganbayan, in a 1994 decision, declared the 1988 writs of sequestration against Aerocom, Polygon, Silangan, and Belgor Investments, Inc. void because PCGG failed to initiate judicial action within the constitutionally mandated six-month period. The Sandiganbayan also nullified the 1986 sequestration order affecting shares owned by Jose L. Africa and Victor A. Africa due to the order being signed by only one PCGG commissioner, violating PCGG’s own rules. The Supreme Court later affirmed this decision in Presidential Commission on Good Government v. Sandiganbayan, emphasizing the failure to properly implead the corporations as defendants and the expiration of the sequestration period:

    We find the writ of sequestration issued against [Oceanic] not valid because the suit in Civil Case No. 0009 against Manuel H. Nieto and Jose L. Africa as shareholders in [Oceanic] is not a suit against [Oceanic]. This Court has held that “failure to implead these corporations as defendants and merely annexing a list of such corporations to the complaints is a violation of their right to due process for it would in effect be disregarding their distinct and separate personality without a hearing.”

    Building on this principle, the Supreme Court reiterated that the PCGG must adhere to due process and cannot disregard the separate legal personalities of corporations. The failure to implead the corporations directly in legal proceedings meant that any actions taken against them, including the sequestration of their assets, were invalid. This ruling underscores the importance of procedural correctness and the protection of corporate rights in the context of government efforts to recover ill-gotten wealth.

    Despite the Supreme Court’s affirmation of the Sandiganbayan’s decision, PCGG continued to contest the release of dividends to Silangan and Polygon. PCGG argued that the dividends were under custodia legis, citing a 1998 Sandiganbayan order placing the cash dividends in such status. PCGG also contended that its actions in managing Oceanic, including the declaration of dividends, were void. However, the Sandiganbayan rejected these arguments, ordering the release of the dividends to Silangan and Polygon. The Sandiganbayan emphasized that PCGG had agreed to the release of 49% of Silangan’s dividends and that Benedicto had ceded his equity in Silangan, not in Oceanic directly. The Sandiganbayan also noted that Silangan and Polygon were not sequestered and were therefore entitled to the dividends.

    The Supreme Court, in its final ruling, upheld the Sandiganbayan’s decisions, finding that PCGG had failed to demonstrate grave abuse of discretion. The Court emphasized that the Sandiganbayan’s resolutions were grounded on sound legal and factual bases, including PCGG’s agreement to release a portion of Silangan’s dividends, the fact that Benedicto’s cession only applied to his equity in Silangan, and the previous rulings declaring the sequestration of Silangan and Polygon’s shares invalid. Furthermore, the Court acknowledged that PCGG’s declaration of cash dividends, while it managed Oceanic, was presumed valid at the time, before the Sandiganbayan’s 1994 decision came out.

    This approach contrasts with cases where the sequestration was deemed valid, as illustrated in Republic of the Philippines v. Sandiganbayan, where the Court upheld PCGG’s authority to vote shares that were presumed to have been regularly sequestered at the time. In the present case, however, the absence of a valid sequestration order was a decisive factor in determining the rights of Silangan and Polygon to receive the dividends declared on their shares. The Court noted that in PCGG v. Sandiganbayan, the release of dividends to Aerocom was affirmed because Aerocom was not validly sequestered or impleaded in Civil Case No. 0009.

    This case highlights the critical importance of properly executing and maintaining sequestration orders. The PCGG’s failure to comply with constitutional and procedural requirements resulted in the invalidation of the sequestration orders against Silangan and Polygon, thereby entitling them to the dividends declared on their shares. This ruling serves as a reminder that government efforts to recover ill-gotten wealth must be balanced with the protection of individual and corporate rights.

