QuestionsQuestions (LETTER OF INSTRUCTION NO. 178)
An LOI is an instrument of the President used to direct implementation or set policies within the scope of executive authority. It is not a law enacted by Congress and cannot repeal or amend statutes, but it may guide administrative agencies in implementing existing laws or policies. Its enforceability generally depends on whether it is within constitutional authority and consistent with existing legislation.
The LOI orders PPI to convert from cooperative to ordinary stock corporation as a prerequisite to dispersing share ownership. Practically, this would require compliance with the applicable corporate conversion rules (e.g., amendments to charter/articles, approval by the appropriate governing bodies, and registration with the SEC/cooperative regulator as required by law at the time). The exact process must follow the then-governing statutes and SEC/cooperative regulations.
The LOI notes that SPCMA bought the ESFAC fertilizer plant purchase only through a government guarantee via a PNB standby letter of credit, with no actual payment by SPCMA. It further states that amortizations are being covered by PPI advances for SPCMA, creating risk of PNB having to pay remaining amortizations and potentially leading to foreclosure of PPI’s fertilizer plant assets.
The LOI states that the main government consideration was eventual dispersal of company ownership among all fertilizer end-users on a proportionate basis (rice/corn, sugar, others). It argues this has not yet been realized, and ownership dispersal is meant to diversify benefits and support accelerated expansion of domestic fertilizer production.
SPCMA is given the option to subscribe to whatever portion of PPI capital stock it is willing and able to pay up, provided it exercises the option within 30 days from the date of the LOI and pays the subscription in full within 6 months thereafter. SPCMA is understood to waive its right to shares it does not subscribe to.
The LOI provides that 10% of PPI’s total equity shall be allocated to PPI officers and employees from shares of stock not subscribed and paid up by SPCMA under the SPCMA subscription option.
The remaining equity (after SPCMA’s unsubscribed portion and after the 10% allocated to employees) is to be dispersed proportionately as follows: rice and corn farmers 60%, sugar farmers 30%, and others 10%.
The Foundation is created to assume the portion of PPI shares not subscribed and paid up by SPCMA (less the 10% for employees), hold title to these shares, redistribute them according to the LOI’s allocation rules, vote and exercise rights pertaining to undistributed shares in the interim, and perform other necessary functions to implement the dispersal scheme.
The LOI lists the Board of Trustees/intecorporators: Arturo R. Tanco Jr. (Chairman), Panfilo O. Domingo, Roberto S. Benedicto, Leonides Gonzales representing PPI officers & employees, Senen Gabaldon representing rice & corn farmers, Armando Gustilo representing SPCMA, and Alfredo Montelibano representing other farmers via Chamber of Agriculture. Representation ensures participation of stakeholders in governance of undistributed shares and helps legitimize the redistribution.
It states that in the interim, the Foundation will vote and exercise rights pertaining to undistributed shares. This prevents loss of control or inaction while share distribution to end-users is still ongoing.
(1) PNB must effect transfer from SPCMA to the Foundation of all PPI shares not subscribed and paid up by SPCMA. (2) PNB must release Foundation-held PPI shares now held as collateral, with releases made as payments are made for these shares. (3) PNB must transfer all obligations and indebtedness pertaining to the shares transferred in a manner that protects government interests.
It provides that to enable fertilizer end-users to pay for acquired shares, the price of fertilizer may be increased by an amount sufficient to allow users to pay for shares over a period of time. This links payment for shares to ongoing fertilizer purchases.
It serves as a directive to administrative agencies (e.g., SEC and Agricultural Credit Administration) to support implementation, such as facilitating approvals, registrations, and regulatory compliance. However, agency assistance still must be consistent with law and cannot override statutory requirements.
The Secretary of Agriculture and Natural Resources (concurrent Chairman of the Fertilizer Industry Authority) and the President of the PNB are directed to submit to the President a full report on steps taken to implement the LOI within 45 days.
A student should consider whether reallocating shares and transferring collateral with related obligations could affect vested rights, creditor protections, or existing contracts. While LOI directives may be implemented administratively, the analysis should include limits: consistency with constitutional protections, respect for due process, and compliance with SEC corporate rules and banking laws governing collateral and guarantees.