TAX - Atty. Lim

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PROBLEM EXERCISES on Revised Securities Code
based on decided cases of the Supreme Court:
Prepared by: Dr. Virginia Jeannie P. Lim
1. Laws being administered by the SEC:
1. Securities Regulation Code;

2. PD No. 902-A, as amended by PD 1653, 1758, 1799 and the Code;
3. Corporation Code (BP Blg. 68);
4. Financing Company Act of 1998 (RA 8556);
5. Investment Company Act (RA 2692);
6. Investment Houses Law (PD 129, amended by RA 8366);
7. Foreign Investment Act of 1991 (RA 7042)
8. Executive Order No. 708.
2. The jurisdiction of the SEC DOES NOT extend to the liquidation of a corporation – while
it has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of a
corporation belongs to the RTC (Special Commercial Court) because liquidation requires the
settlement of claims for and against the corporation, which clearly falls under the jurisdiction of the
regular court, It is in a better position to convene all the creditors of the corporation to ascertain
their claims and determine their preferences. (BPI vs. Eduardo Hong, February 15, 2012)
3. What is the regulatory jurisdiction of the SEC:
A fraudulent act may give rise to liability for violation of the rules and regulations of the SEC
itself, as well as criminal liability for violation of the Revised Penal Code cognizable by the regular
courts. Both charges may be filed and proceed independently and simultaneously with each other.
[Mobilia Products, Inc. vs. Umezawa, 452 DCRA 736 (2005)]
 SEC has the regulatory power to revoke the corporate franchise from which a
corporation owes its legal existence.
An issue involving determination whether or not parties (investors and stock broker) fulfilled
their respective obligation is within the jurisdiction of the SEC because it has authority to determine
willful violation of the SRC and it can impose appropriate sanctions to violators. [Abacus Securities
vs. Ampil 483 SCRA 315 (2006)]
4. Doctrine of Primary Jurisdiction of the SEC:
All complaints for any violation of the SRC and its implementing rules and regulations should
be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint
to the DOJ for preliminary investigation and prosecution. If there is failure to comply with this
procedural requirement, the dismissal of the DOJ of a criminal case filed before it is valid. [Baviera
vs. Standard Chartered Bank, et. al., 515 SCRA 170 (2007)]
5. Does the SEC have jurisdiction over corporations created by “special laws” which are
not registered with it?
1|P a g e - U N A U T H O R I Z E D R E P R O D U C T I O N O F T H I S R E V I E W M A T E R I A L I S I L L E G A L
AND TANTAMOUNT TO INTELLECTUAL PROPERTY RIGHTS INFRINGEMENT
DR. VIRGINIA JEANNIE P. LIM
The primarily jurisdiction of the SEC which is that of supervision and control of corporations,
emanates from its authority to enforce and implement the Corporation Code. The Commission has
no jurisdiction over corporations created by “special laws” which are not registered with it. If a
corporation is operating under a special law or charter, it need not register with the Commission in
order to acquire a legal personality since the grantee of such special law or charter draws its life
not from compliance with a general law (Corporation Code) but from the law creating it. Sec. 4 of
the Corporation Code expressly provides that corporations created by special laws or charters shall
be governed primarily by the provisions thereof and only supplemented by the Corporation Code.
6. What are the effects of registration/non-registration of a religious group with the SEC?
The Corporation Code does not require any religious group to be registered as a corporation,
but it may do so in order to acquire a “legal personality” for the administration of its temporalities or
properties. It is only through incorporation or registration under the Corporation Code that it can
acquire a juridical personality to enable it to exercise corporate powers, rights, privileges expressly
granted under the law to registered corporations.
7. Has the effectivity of the Securities and Regulation Code affected the jurisdiction of the
SEC to take cognizance of petitions for suspension of payments or rehabilitations, as
the case may be?
No. Sec. 5.2 of the Securities Regulation Code merely transferred to the courts of general
jurisdiction or the appropriate RTC the cases enumerated under Sec. 5 of PD 902-A. The latter
provision covers only intra-corporate controversies and such other matters enumerated thereunder.
Said Sec. 5 did not include the SEC’s regulatory functions over corporations.
8. What is the SEC’s (Now RTC) jurisdiction with respect to termination of corporate
officers?
The following are considered corporate position and it is the SEC, (NOW RTC) not the NLRC,
that has jurisdiction on any dispute arising therefrom, same being intra-corporate in nature.
 A position created by the Board of Directors

 If the position is mentioned in the by-laws of the corporation;
 Where the power to appoint is vested in the Board of Directors, and
 Where the election or non-election is determined by the Board of Directors.
9. If an action is filed by a stockholder against the Corporation claiming damages, is the