    FAQs

    What was the key issue in this case? The key issue was whether the PCGG could withhold cash dividends from shareholders of Oceanic Wireless Network, Inc. (Oceanic) when those shareholders’ shares were not validly sequestered.
    Why did the PCGG argue that it should control the dividends? The PCGG argued that the dividends were under custodia legis and that its management of Oceanic, including the declaration of dividends, should be considered void due to alleged irregularities.
    What was the basis for the Sandiganbayan’s decision to release the dividends? The Sandiganbayan based its decision on the fact that the sequestration orders against Silangan and Polygon were declared void due to the PCGG’s failure to initiate judicial action within the required timeframe.
    How did the Supreme Court rule on this matter? The Supreme Court affirmed the Sandiganbayan’s decision, holding that the PCGG failed to demonstrate grave abuse of discretion and that the shareholders were entitled to the dividends because their shares were not validly sequestered.
    What is the significance of the compromise agreement with Roberto Benedicto? The compromise agreement ceded only Benedicto’s 51% equity in Silangan to the government, not his direct shares in Oceanic, which meant the government’s claim on dividends from Oceanic shares held by Silangan was limited.
    What does custodia legis mean in this context? Custodia legis refers to the cash dividends being under the custody of the court. The PCGG argued that this status prevented the Sandiganbayan from ordering their release, but the court disagreed.
    What was the impact of the PCGG failing to implead the corporations in legal proceedings? The failure to implead the corporations as defendants violated their right to due process and meant that actions taken against them, including sequestration, were invalid because the corporations were not given an opportunity to defend themselves.
    Why was the validity of the sequestration orders so important? The validity of the sequestration orders was crucial because it determined whether the PCGG had the legal authority to control the shares and, consequently, the dividends declared on those shares.
    What is the key takeaway from this case for shareholders of sequestered companies? The key takeaway is that shareholders’ rights are protected, and dividends cannot be withheld without a valid sequestration order that complies with constitutional and procedural requirements.

    In conclusion, the Supreme Court’s decision reinforces the importance of due process and the protection of shareholder rights, even in cases involving the recovery of ill-gotten wealth. The PCGG’s authority is not unlimited, and it must adhere to constitutional requirements when exercising its powers. The absence of a valid sequestration order is a decisive factor in determining the rights of shareholders to receive dividends declared on their shares.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: PCGG vs. Silangan, G.R. Nos. 167055-56 & 170673, March 25, 2010

  • Ownership Rights: Dividends Follow the Shares in Ill-Gotten Wealth Cases

    In Imelda O. Cojuangco, Prime Holdings, Inc., and the Estate of Ramon U. Cojuangco v. Sandiganbayan, Republic of the Philippines, and the Sheriff of Sandiganbayan, the Supreme Court affirmed that when the Republic of the Philippines is declared the owner of illegally acquired shares of stock, it is also entitled to all dividends and interests accruing to those shares from the time of sequestration. This ruling clarifies that ownership includes the right to all benefits derived from the property, ensuring that ill-gotten wealth is fully recovered for the public good. This decision reinforces the principle that the fruits of ownership belong to the owner, even if not explicitly stated in the original judgment.

    From Marcos Cronies to Public Funds: Tracing Dividends in Ill-Gotten Wealth

    This case arose from the Republic’s efforts to recover ill-gotten wealth accumulated by the late President Marcos and his associates, including shares in the Philippine Long Distance Telephone Company (PLDT). The Republic filed a complaint seeking the reconveyance of these assets, alleging that they were acquired through unlawful means. The legal battle centered on whether the Republic, having been declared the owner of certain shares, was also entitled to the dividends and interests that had accrued on those shares over the years.

    The central issue revolved around the interpretation of the Supreme Court’s earlier decision in G.R. No. 153459, which had granted the Republic ownership of 111,415 shares of stock in the Philippine Telecommunications Investment Corporation (PTIC) registered under Prime Holdings, Inc. While the dispositive portion of that decision explicitly ordered the reconveyance of the shares, it did not specifically mention the dividends and interests. The petitioners, Imelda O. Cojuangco, Prime Holdings, Inc., and the Estate of Ramon U. Cojuangco, argued that this omission meant the Republic was not entitled to the additional benefits.

    However, the Supreme Court, in this subsequent case, rejected that narrow interpretation. Building on the fundamental concept of ownership, the Court emphasized that the right to receive dividends and interests is an inherent attribute of owning stock. According to the Court, this right is part of the bundle of rights that constitutes ownership, also known as jus utendi, which includes the right to receive what the thing produces. The Court invoked the principle that ownership grants the right to all benefits derived from the property.

    The Supreme Court also addressed the argument that the Republic had forfeited its right to the dividends when it later transferred the shares to Metro Pacific Assets Holdings, Inc. The Court clarified that dividends are payable to the stockholders of record as of the date of declaration, or a predetermined future date. Furthermore, the Court referenced Section 63 of the Corporation Code which discusses the transfer of shares:

    Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

    In this context, the Court noted that even if a transfer of shares is not yet recorded in the corporate books, the transferor holds the dividends as a trustee for the real owner. The Court thus determined that the Republic was entitled to the dividends from the time the shares were sequestered in 1986 until their transfer to Metro Pacific, after which the Republic acted as a trustee of those dividends for Metro Pacific. This clarification ensured that the economic benefits of the shares would ultimately accrue to the rightful owner.

