Case Summary (G.R. No. 208281)
Procedural History
Petitioners filed a Petition for Review Ad Cautelam in July 2008, challenging the SEC Operating Departments’ approval of Sinophil’s capital reductions on grounds of lack of notice and hearing, insufficient shareholder and creditor approval, violation of retained earnings requirements, and alleged “selective reduction” favoring Metroplex and Paxell. The SEC en banc denied relief in its February 26, 2009 Order. The Court of Appeals affirmed in toto on January 29, 2013, and denied reconsideration on July 17, 2013.
Issues Presented
- Whether the SEC Operating Departments erred in authorizing Sinophil’s “selective” reduction of issued capital.
- Whether the reduction complied with procedural and substantive statutory requirements, including notice, hearing, shareholder approval, retention of earnings, and creditor protection.
- Whether the denial of injunctive relief constituted grave abuse of discretion.
Applicable Statutory Requirements
Under Section 38, Corporation Code, a lawful capital stock reduction requires: board approval; written notice to each stockholder; a two‐thirds vote of outstanding capital at a duly called meeting; a director’s and meeting officers’ certificate of compliance; prior SEC approval; and creditor rights protection. Only formal compliance is subject to ministerial review by the SEC.
Supreme Court Ruling on Compliance with Section 38
The Court held that Sinophil submitted all required documents—certificates of decrease, director’s certifications, amended articles, audited financial statements, creditor schedules and consents, notice affidavits—and convened three properly noticed and voted stockholder meetings. The SEC’s role was purely administrative, confirming formal compliance with Section 38, not adjudicating contract rights or minority objections.
Business Judgment Rule
The Court reaffirmed that capital stock amendments are corporate decisions governed by the business judgment rule. Courts and the SEC may not second‐guess good‐faith intra vires corporate actions unless unconscionable or oppressive to minority shareholders. Petitioners’ contractual disputes over the Swap and Unwinding Agreements are private matters outsi
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Facts and Antecedents
- Metroplex Berhad (Malaysia) and Paxell Investment Limited (Western Samoa) entered a 1998 Swap Agreement with Sinophil Corporation (Philippines), exchanging 40% of their Legend International Resorts Limited shares for 3.87 billion newly issued Sinophil shares.
- Metroplex pledged 2 billion Sinophil shares to secure Legend’s bank loans; unwinding agreement in 2001 failed to return 1.87 billion shares, and pledged shares remained with banks.
- Sinophil and Belle Corporation are publicly listed Philippine corporations; various SEC directors and officers (CRMD, CFD, CPRD, FAAD) approved Sinophil’s reduction of authorized capital stock in 2006 and 2008, disclosed to the PSE.
Procedural History
- July 21, 2008: Petition for Review Ad Cautelam Ex Abundanti filed before the SEC by petitioners, challenging the Operating Departments’ approval of capital stock reduction.
- February 26, 2009: SEC denied the petition, upholding compliance with Section 38 of the Corporation Code and refusing a cease-and-desist order.
- January 29, 2013: Court of Appeals (CA) affirmed the SEC Order in toto.
- July 17, 2013: CA denied petitioners’ motion for reconsideration.
- Petitioners elevated the case to the Supreme Court via Petition for Review on Certiorari with application for a Temporary Restraining Order and/or Writ of Preliminary Injunction.
Issues Presented
- Whether the CRMD and CFD unlawfully permitted a “selective” reduction of Sinophil’s issued capital stock.
- Whether the selective reduction complied with all substantive and procedural requirements under Philippine law.
- Whether the SEC and CA committed grave reversible erro