case still within the jurisdiction of the SEC?
Yes. While it may be said that the same corporate acts also gives rise to civil liability for damages,
it does not necessarily follow that the case is taken out of the jurisdiction of the SEC as it may award
damages which can be considered consequential in the exercise of its adjudicative powers. (Garcia
vs. CA, et. al., June 10, 1997)
10. Are transactions involving commodity futures within the jurisdiction of the SEC?
Yes, the SEC in the exercise of its supervisory powers over the conduct of the business of
commodity futures has jurisdiction over cases arising therefrom.
11. Is the approval of the SEC necessary in case of increase of paid-up capital thru payment
of unpaid subscription?
In case of increase of paid-up capital thru payment of unpaid subscription, prior approval of the
SEC is not necessary, provided that the additional payment consists of CASH. Where the payment
is in the form of property other than cash, approval of the Commission is required pursuant to the
provision of Sec. 62 of the NCC.
Where the increase in the paid-up capital is by way of issuance of unissued shares of the
authorized capital stock, the corporation whose shares of stocks are not registered under the
Revised Securities Act must secure from the Commission prior exemption from the registration
requirements under said Act. Where the increase of paid-up capital is in connection with an
increase of authorized capital stock, the corporation must comply with the requirements laid down
under Sec. 38 of the NCC of the Philippines. (SEC Opinion, March 18, 1993)
12. Is the SEC authorized to grant tax exemption privilege to donors for their donations to
non-stock/non-profit voluntarily organized and committed to supporting, developing
and strengthening health population and development programs?
No. The SEC is not authorized to grant tax exemptions to donors for their donations to non-
stock/non-profit voluntary organizations. This power is vested with the BIR.
13. In cases of unregistered professionals partnerships (unrecorded with the SEC and with
no formal articles of partnership), where one of the partners is seeking dissolution of
the same, is it the SEC or the RTC which has jurisdiction to hear the petition?
Even if not registered with the SEC, a partnership having a capital of Php 3,000.00 or more
may be considered a valid one (Sec.3 and 5 of PD 902-A). A partnership agreement, even in the
absence of formal Articles of Partnerships, is still considered a “contract” and any transaction
undertaken or property acquired pursuant to the agreement are covered by the law on contracts
and/or co-ownership under the Civil Code. Consequently, settlement of any controversy relating to
unregistered partnerships is within the jurisdiction of the regular courts.
14. Can the SEC order the Association to suspend the forthcoming election of the Board
of Directions in order to promote fairness in the protection and enhancement of the
interest of all the members of the Association?
The general rule is that when the by-laws provide for the time of holding an annual meeting for
the election of directors, the same should be held of the regular appointed time, unless the meeting
cannot be held for some valid and meritorious reasons. The above-mentioned ground should not
justify a suspension or postponement of the annual meeting of the Association.
It has to be emphasized that the by-laws are the private laws of the corporation. They are in
effect written into the charter and in this sense, they become part of the fundamental law of the
corporation, and the corporation, its directors, officers and members are bound by and must comply
with them.
15. Can the SEC order the dissolution of the debtor corporation?
If it appears that the continuance in business of the debtor is no longer feasible of profitable, or
no longer works to the best interests of the stockholders, party-litigants, creditors, or the general
public, the SEC may order the dissolution and liquidation of the remaining assets of the debtor and
appoint a liquidator for the purpose.
Upon issuance of the dissolution order. All the business operations of the debtor should cease
and payments on all its obligations shall be withheld subject to certain exceptions.
16. Is the SEC empowered to order dissolution of a corporation?
Yes. The SEC has jurisdiction to order dissolution of a corporation. While jurisdiction over the
liquidation or settlement of claims of corporation belongs to the regular court (RTC)
17. Can the SEC pass upon the validity of proxies in relation to election controversies in a
corporation?
No. The power belongs to the RTC (Special Commercial Court) but, the power of the SEC to
regulate proxies remains extant and could very well be exercised when stockholders vote on
matters other than the election of directors. (GSIS vs. CA, April 16, 2009)
18. What is the SEC policy regarding payment in the increase of capital stock by way of
stock dividend declaration?
While under Sec. 38 of the Corporation Code, it is not a requirement that the minimum
subscription to the increase of capital stock shall be fully paid, in cases where the subscription to
the increase in capital stock is “entirely paid” by way of stock dividend, the SEC requires such
subscription to be fully paid. This is because a dividend is profit of the investment of the stockholder,
not an obligation. Hence, the corporation cannot use its unrestricted retained earnings as partial
payment for the stocks to be declared as dividend and obliged the stockholders to pay the balance
thereof without their consent. There is no law that authorizes a private entity to impose an obligation
on another without their consent. However, the corporation may opt to have two sets of
subscriptions: first by way of stock dividend declaration to the extent fully paid by the available
unrestricted earnings; and second, by separate voluntary subscription contracts for the balance of
the minimum subscription required under the law.
19. Is there a need to file with the SEC an amendment of the “AI” to reflect an increase in
the contributed capital of “non-stock/non-profit corporations?
In the increase of the contributed capital of a “non-stock/non-profit”, it is not required that an

amendment of the “AI”. Neither does it require prior approval by the commission. Sec. 38 of the
Corporation Code, which provides for the requirements for an increase in the authorized capital
stock, is applicable only to stock corporations. It is sufficient for purposes of updating the SEC
records on the matter, that it is reflected in the financial statements, an annual reportorial
requirement required under existing SEC rules and regulations to be submitted to the Commission.
20. Union Bank questioned the authority of the SEC to require compliance with its
reportorial requirements: (Union Bank vs. SEC, June 6, 2001)
Although the shares of stock of banking institutions are exempt from the registration
requirements under Sec. 5(a)(3) of the RSA, a bank whose shares are listed in the stock market is
covered by RSA and implementing Rules on the reportorial requirements of listed companies. Sec.
5(a)(3) exempts from registration the securities issued by banking or financial institutions, but
nowhere does it state or even imply that a bank as a listed corporation is exempt from complying
with the reports required by RSA’s Implementing Rules and Regulations (IRR).
21. May SEC order the reversal of the decision of PSE Board denying listing of shares of
applicant issuer on the ground that there were questions of proper ownership over bulk
of real estate assets of said applicant? [PSE vs. CA, 88 SCAD 589 (1997)]
SEC has no power to overturn the decision of PSE Board to deny listing of the securities. It is
true that SEC is the agency with primary say as to whether or not securities including shares of
stock of a corporation may be traded or not in the stock exchange, in line with SEC’s mission to
ensure proper compliance with the laws, such as RSA and to regulate sale and disposition of
securities in the country.
Nevertheless, questions of policy and of management are left to the honest decision of officers
and directors of a corporation, and courts are without authority to substitute their judgment for
judgment of the BOD. The Board is the business manager of the corporation, and so long as it acts
in good faith, its orders are not reviewable by the courts.
In reaching the decision to deny the application of listing, PSE considered important facts,
which, in the general scheme, bring to serious question the qualification of applicant to sell its
shares to the public through the stock exchange.
Also, as the primary market for securities, the PSE has established its name and goodwill, and
it has the right to protect such goodwill by maintaining a reasonable standard of propriety in the
entities who choose to transact through its facilities. It was reasonable for PSE, therefore, to
exercise its judgment in the manner it deems appropriate for its business identity, as long as no
rights are trampled upon, and public welfare is safeguarded.
22. In the case of Baviera vs. Paglinawan, 515 SCRA – The Supreme Court ruled that complaints
for violation of the Securities Regulation Code are specialized disputes which are not intra-corporate.
Hence, it must first be referred to an administrative agency or specialized body with knowledge and
expertise (SEC), following the Doctrine of Primary Jurisdiction. The SRC (RA 8799) is a special law
that requires the registration of securities/agents/brokers dealing in securities. The Bank violated SRC
rules by engaging in the sale of securities without registration of the foreign securities and stock brokers
- a criminal offense (syndicated estafa). Where the complaint is criminal in nature, SEC shall indorse
the complaint to the DOJ for preliminary investigation.
23. Who authorizes the “cease and desist order of the SEC?
The collegial body of the SEC composed of a chairperson and four (4) Commissioners. In order
to constitute quorum to conduct business, the presence of three (3) Commissioners is required. This
power is non-delegable. Thus, the “CDO” issued by a SEC Commissioner alone is void.
24. Under what conditions may the SEC issue a cease and desists order in dealing of
securities?
It must first conduct proper investigation or verification, and second, there must be a finding that
the act or practice, unless restrained, will operate as (a) fraud on investors or is otherwise likely (b)
to cause grave or irreparable injury, or (c) prejudice to the investing public.
25. Three (3) instances when SEC may issue cease and desist order (CDO):
a) To prevent fraud or injury to the investing public. (Sec. 5(i), SRC.)
b) In case of finding of “any person has engaged or is about to engage in any act or practice
constituting a violation of any provision of the SRC, any rule, regulation or order thereunder, or
any rule of the Exchange, registered securities association, clearing agency or other self-
regulatory organization. Sec. 53.3, SRC. (Max. duration 10 days, it may be issued ex-parte)
c) In case of a finding of an act or practice, which unless restrained, will operate as a fraud on
investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public. Sec. 64, SRC. It may be issued ex-parte.
NOTE: CDO cannot be issued by only one of the SEC commissioners but it must be issued by a
collegial body composed of a Chairperson and 4 Commissioners of the SEC. [GSIS vs. CA,
585 SCRA 679 (2009)]
26. When is a SEC license issued?
A SEC license is issued upon compliance with the following requirements -
a) Proof of compliance with Principle of Reciprocity