    The ruling in this case has significant implications for cases involving the recovery of ill-gotten wealth. It reinforces the principle that ownership encompasses all the benefits and advantages that come with it. Moreover, it prevents parties from attempting to circumvent the spirit of court orders by focusing solely on the literal wording of the dispositive portion. It underscores the importance of looking at the intent and reasoning behind a decision to ensure that justice is served.

    The Supreme Court also cited the exceptions to the general rule that only the dispositive portion of a decision is subject to execution. One such exception arises when there is ambiguity or uncertainty, allowing reference to the body of the opinion to construe the judgment. Another exception applies when extensive and explicit discussion of the issue is found in the body of the decision. The Court explained:

    Contrary to petitioners’ contention, while the general rule is that the portion of a decision that becomes the subject of execution is that ordained or decreed in the dispositive part thereof, there are recognized exceptions to this rule, viz: (a).where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment, because the dispositive part of a decision must find support from the decision’s ratio decidendi; and (b).where extensive and explicit discussion and settlement of the issue is found in the body of the decision.

    Thus, the Court reasoned that even though the earlier decision did not explicitly mention dividends, the intent to award the Republic full ownership of the shares implied that the dividends should also be included. This interpretation ensures that the Republic can fully recover the ill-gotten wealth and use it for the benefit of the Filipino people.

    Ultimately, this case underscores the principle that ownership is not merely a nominal title but a comprehensive right that includes all the benefits derived from the property. It serves as a reminder that courts will look beyond the literal wording of a decision to ensure that the true intent of the judgment is carried out. The Court found that awarding the shares without the dividends would result in a crippled owner, unable to enjoy the full fruits of their property.

    FAQs

    What was the key issue in this case? The central issue was whether the Republic of the Philippines, having been declared the owner of shares of stock, was also entitled to the dividends and interests accruing to those shares. The petitioners argued that the earlier court decision did not explicitly mention dividends, so they should not be included.
    What did the Supreme Court decide? The Supreme Court ruled in favor of the Republic, holding that ownership of the shares necessarily includes the right to the dividends and interests accruing to them. The Court reasoned that these benefits are an inherent part of ownership.
    What is jus utendi? Jus utendi is a Latin term that refers to one of the fundamental rights of ownership. It means the right to use and enjoy a thing, including the right to receive its fruits or benefits.
    Why didn’t the original decision mention dividends? Although the original decision did not explicitly mention dividends, the Supreme Court clarified that the intent was to award full ownership of the shares to the Republic. The Court found that awarding the shares without the dividends would render the Republic a “crippled owner.”
    What happens when shares are transferred? When shares are transferred, the dividends are payable to the stockholders of record as of the date of declaration. If the transfer is not yet recorded, the transferor holds the dividends as a trustee for the real owner.
    What is the significance of Section 63 of the Corporation Code? Section 63 of the Corporation Code governs the transfer of shares. It states that a transfer is only valid between the parties until it is recorded in the books of the corporation.
    What is a ‘crippled owner’? A ‘crippled owner’ is a term used by the Court to describe an owner who is unable to exercise the full rights of ownership, particularly the right to enjoy the fruits of the property.
    How does this case affect future ill-gotten wealth cases? This case reinforces the principle that ownership encompasses all benefits derived from the property, preventing parties from circumventing court orders by focusing solely on literal wording. It makes it clear that recovery of ill-gotten wealth includes dividends and interests.

    In conclusion, the Supreme Court’s decision in this case reaffirms the comprehensive nature of ownership and the importance of ensuring that ill-gotten wealth is fully recovered for the benefit of the public. The ruling serves as a guiding principle for future cases involving the recovery of assets acquired through unlawful means, emphasizing that ownership includes not only the title to the property but also all the rights and benefits that come with it.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Imelda O. Cojuangco, Prime Holdings, Inc., and the Estate of Ramon U. Cojuangco v. Sandiganbayan, Republic of the Philippines, and the Sheriff of Sandiganbayan, G.R. NO. 183278, April 24, 2009

  • Ownership Rights: Dividends Follow the Shares in Ill-Gotten Wealth Recovery

    The Supreme Court has affirmed that ownership of shares of stock includes the right to dividends and interests accruing to those shares. This ruling clarifies that when the government recovers ill-gotten wealth in the form of stock, it is also entitled to all benefits derived from that stock, ensuring the full recovery of public funds. This reinforces the principle that ownership entails all associated rights and benefits.