b) BOI certificate
c) applicant for license gives required information such as: Articles of incorporation, by-laws,
names and addresses of resident agents and principal place of business in the Philippines)
d) Proof of solvency
e) Deposit acceptable securities to protect future creditor.
27. Define “Securities” – Are shares, participation or interests in a corporation or in a commercial
enterprise or profit-making venture evidenced by a certificate, contract, instrument, whether written or
electronic in character.
 All securities for sale must be registered with the SEC.
 SEC prohibits the sale or distribution of unregistered securities.
 The issuance of post-dated checks instead of stocks or traditional securities to evidence
the investments of its patrons as a scheme to avoid registration of securities is illegal and
void. [Gabioza vs. CA, 565 SCRA 38 (2008)]
NOTE: SRC exempts banks from the registration of their securities. But, they are not exempt from
the filing of reports required under the implementing rules of the RS Code if they are publicly listed.
[Union Bank of the Phils. vs. SEC, 358 SCRA 479 (2001)]
28. X has a certificate of membership in an exclusive club that gives all members therein
the right to use club facilities. The certificate is transferable but it does not give X any
right to the income or assets of the club. Is the certificate a security?
Yes, the certificate is a security. Proprietary and non-proprietary membership certificates are
securities and such cannot be sold without registration with the SEC.
29. Requisites on registration of securities under the Revised Securities Code: (Sec. 8)
a) The issuer must submit a registration statement with the SEC for approval of the
Commission, and
b) It must provide purchasers before the sale with information on the securities in such form and
substance as SEC may prescribe.
NOTE:
(1) Exempt securities (Sec. 9) and exempt transactions (Sec. 10) need not register with
the SEC.
(2) Sale, offer or distribution of securities within the Philippines have to be registered
WON the offeror is a foreigner or a citizen.
30. What are the legal consequences of failure to register securities with the SEC before
they are offered for sale or distribution to the public?
(a) The seller and/or issuer shall be criminally liable. Upon conviction a fine of Php 50K to 5M
is imposable and/or imprisonment of 7 to 21 years. (b) the purchaser can recover from the seller
the amount paid with interest thereon, less the amount of any income received on the purchased
securities, or (c) damages if the purchaser no longer owns the securities and (d) the SEC may
issue a cease and desist order.
31. What are the exempt securities?
a) Any security issued or guaranteed by the Government of the Philippine, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as
an instrumentality of the government.
b) Any security issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations, or by any state, province or political subdivision
thereof on the basis of reciprocity; Provided, that the Commission may require compliance
with the form and content for disclosures the Commission may prescribe.
c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

adjudicatory body.
d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision
and regulation of the Office of the Insurance Commission, HLURB or the BIR.
e) Any security issued by a bank except its own shares of socks.
32. Define “Uncertificated Shares” – Those securities evidenced by electronic or similar records,
instead of being evidenced by certificates or documents. A corporation whose securities are registered
pursuant to the Code or listed with the Securities Exchanges may:
a) If so resolved by its BOD and agreed by a S/S, investor or securities intermediary, issue shares
to, or record the transfer of some or all of its shares into the name of said S/S, investor,
securities intermediary in the form of uncertificated shares,
b) The use of uncertificated shares or securities (evidence by electronic in these circumstances
shall be without prejudice to the rights of the securities intermediary subsequently to require
the corporation to issue a certificate in respect of any shares recorded in its name; and
c) If so provided in the “AI” and by-laws, issue of all the shares of a particular class in the form of
uncertificated securities and subject to a condition that investors may not required the
corporation to issue a certificate in respect of any shares recorded in their name.
33. When may a corporation issue uncertified security?
(a) If so resolved by the board of directors of the issuer, and agreed to by the shareholders,
investors or securities intermediary, in accordance with the rules to be promulgated by the
SEC, but subject to the right of the securities intermediary to require the corporation to issue a
certificate in respect of any shares recorded in its name.
(b) If so provided in the articles of incorporation and by-laws of the corporation, with respect to all
of the shares of a particular class, and subject to the condition that the shareholder may not
require the corporation to issue a certificate in respect of any shares recorded in their name.
34. May uncertified securities be pledge?
Yes. It may be executed over the uncertified security by the making by a clearing agency of a
book-entry that such shares are transferred to a specially designated pledge account in favor of
the creditor. This will have the effect of a delivery of a security in bearer form or and indorsement
in blank of the security. Such manner of executing a pledge over the uncertified security is
considered a proper manner of constituting a pledge of the security and the making of the book-
entry shall be considered a delivery of the instrument evidencing the right as required by Art. 2093
and 2095 of the Civil Code. (Sec. 45, SRC)
35. Are banks whose shares are traded publicly exempt from the disclosure requirements
of the “RSA” as they are already under the supervision of the Bangko Sentral ng
Pilipinas (BSP)
No. the mere fact that in regard to its banking functions, petitioner is already subject to the
supervision of the BSP does not exempt the former from reasonable disclosure regulations issued
by the SEC, imposing such regulations is a function within the jurisdiction of the SEC since the
banks opted to trade its shares in the exchange, then it must abide by the reasonable rules imposed
by the SEC for the protection of the investing public.
36. Distinguish an issuer from a broker of securities:
An issuer is an originator, maker, obligor or creator of the security, whereas, a broker is a person
engaged in the business of buying and selling securities for the account of others.
37. Distinguish derivative, options and warrants:
Derivative Options Warrants

A financial instrument, including Contracts that give the buyer the The rights to subscribe or
options and warrants whose right, but not the obligation, to purchase new shares or
value depends on the interest buy or sell any underlying existing shares in a company,
in or performance of an security at a predetermined on or before a predetermined
underlying security, but which price, called the exercise of date, which can only be
does not require any strike price, on or before a extended in accordance with
investment of principal in the predetermined date, called the Exchange rules. Warrants
underlying security. the expiry date, which can be generally have a longer
extended in accordance with exercise period than options.
Exchange rules.
A privilege of demanding An instrument issued by a
fulfillment of a contract on any corporation giving to the
day within a specified time. holder the right to subscribe to
the capital stock of the
corporation at a fixed price
wither for a limited period or
perpetually.
38. What is a Pre-need Plan?
It is a contract which provides for the performance of future services or the payment of future
monetary consideration at the time of actual need for which plan holders pay in cash or installment
at stated prices, with or without interest or insurance coverage and includes life, pension, education,
interment and other plans which the SEC may from time to time approve.
These are contracts which provide for the performance of future services or the payment of
future monetary considerations at the time of actual need, for which plan holders pay in cash or
installment at stated prices, with or without interest or insurance coverage and includes life,
pension, education, interment and other plans with the SEC may from to time approve.
Requisites:
a) Pre-need plan must be registered with the SEC

b) Seller must be licensed
c) Disclosure to prospective plan holders
d) Provide them with accounting system, reports and records
e) Bonds
f) Trust funds for the payment of benefits to plan holders.
39. What is the Suitability Rule?
This rule states that in recommending to a customer the purchase, sale or exchange of any
security, a broker or dealer shall have reasonable grounds to believe that the recommendation is
suitable to such customer based on the facts disclosed by the latter as to his other security holdings
and his financial situations and needs.
40. Howey Test provides the elements of an investment contract – (a) There must be a contract,
transaction or scheme, (b) there is an investment of money, (c) investment is made in a common
enterprise, (d) there is expectation of protects, and (e) the profits arises primarily from the efforts of
others. If these elements are not present the SEC has no jurisdiction over the agreement.
Example: C Corporation issues long-term commercial papers and offers it to the public to raise
funds it needed for expansion. Many investors bought the papers or securities, they invested their
money with an expectation of profits arising from the efforts of those who manage and operate that
company. The investment contract must be registered with the SEC.
Network marketing is not an investment contract. Network marketing is a scheme adopted by

companies for getting people to buy products outside the retail system or stores and where the
buyer can become a down-line seller, earning commissions from purchases made by new buyers
whom he refers to the person who sold the products to him. [SEC vs. ProsperIty.Com, Inc., 664
SCRA 28 (2012)]
41. When may “investment contracts” fall under the definition of “securities” in the
Revised Securities Act?
The touchstone is an investment in a common venture, premised on a reasonable expectation

of profits to be derived from the entrepreneurial or managerial efforts of others. (People vs.
Petralba, 439 SCRA 158) Under the RSC, Investment contracts are securities that have to be
registered with the SEC before they can be distributed and sold. This investment contracts,
transactions or schemes where a person invests his money in a common enterprise and is led to
expect profits primarily from the efforts of others.
42. Are contracts entered into in a network marketing scheme or those perfected thru the
web considered investment contracts?
Network marketing is not an investment contract. Network marketing is a scheme adopted by

companies for getting people to buy products outside the retail system or stores and where the
buyer can become a down-line seller, earning commissions from purchases made by new buyers
whom he refers to the person who sold the products to him. [SEC vs. ProsperIty.Com, Inc., 664
SCRA 28 (2012)]
43. Can a corporation issue certificates of stocks to new subscribers pending the receipt
of the certificate of SEC’s approval of an application for an increase in capital stock?
No. Sec. 38 of the Corporation Code provides that an increase in the authorized capital stock
of a corporation shall be effective only upon the approval and issuance of the certificate of filing by
the Commission. Pending approval by the SEC of the application for increase of authorized capital
stock, a corporation cannot issue certificates of stock to the subscribers of the increase.
44. Can the SEC be allowed to collect documentary stamp taxes based on the value of the
minimum initial subscribed capital stock upon the filing of an application for
incorporation of a new company?
It is not legally feasible for the SEC to collect DST inasmuch as Sec. 200(C) of RA 8424
explicitly prescribes where the documentary stamp tax shall be filed. Can the SEC require
proposed corporation to secure proof of payment thereof prior to incorporation? The SEC
cannot require proposed corporation to present proof of payment thereof prior to incorporation.
Sec. 19 of the NCC expressly provides that a private corporation commences to have a corporate
existence and juridical personality only from the date the SEC issues a certificate of
incorporation/registration. Thus, prior to incorporation, it would be legally impossible for a proposed
corporation to file the required DST returns or secure proof of payment thereof as it still has no
personality to file the same. Perhaps what the SEC can do is to furnish regularly the BIR a list of
newly registered corporations. (SEC Opinion, August 3, 1998)
45. Rule on intra-corporate disputes:
To determine whether a case involves an intra-corporate controversy, and is to be heard and