    Unraveling Ownership: Who Reaps the Rewards of Recovered Shares?

    This case revolves around the Republic of the Philippines’ efforts to recover ill-gotten wealth from the Marcoses and their associates, specifically involving shares of stock in the Philippine Long Distance Telephone Company (PLDT). The Republic sought to recover 2.4 million shares, claiming these were part of the Marcoses’ illegally acquired assets. The dispute centered on 111,415 shares of stock in the Philippine Telecommunications Investment Corporation (PTIC) registered under Prime Holdings, Inc., allegedly controlled by the Cojuangcos. The central legal question was whether the recovery of these shares by the Republic also included the right to the dividends and interests that had accrued over time.

    The Sandiganbayan initially dismissed the complaint regarding the PLDT shares, but the Supreme Court, in G.R. No. 153459, reversed this decision, declaring the Republic the rightful owner of 111,415 PTIC shares registered under Prime Holdings. Following this victory, the Republic sought a writ of execution to enforce the decision, including a demand for PTIC to account for all cash and stock dividends declared and/or issued by PLDT since 1986, along with compounded interests. The Sandiganbayan granted the motion for the reconveyance of the shares but initially denied the prayer for accounting of dividends.

    Subsequently, upon the Republic’s motion for reconsideration, the Sandiganbayan reversed its position and directed PTIC to deliver the cash and stock dividends, including compounded interests, pertaining to the 111,415 shares. The court reasoned that since the Supreme Court had declared the Republic the owner of the shares, it was also entitled to the fruits thereof. The Cojuangcos contested this decision, arguing that the Supreme Court’s decision did not explicitly address the disposition of dividends and interests accruing to the shares. Despite this, the Sandiganbayan partly granted the Cojuangcos’ motion by including legal interests but not compounding them from the accounting and remittance to the Republic.

    The Supreme Court addressed the main issues of whether the Sandiganbayan gravely abused its discretion by ordering the accounting, delivery, and remittance of the dividends when the Supreme Court’s decision did not explicitly discuss it. It also addressed whether the Republic, having transferred the shares to a third party, was still entitled to the dividends, interests, and earnings. The Supreme Court emphasized the definition of a dividend, explaining that it is a portion of the profits of a corporation set aside for distribution among stockholders. The Court cited Nielson & Co. v. Lepanto Consolidated Mining Co., No. L-21601, December 28, 1968, 26 SCRA 540, 569, defining dividends in their technical and ordinary sense.

    The Supreme Court underscored that ownership entails rights, including the right to receive the fruits of the thing owned. The Court, in Distilleria Washington, Inc. v. La Tondeña Distillers, Inc., G.R. No. 120961, October 2, 1997, 280 SCRA 116, 125, reiterated that ownership is a relation in law where a thing pertaining to one person is completely subjected to his will, including the right to receive from the thing what it produces. The Court noted that even though the inclusion of dividends was not explicitly stated in the dispositive portion of its earlier decision, it was clear from the body of the decision that the Republic was entitled to the entire block of shares and the fruits thereof.

    The Court rejected the literal interpretation sought by the petitioners and highlighted exceptions to the general rule that only the dispositive portion of a decision is subject to execution. It explained that when there is ambiguity or extensive discussion of an issue in the body of the decision, those parts may be considered. Citing Insular Life v. Toyota Bel-Air, G.R. No. 137884, March 28, 2008, the Supreme Court reiterated that the dispositive part of a decision must find support from the decision’s ratio decidendi.

    Further, the Supreme Court dismissed the argument that the Republic had lost its right to the dividends after transferring the shares to Metro Pacific Assets Holdings, Inc. The Court explained that dividends are payable to stockholders of record as of the date of declaration, unless otherwise agreed. The Court also cited Section 63 of the Corporation Code, emphasizing that while a transfer of shares is valid between parties, it is only effective against the corporation once recorded in its books. Thus, the Republic was entitled to the dividends accruing from the shares from 1986 until the transfer to Metro Pacific in 2007 and served as a trustee for those dividends after the transfer, subject to their agreement.

    Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

    Ultimately, the Supreme Court denied the petition and affirmed the Sandiganbayan’s resolutions, holding that the Republic was entitled to the dividends accruing from the recovered shares. This decision underscores the principle that ownership of shares of stock includes the right to the benefits derived from those shares, especially in cases involving the recovery of ill-gotten wealth. The Court’s ruling ensures that the government can fully recover assets illegally acquired and prevent unjust enrichment.

    FAQs

    What was the key issue in this case? The key issue was whether the Republic of the Philippines, having recovered ill-gotten shares of stock, was also entitled to the dividends and interests that accrued on those shares.
    What did the Supreme Court rule? The Supreme Court ruled that the Republic was indeed entitled to the dividends and interests, as ownership of the shares necessarily included the right to the fruits thereof.
    Why did the Cojuangcos contest the decision? The Cojuangcos argued that the Supreme Court’s original decision did not explicitly mention the dividends and interests, and therefore, they should not be included in the recovery.
    What is a dividend? A dividend is a portion of a company’s profits that is distributed to its shareholders as a return on their investment.
    What does ownership entail? Ownership entails a bundle of rights, including the right to possess, use, enjoy, dispose of, and receive the fruits or benefits from the owned property.
    What happens to dividends when shares are transferred? Dividends are typically payable to the stockholder of record on the date of declaration, unless otherwise agreed upon by the parties involved in the transfer.
    What is the significance of recording share transfers? Recording share transfers in the corporation’s books is crucial for the transfer to be valid against third parties and the corporation itself, ensuring that the corporation knows who is entitled to the dividends.
    How does this case affect future ill-gotten wealth recovery? This case clarifies that when the government recovers ill-gotten shares, it is also entitled to all the financial benefits derived from those shares, ensuring a more complete recovery of public funds.

    In conclusion, the Supreme Court’s decision in this case reaffirms the principle that ownership of property, including shares of stock, carries with it the right to all the benefits and fruits that accrue to that property. This ruling ensures that the government can fully recover ill-gotten wealth, preventing unjust enrichment and reinforcing the public trust.

    For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

    Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
    Source: Imelda O. Cojuangco, et al. vs. Sandiganbayan, G.R. NO. 183278, April 24, 2009

  • Redeemable Preferred Shares: When Can a Corporation Refuse Redemption? – Philippine Law Explained

    Understanding Redeemable Preferred Shares and Corporate Redemption Rights in the Philippines

    TLDR: Philippine Supreme Court clarifies that while preferred shares may be ‘redeemable,’ the option to redeem often lies with the corporation, not the shareholder, unless explicitly stated otherwise. Furthermore, regulatory interventions, like those from the Central Bank, can validly restrict redemption to protect the financial stability of institutions and public interest, overriding contractual redemption clauses. This case highlights that redemption is not guaranteed and is subject to corporate discretion and regulatory constraints.

    [ G.R. No. 51765, March 03, 1997 ] REPUBLIC PLANTERS BANK, PETITIONER, VS. HON. ENRIQUE A. AGANA, SR., AS PRESIDING JUDGE, COURT OF FIRST INSTANCE OF RIZAL, BRANCH XXVIII, PASAY CITY, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION AND ADALIA F. ROBES, RESPONDENTS.

    INTRODUCTION

    Imagine investing in preferred shares, enticed by the promise of regular dividends and the option to redeem your investment after a set period. This scenario offers a blend of steady income and potential capital return, seemingly a secure investment. However, what happens when the issuing corporation, facing financial headwinds and regulatory directives, refuses to redeem those shares? This was the core issue in the case of Republic Planters Bank v. Hon. Enrique A. Agana, Sr., a landmark decision that underscores the nuances of redeemable preferred shares and the limitations on redemption rights under Philippine corporate law.

    In this case, Robes-Francisco Realty & Development Corporation sought to compel Republic Planters Bank (RPB) to redeem preferred shares and pay accumulated dividends. RPB, however, citing a Central Bank directive due to its financial instability, refused. The Supreme Court’s decision provides critical insights into the nature of redeemable shares, the discretionary power of corporations regarding redemption, and the overriding authority of regulatory bodies in certain circumstances.

    LEGAL CONTEXT: PREFERRED SHARES, REDEMPTION, AND CORPORATE OBLIGATIONS

    To fully grasp the Supreme Court’s ruling, it’s essential to understand the legal landscape surrounding preferred shares and corporate obligations in the Philippines. Preferred shares, as the name suggests, offer certain ‘preferences’ to holders over common shareholders. These preferences typically relate to dividends and asset distribution during liquidation.