decided by the Branches of the RTC specifically designated by the Supreme Court to try and decide
such cases, two elements must concur:
a. The status or relationship of the parties – The controversy must arise out of intra-corporate or
partnership relations between any or all of the parties and the corporation, partnership,
association of which they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the state insofar as it concerns their individual
franchises.
b. The nature of the question that is the subject of their controversy – the dispute among the
parties be intrinsically connected with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character, necessarily, the case does not
involve an intra-corporate controversy. The determination of whether a contract is simulated or
not is an issue that could be resolved by applying the provisions of the Civil Code. (Speed
Distributing Corp. vs. CA)
46. What is an intra-corporate controversy? (2006 Bar)
An intra-corporate controversy is one which “pertains to any of the following relationships: (a)
between the corporation, partnership or association and the public, (b) between the corporation,
partnership or association and the State in so far as its franchise, permit or license to operate is
concerned, (c) between the corporation, partnership or association and its stockholders, partners,
members or officers, and (d) among the stockholders, partners or associates themselves.” (Philip L.
Go, Pacifico Q. Lim et. al., vs. Distinction Properties Dev’t. and Construction, Inc. GR No. 194024,
April 25, 2012)
It is a civil case involving the following:
(a) devices or schemes employed by, or any act of, the BOD, business associates, officers or
partners, amounting to fraud or misrepresentation which may be detrimental to the interest of
the public and/or of the stockholders, partners, or members of any corporation, partnership or
association,
(b) controversies arising out of intra-corporate, partnership, or association relations, between, any
or all of them and the corporation, partnership or association of which they are stockholders,
members, or associates, respectively;
(c) controversies in the election or appointment of directors, trustees, officers or managers of

corporations, partnerships or associations;
(d) derivative suits, and
(e) inspection of corporate books. (SC Adm. Memo. No. 01-2-04 [2001])
47. Is the SEC the venue for actions involving intra-corporate controversies? (BAR 2006)
No. Actions involving intra-corporate controversies are cognizable by the RTC, designated by
the Supreme Court under SC Adm. Memo No. 00-11-03, which has jurisdiction over the principal
office of the corporation, partnership or association concerned. (Sec. 5, Rule 1, SC Adm. Memo
No. 02-2-04)
48. A group of condominium unit owners, represented by X, filed a complaint against the
condominium corporation before the SEC for alleged illegal and unlawful assessment
of association dues. The condominium corporation denied the members the use of
amenities and even threatened to cut off their supply of electric power and water unless
the group settles their long overdue association dues. Has SEC acquire jurisdiction
over the controversy?
The controversy involves the legality of the assessment dues against the condominium
owners which is essentially intra-corporate in character, for being between the condominium
corporation and its members-unit owners. SEC has no jurisdiction over the controversy and must
therefore dismiss the case and had it refilled before the RTC pursuant to RA 8799. (Chateau De
Baie Condominium Corporation vs. Spouses Moreno)
49. Jennifer and Gabriel owned the controlling stock in MFF Corporation and CLO, Inc.,
both family corporations. Due to serious disagreements, Jennifer assigned all her
shares in MFF Corporation to Gabriel, while Gabriel assigned all his shares in CLO, Inc.
to Jennifer. Subsequently Jennifer and CLO, Inc. filed a complaint against Gabriel and
MFF Corporation in the SEC, seeking to recover the corporate records and funds of
CLO, Inc., which Gabriel allegedly refused to turn over, and which remained in the
offices of MFF Corporation.
1. Is there an intra-corporate controversy in this case? Explain.

2. Who has jurisdiction over the case?
Yes. There is an intra-corporate controversy in this case. The fact that, when the complaint against
Gabriel and MFF Corporation was filed with the SEC, Jennifer and CLO, Inc. were no longer
stockholders of MFF Corporation did not divest the SEC of its jurisdiction over the case inasmuch
as Jennifer was a former stockholder of MFF Corporation and the controversy arose out of this
relation. (SEC vs. CA, 201 SCRA 124)
The RTC has jurisdiction over intra-corporate controversies as now provided under RA 8799
or the SRC.
50. What is a “Public Company”?
Is not limited to a company whose shares of stock are publicly listed; it includes those
corporations whose shares are offered only to a specific group of people, provided they meet the
requirements of Sec. 17.2 of the SRC, such as: (a) it has a class of equity securities listed in the
Exchange or with assets on excess of Php 50M and having more than 200 shareholders, at least
200 of which are holding at least 100 shares of a class of its equity securities. (Phil. Veterans Bank
vs. Callangan, et. al., August 3, 2011)
51. X Corporation is a public company having more than Php 50M total assets, more than
200 stockholders hold at least 100 shares each. X has 2 principal stockholders. YY that
owns 60% of the shares of X and WW that owns 17% shares of X. On the other hand,
YY is owned by A Corp with a holding of 20%, by G Corporation with a holding of 30%
and WW with 9% share holding thereof. The rests by individual stockholders. A, G and
WW are not public companies.
WW now proposes to buy A and G’s shares in YY Corporation which would give it
direct control of YY and indirect control of X Corporation. Is WW proposed acquisition
subject to mandatory tender offer? Why or Why not?
10 | P a g e - U N A U T H O R I Z E D R E P R O D U C T I O N O F T H I S R E V I E W M A T E R I A L I S
ILLEGAL AND TANTAMOUNT TO INTELLECTUAL PROPERTY RIGHTS
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Yes, the proposed acquisition is subject to mandatory tender offer rule. While WW’s acquisition
of A’s share (20%) and G’s shares (30%), taken separately does not reach 35% threshold each but
if taken collectively, the 2 acquisition totals 50%. If added to WW’s existing shares (17%) in X
Corporation, they meet the more than 51% threshold for mandatory tender rule.
52. (a) What is mandatory tender offer? (b) Under what instance does it apply?
Publicly announced intention by a person or group of persons of their intention to acquire