    The case delves into two key aspects of preferred shares: dividends and redemption.

    Dividends: Not a Guaranteed Right

    Philippine corporate law, both under the old Corporation Law (Act No. 1459) and the present Corporation Code of the Philippines, dictates that dividends can only be declared from a corporation’s surplus profits or unrestricted retained earnings. Section 43 of the Corporation Code explicitly states:

    “SEC. 43. Power to declare dividends. – The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock…”

    This provision clarifies that dividend declaration is not automatic, even for preferred shares. It hinges on the corporation’s profitability and the board of directors’ discretion. Preferred shareholders have priority in dividend receipt over common shareholders, but this preference is conditional upon the existence of distributable profits.

    Redeemable Shares: Option vs. Obligation

    Redeemable shares are a specific type of preferred stock that the corporation can repurchase, or ‘redeem,’ at a predetermined price and time. This redemption can be at a fixed date or at the option of the corporation, the shareholder, or both. Crucially, the terms of redemption are defined in the stock certificates themselves.

    While the Corporation Code allows redemption even without unrestricted retained earnings, this is subject to a critical caveat: the corporation must remain solvent after redemption. Redemption cannot lead to insolvency or hinder the corporation’s ability to meet its debts.

    Central Bank’s Regulatory Authority and Police Power

    Banks in the Philippines operate under the regulatory purview of the Bangko Sentral ng Pilipinas (BSP), the country’s central bank. The BSP has broad powers to supervise and regulate banks to maintain financial stability and protect depositors and creditors. This regulatory power is rooted in the State’s police power, the inherent authority to enact laws and regulations to promote public welfare, even if it may affect private contracts or rights.

    The principle of police power is paramount. As the Supreme Court has consistently held, the constitutional guarantee against the impairment of contracts is not absolute and is limited by the valid exercise of police power. Public welfare always trumps private interests.

    CASE BREAKDOWN: REPUBLIC PLANTERS BANK VS. ROBES-FRANCISCO REALTY

    The story unfolds with a loan obtained by Robes-Francisco Realty from Republic Planters Bank in 1961. Part of the loan proceeds was disbursed in the form of preferred shares issued to Robes-Francisco. These shares carried a crucial condition: they were “redeemable, by the system of drawing lots, at any time after two (2) years from the date of issue at the option of the Corporation.” They also stipulated a “quarterly dividend of One Per Centum (1%), cumulative and participating.”

    Fast forward to 1979, Robes-Francisco Realty sought to redeem these shares and claim accumulated dividends. Republic Planters Bank refused, citing a 1973 directive from the Central Bank prohibiting the redemption of preferred shares due to the bank’s “chronic reserve deficiency.”

    The case proceeded as follows:

    1. Court of First Instance (CFI) Decision: The CFI ruled in favor of Robes-Francisco Realty, ordering RPB to redeem the shares and pay dividends. The CFI reasoned that the stock certificates clearly allowed redemption and dividend payments, and that the Central Bank directive was an unconstitutional impairment of contract.
    2. Republic Planters Bank’s Appeal to the Supreme Court: RPB elevated the case to the Supreme Court, arguing that the CFI gravely abused its discretion. RPB contended that:
      • The redemption was optional, not mandatory.
      • The Central Bank directive validly prohibited redemption.
      • The claim was barred by prescription and laches (unreasonable delay).
    3. Supreme Court Decision: The Supreme Court reversed the CFI decision, ruling in favor of Republic Planters Bank. The Court’s reasoning hinged on several key points:

    Discretionary Redemption: The Supreme Court emphasized the word “may” in the stock certificate’s redemption clause (“shares may be redeemed…at the option of the Corporation”). The Court stated:

    “What respondent Judge failed to recognize was that while the stock certificate does allow redemption, the option to do so was clearly vested in the petitioner bank. The redemption therefore is clearly the type known as ‘optional’. Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock.”

    This underscored that the right to redeem was not absolute but rested on RPB’s discretion.

    Validity of Central Bank Directive: The Court upheld the Central Bank’s directive as a valid exercise of police power. It recognized the necessity of the directive to prevent the bank’s financial ruin and protect depositors and creditors. The Court reasoned:

    “The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power.”

    The Court dismissed the CFI’s view that the directive impaired the obligation of contracts, reiterating that police power limitations are inherent in the non-impairment clause.