shares of a public corporation, resulting to a holding of more than 15% of the corporate equity or
who within 12 months shall acquire at least 30% (now 35%) of the shares of the corporation. Said
person must tender offer by writing all stockholders of such intention.
This Tender Offer Rule applies to all kinds of acquisition of shares (direct or indirect purchase,
or to any type of acquisition. [Cemco Holdings vs. National Life Ins. Co., 529 SCRA 355 (2007)]
(a) It is an offer by the acquiring person to stockholders of a public company for them to tender
their shares therein on the terms specified in the offer. The tender Offer Rule applies also in an
indirect acquisition arising from the purchase of shares of a holding company of the listed firm.
Tender offer is in place to protect minority shareholders against any scheme that dilutes the
share value of their investments. It gives them the chance to exit from the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those
of the majority shareholders.
(b) Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the
foregoing provision was increased to 35%. It is further provided therein that mandatory tender
offer is still applicable even if the acquisition is less than 35% when the purchase would result
in ownership of over 51% of the total outstanding equity securities of the public company.
Whatever may be the method by which control of a public company is obtained, either through
the direct purchase of its stocks or an indirect means, mandatory tender offer applies.
Limits of 15% for a single purchase/acquisition and 30% for a creeping acquisition are provided
in the SRC. The 51% requirement is not in the SRC.
53. What is creeping acquisition?
When a person seeks to acquire 35% or more of equity shares in a public company in one or
more transactions within a period of 12 months.
54. Why are tender offers regulated?
To prevent the stockholders of the target company from being misled by the offeror or the
target’s management. Thus, a principal requirement of the SEC rules on tender offers is the
disclosure by the offeror of certain information about the offer, with a copy of such information being
given or sent to the stockholders.
55. What is an insider trading?
The act of an insider of selling or buying the security of an issuer, if he knows material
information about the issuer or the security that is not generally available to the public.
Its is the act whereby, an insider sells or purchases a security while in possession of material
information with respect to the issuer or the security not generally known to the public. [SEC vs.
Interport Resources Corp., 567 SCRA 354 (2008)]
56. Who is an Insider?
A person whose position or relationship gives him access to material information which is not
generally available to the public. Such as:
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d) The issuer,
e) A director or officer (or person performing similar functions) of, or a person controlling the
issuer;
f) A person whose relationship or former relationship to the issuer gives or gave him access to
material information about the issuer or the security that is not generally available to the public;
g) A government employee, or director or officer of an exchange, clearing agency and/or self

regulatory organization who has access to material information about the issuer or a security
that is not generally available to the public, or
h) A person who learns such information by a communication from any of the foregoing insiders.
57. What is “material non-public information”?
An information is material non-public if –

a) it has not been generally disclosed to the public and would likely affect the market price of the
security after being disseminated to the public and the lapse of a reasonable time for the market
to absorb the information, or
b) would be considered by a reasonable person important under the circumstances in determining

his course of action whether to buy, sell or hold a security.
58. What is margin trading (Sec. 48)?
It is a kind of trading in securities that allows a broker to advance for the customer or investor
part of the purchase price of a security and to keep it as collateral for such money advance. The
credit extended must be for an amount not greater that whichever is higher of (a) 65% of the current
market price of the security, or (b) 100% of the lowest market price of security during the preceding
36 calendar months, but not greater than 75% of the current market price.
Margin - Sum of money or its equivalent, placed in the hands of a broker by principal or person
on whose account the purchase is to be made as a security to the former against losses to which
he may be exposed by a subsequent depression in the market value of the stock.
59. What is the purpose of the Margin Trading Rule?
To prevent excessive use of credit for the purchase of securities. It is to counter the broker’s
desire to generate more sales by encouraging clients to buy securities on credit. [Carolina
Industries, Inc. vs. CMS Stock Brokerage, Inc. 97 SCRA 734, (1980)]
60. What acts or transactions are prohibited under RA 8799?
a. Manipulating of security prices, such as artificial measures of price control

b. Use of manipulative and deceptive schemes to entice investors
c. Use of false activated trading
d. Failure of an insider to disclose when trading
e. False prospectuses, communications and reports, and
f. False registration statements.
61. Manipulation of prices of securities:
a) Wash sales
b) Matched orders
c) Market rigging/juggling (series of transactions of buying and selling simultaneously)
d) Put/Call repeatedly done
e) Spread and straddles – dividing the “sell” into many sections to show an “active” market.
62. Manipulative devices that create false activated trading:
a) Broiler room operation – well-trained salesmen operating in a room with several phones and
using high-pressure sales talk to get investors to invest in securities being offered.
b) Daisy chain – Fictitious trading activity by a group of persons who lures innocent people into
their schemes
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c) Flipping – One office buys and the other sells, making it appear that shares are actively traded;
brokers then enjoy their commissions on all activities.
d) Hype and dump – buying at high prices to get high commission
e) Improper matched orders – engaging in transaction where both the buy and sell orders are
entered at the same time with the same price and quantity by different but colluding parties.
(Falsely activating the market)
f) Marking the close – buying and selling at close of market in an effort to alter closing price
g) Painting the tape – Engage in series of transactions and publicly reports the same to the
media to make it appear that the shares are actively traded.
h) Scalping – buying of shares for one’s account and convincing investors to buy same shares,
thereafter to sell the shares bought to interested investors without disclosing the source of the
shares sold.
i) Squeezing the float – taking advantage of shortage of shares in the market. (controlling the
“demand and supply” of securities)
j) Wash sales - engaging in transactions in which there is no genuine change in actual

ownership of a security (Fictitious sale)
63. Short swing profits defined (Sec. 23.2):
Any officer, director or 10% beneficial owner of any security registered with the SEC who
realizes any profit from a purchase and sale, or sale and purchase of any non-exempt equity
security within a period of less than 6 months shall be liable to the corporation for the profits made
from the trading. This provision will prevent the unfair use of information which may have obtained
by such person by reason of his relationship to the issuer.
64. How may violation of the Securities Regulation Code be pursued?
A criminal charge for violation of the SRC is a specialized dispute and therefore must be
referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question demands the exercise of sound
discretion requiring the specialized knowledge and expertise of said administrative tribunal to
determine technical and intricate matters of fact, The SRC is a special law, its enforcement is
particularly vested in the SEC. Thus, all complaints for any violation of the Code and its
implementing rules and regulations should be filed with the SEC. Where the complaint is criminal
in nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and
prosecution
65. X owns various inactive securities. To create an appearance of active trading on said
securities, X connives with B, a broker, where X will offer for sale these securities and
B who will buy them at a certain arranged price Under their agreement X will still retain
ownership thereof. What transactions was entered into between X and B?
If the sale is materialized, it is called a wash sale a simulated sale. This transaction is prohibited
under the Revised Securities Code.
66. Briefly explain the Mandatory Close Out Rule.
The rule vests upon a broker or dealer the obligation, not just the right, to cancel or otherwise
liquidate a customer’s order, if payment is not received within three (3) days from the date of
purchase. The word “shall” as opposed to the word “may” is imperative and operates a duty which
may be legally enforced.
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67. May “mineral claims” be used as equity paid-up in a new corporation or for purposes
of shares-swapping with an existing corporation?
Sec. 62 of the NCC provides “Consideration for stocks” – x x x. Consideration for the issuance
of stock may be any or a combination of any two or more of the following: x x x x: (2) property,
tangible or intangible, actually received by the corporation and necessary or convenient for its use
and lawful purposes at a fair valuation equal to the par or issued value of the stocks issued;” Thus,
inasmuch as mining claims can be considered as property and are capable of valuation, they may
be used as consideration for the issuance of shares of stocks for as long as they are necessary
and convenient for the use by the acquiring corporation in carrying out its lawful purposes, subject,
however to the requirement that the actual value of the mining property must be appraised and
determined by the Bureau of Mines and Geo-Sciences and confirmed directly to this Commission
of that office. (SEC Opinion, June 10, 1999)
68. (BAR 2004) Ms. OB was employed in MAS Investment Bank. WIC, a medical drug
company, retained the Bank to assess whether it is desirable to make a tender offer for
DOP company, a drug manufacturer. OB overheard in the course of her work the plans
of WIC. By herself and thru associates, she purchased DOP stocks available ay the
stock exchange priced at Php 20 per share. When WIC’s tender offer was announced,
DOP stocks jumped to Php30 per share. Thus OB earned a sizable profit.
Is OB liable for breach and misuse of confidential or insider information gained from
her employment? Is she also liable for damages to sellers or buyers with whom she
traded? Is so, what is the measure of such damages? Explain briefly.
OB is an insider since she is an employee of the Bank, the financial adviser of DOP, and this
relationship gives her access to material information about the issuer (DOP) and the latter’s
securities, which information is not generally available to the public. Accordingly, OB is guilty of
insider trading under Sec. 27 of the SRC, which requires disclosure when trading in securities.
OB is also liable for damages to seller or buyers with whom she traded. Under Subsection 63.1
of the SRC, the damages awarded could be an amount not exceeding triple the amount of the
transaction plus actual damages. Exemplary damages may also be awarded in case of bad faith,
fraud, malevolence or wantonness in the violation the RSC or its implementing rules. The court is
also authorized to award attorney’s fees not exceeding 30% of the award.
69. (BAR 2001) Suppose “A” is the owner of several inactive securities. To create an
appearance of active trading for such securities “A” connives with “B” by which “A”
will offer for sale some of his securities to “B” and “B” will buy them at a certain fixed
price. With the understanding that although there would be an apparent sale, “A” will
retain the beneficial ownership thereof.
a) Is the arrangement lawful?

b) If the sale materials, what is it called?
a. No. The arrangement is not lawful. It is an artificial manipulation of the price of securities. This
is prohibited by the Securities Regulation Code.
b. If the sale materializes, it is called a wash sale or simulated sale.
70. In 2001, X joined Y Corporation as a Junior Accountant. He steadily rose from the ranks
until he became Y’s Executive Vice-President. Subsequently, however, because of his
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involvement in certain anomalies, the board of directors of Y Corporation considered
him resigned from the company due to loss of confidence.
Aggrieved, X filed a complaint in the SEC, questioning the validity of his termination
and seeking reinstatement to his former position inclusive of all money claims due him,
plus moral and exemplary damages, attorney’s fees and costs. Y filed a motion to
dismiss, arguing that SEC has no jurisdiction over the case of illegal dismissal, and no
power to award damages thereto. Should the motion to dismiss be granted? Explain.
Yes. Jurisdiction properly falls with the RTC (RA 8799, SRC). Since X previously held the
position of Executive Vice President, he is considered as a corporate officer. Consequently, the
dismissal of X due to his non-reelection constitutes a corporate act, and his non-acceptance of
such dismissal is an intra-corporate controversy. Neither the SEC nor the Labor Arbiter has
jurisdiction.
While the affirmative reliefs and monetary claims sought by X may, at first glance, mislead one
into placing the case under the jurisdiction of the Labor Arbiter, a closer examination reveals that
they are actually part of the perquisites of his elective position. Hence, intimately linked with his
relations with the corporation. (Espino vs. NLRC, 240 SCRA 52)
71. Joseph was a stockholder of X Corporation. He owned a total of 2000 shares evidenced
by Certificate of Stock No. SS0088. He sold the share to Alfred. After getting paid,
Joseph indorsed and delivered said Certificate of Stock No. SS0088 to Alfred. The
following day Joseph went to the offices of the corporation and claimed that his said
Certificate was lost and that despite diligent efforts, it could not be located. The
formalities prescribed by law for the replacement of the “lost” certificate were complied
with. Thereafter, X Corporation issued a replacement of the “lost” certificate now
bearing No. SS1122. After Joseph got the same he transferred it for valuable
consideration to Benjie who knew nothing of the previous sale to Alfred. Subsequently,
X was confronted with the conflicting claims of Alfred and Benjie. The Board of
Directors of X invited you to enlighten them on the following queries:
a) Is the controversy to be submitted to the SEC or the Regular Courts?
b) Between Alfred and Benjie, who should the corporation recognize as the rightful
stockholder?
a) The matter should be submitted to the SEC, as provided under RA 8799, the controversy
between Alfred and Benjie is not an intra-corporate dispute.
b) If there is no over-issuance of shares resulting from the two transactions of Alfred, X should
recognize both Alfred and Benjie as rightful stockholders. This is without prejudice to the right
of X to claim against Joseph for the value of the shares which Joseph sold to Alfred.
72. Distinguish an issuer from a broker of securities:
An issuer is an originator, maker, obligor or creator of the security, whereas, a broker is a person
engaged in the business of buying and selling securities for the account of others.
73. Debtor Corporation “D” and its principal stockholders filed with the RTC (Special
Commercial Court) a petition for rehabilitation and declaration of a state of suspension
of payments under RA 8799. The purpose was for the court to appoint a receiver to take
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control of the corporation and all its assets and liabilities, earnings and operations, and
to determine the feasibility of continuing operations and rehabilitating the company for
the benefit of investors and creditors.
After hearing, the court directed and appointed a receiver and ordered the
suspension of all actions and claims against “D” as well as against the principal
stockholders. Discuss the validity of the order.
The suspension of payment is valid with respect to D but not with respect to the principal
stockholders. The court has jurisdiction to declare suspension of payments with respect to
corporations, partnership or associations, but not with respect to individuals.
74. Distinguish stay order in corporate rehabilitation from Declaration in a state of
suspension of payments:
Stay Order in Corporate Rehabilitation Declaration in s State of Suspension of