    Prescription and Laches: The Supreme Court also found that Robes-Francisco Realty’s claim was barred by both prescription (statute of limitations) and laches (unreasonable delay). The demand for redemption came almost eighteen years after the shares were issued, exceeding the ten-year prescriptive period for actions based on written contracts. Furthermore, the long delay constituted laches, implying an abandonment or waiver of rights by Robes-Francisco Realty.

    PRACTICAL IMPLICATIONS: KEY TAKEAWAYS FOR INVESTORS AND CORPORATIONS

    The Republic Planters Bank case offers crucial lessons for both investors and corporations dealing with preferred shares, particularly redeemable shares:

    For Investors:

    • Redemption is not guaranteed: Do not assume redeemable shares will automatically be redeemed. The terms of the stock certificate are paramount. If redemption is “at the option of the corporation,” the shareholder cannot compel redemption unless the corporation chooses to do so.
    • Regulatory actions can override redemption rights: Be aware that government regulatory bodies, like the Central Bank for banks, can issue directives that may restrict or prevent redemption to protect public interest, even if contractual terms seem to allow it.
    • Timely action is crucial: Do not delay in asserting your rights. Prescription and laches can bar your claims if you wait too long to demand redemption or dividends.
    • Due diligence is essential: Before investing in preferred shares, carefully examine the terms and conditions, especially regarding redemption and dividend rights. Understand the financial health of the issuing corporation and any potential regulatory risks.

    For Corporations:

    • Clarity in Stock Certificates: Draft stock certificates with precise and unambiguous language, especially regarding redemption clauses. Clearly state if redemption is optional or mandatory, and whose option it is.
    • Regulatory Compliance: Be mindful of regulatory requirements and directives, especially in regulated industries like banking. Regulatory actions can impact contractual obligations, including share redemption.
    • Financial Prudence: Exercise caution when issuing redeemable shares, especially if the corporation’s financial future is uncertain. Consider potential scenarios where redemption might become financially challenging or be restricted by regulators.

    Key Lessons:

    • Redeemable preferred shares do not automatically equate to guaranteed redemption.
    • The option to redeem often resides with the corporation, unless explicitly stated otherwise in the stock certificate.
    • Regulatory bodies can validly restrict redemption in the exercise of police power to protect public welfare and financial stability.
    • Timely assertion of rights is crucial to avoid prescription and laches.

    FREQUENTLY ASKED QUESTIONS (FAQs)

    Q1: What are preferred shares?

    A: Preferred shares are a class of stock that gives holders certain preferences over common stockholders, typically in terms of dividends and asset distribution during liquidation.

    Q2: What does ‘redeemable’ mean in the context of preferred shares?

    A: ‘Redeemable’ means the corporation can repurchase these shares from the holder at a specific price and time, according to the terms stated in the stock certificate.

    Q3: Is a corporation always obligated to redeem redeemable preferred shares?

    A: Not necessarily. If the redemption clause states it’s ‘at the option of the corporation,’ the corporation has the discretion to redeem or not. Mandatory redemption clauses are also possible, but less common.

    Q4: Can a corporation refuse to pay dividends on preferred shares?

    A: Yes, if there are no sufficient surplus profits or unrestricted retained earnings, or if the board of directors decides not to declare dividends, even for preferred shares.

    Q5: What is the ‘police power’ of the State and how does it relate to corporate contracts?

    A: Police power is the inherent power of the State to enact laws and regulations to promote public health, safety, morals, and general welfare. It can override private contracts, including corporate agreements, when necessary for public good.

    Q6: What is ‘laches’ and how does it affect legal claims?

    A: Laches is the unreasonable delay in asserting a legal right, which can lead to the dismissal of a claim. It implies that the claimant has abandoned or waived their right due to the delay.

    Q7: Does the Central Bank have the authority to interfere with a bank’s obligation to redeem shares?

    A: Yes, the Central Bank, under its regulatory powers and the State’s police power, can issue directives to banks, including prohibiting share redemption, to ensure financial stability and protect depositors and creditors.

    Q8: What should I do if I hold redeemable preferred shares and the corporation refuses to redeem them?

    A: First, carefully review the terms of your stock certificate. Then, seek legal advice to understand your rights and options based on the specific circumstances, including any regulatory factors. Timely action is important.

    ASG Law specializes in Corporation Law, Banking Law, and Commercial Litigation. Contact us or email hello@asglawpartners.com to schedule a consultation.