Payments
Suspensive effect commences from the issuance by
the court of the stay order or upon the appointment Suspensive effect commences from the filing of the
of a rehabilitation receiver or management petition.
committee
The suspensive effect has no time limit and would
prevail for as long as the corporate debtor is under a In the absence of agreement among the corporate
management committee or rehabilitation receiver creditors, the suspensive effect would expire after 3
and there is no directive to have its assets months.
liquidated.
The suspensive effect covers all corporate creditors, The suspensive effect covers unsecured creditors
both secured and unsecured. only.
75. When is the remedy of declaration in a state of suspension of payments available to a

corporation?
The remedy is available to the corporate debtor in two instances:
1. Where the corporate debtor possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due, or
2. Where the corporate debtor as no sufficient assets to cover its liabilities but is under
management of a rehabilitation receiver or Management Committee.
76. Rule on corporate rehabilitation:
The reason for suspending actions for claims against the corporation should not be difficult to
discover. It is not really to enable the management committee or the rehabilitation receiver to
substitute the defendant in any pending action against it before any court, tribunal, board or body.
Obviously, the real justification is to enable the management committee or rehabilitation receiver
to effectively exercise its/his powers free from any judicial or extra-judicial interference that might
duly hinder or prevent the “rescue” of the debtor corporation. (B. F. Homes, Inc. vs. CA cited in PAL
vs. Spouses Sadic)
77. Debtor Corporation and its principal stockholders filed with the SEC a petition for
rehabilitation and declaration of a state of suspension of payments under PD 902-A.
The objective was for SEC to control of the corporation and all its assets and liabilities,
earnings and operations, and to determine the feasibility of continuing operations and
rehabilitating the company for the benefit of investors and creditors.
Generally, the unsecured creditors had manifested willingness to cooperate with

Debtor Corporation. The secured creditors, however, expressed serious objections and
reservations.
First Bank had already initiated judicial foreclosure proceedings on the mortgage
constituted on the factory of the Debtor Corporation.
Second Bank had already initiated foreclosure proceeding on a third-party

mortgage constituted on certain assets of the principal stockholders.
Third Bank had already filed a suit against the principal stockholders who has held
themselves liable jointly and severally for the loans of Debtor Corporation with said
bank.
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After hearing, the SEC directed the appointment of a rehabilitation receiver and
ordered the suspension of all actions and claims against the Debtor Corporation as
well as against the principal stockholders.
a) Discuss the validity of the SEC order of suspension.

b) Discuss the effect of the SEC order of suspension on the judicial foreclosure
proceeding initiated by the First Bank.
c) Would the order of suspension have any effect on the foreclosure proceeding
initiated by the Second Bank? Explain.
d) Would the order of suspension have any effect on the suit filed by the Third
Bank? Explain.
e) What are the legal consequences of a rehabilitation receivership?
f) What measures may the receiver take to preserve the assets of Debtor
Corporation?
(a) The SEC order of suspension of payment is valid with respect to the debtor corporation but not
with respect to the principal stockholders. The SEC has jurisdiction to declare suspension of
payments with respect to corporations, partnership or associations, but not with respect to
individuals.
(b) The SEC order of suspension of payment suspended the judicial proceedings initiated by First
Bank. According to the Supreme Court in a line of cases, the suspension order applies to secured
creditors and to the action to enforce the security against the corporation regardless of the stage
thereof.
(c) The order of suspension of payments suspended the foreclosure proceedings initiated by Second
Bank. While the foreclosure is against the property of a third party, it is in reality an action to
collect the principal obligation owed by the corporation. During the time that the payment of the
principal obligation is suspended, the debtor corporation is considered to be not in default and,
therefore, even the right to enforce the security, whether owned by the debtor corporation or of a
third party, has not yet risen.
(d) For the same reason as in (3), the order of suspension of payments suspended the suit filed by
Third Bank against the principal stockholders.
(e) Under PD 902-A, the appointment of a rehabilitation receiver will suspend all actions for claims
against the corporation and the corporation will be placed under rehabilitation in accordance with
a rehabilitation plan approved by the Commission.
(f) To preserve the assets of the Debtor Corporation, the receiver may take custody of , and control,
all the existing assets and property of the corporation; evaluate existing assets and liabilities,
earnings and operations of the corporation and determine the best way to salvage and protect
the interest of the investors and creditors.
78. ABC Corporation filed a petition for corporate rehabilitation with the RTC-Special
Commercial Court. It submitted a proposed rehabilitation plan. The creditors opposed
the plan contending that it is of doubtful nature and impossible to accomplish.
Notwithstanding the objection, the RTC approved the plan and granted the petition. Is
the approval of the court valid on the score that the creditors were able to prove that
the financial commitments of ABC under the rehabilitation plan are unrealistic and
cannot be achieved? (PBCom vs. Basic Polyprinters & Packaging Corp., G. R. No. 187581, October
20, 2014)
A material financial commitment is an indispensable requirement of a financial rehabilitation plan.

If the financial commitments under the rehabilitation plan are of doubtful nature and impossible to
achieve or realized the plan should not be approved and the petition should not be given due course.
Hence, the approval of the RTC is improper.
79. X Corporation applied for its rehabilitation and submitted a rehabilitation plan which
called for the entry by it into a joint venture agreement with Y Corporation. Under the
agreement, Y Corporation was to lend to X Corporation its credit facilities with certain
banks to obtain funds not only to operate X Corporation but also for a part thereof in
the amount of P1 million as initial deposit in a sinking fund to be augmented annually
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in amounts equivalent to 10% of its operation of the business of X Corporation. From
this fund, the creditors of X Corporation were to be paid annually, starting from the
second year of operations, with the entire indebtedness to be liquidated in 15 years.
The creditors of X Corporation objected to the plan because Y Corporation would

be taking over the business and assets of X Corporation.
1. Could the court approve the plan despite the objection of the creditors of X
Corporation and could the creditors be compelled to follow the plan?
2. Could Y Corporation, in managing the business of X Corporation in the meantime,

be deemed to have taken over X Corporation itself?
(1) Yes, it could. The interim Rules of Procedure on Corporate Rehabilitation (2000) expressly
provides for the “cram-down” power of the court, particularly the RTC, having jurisdiction over the
petition for rehabilitation.
This “cram-down” power of the RTC enables it to approve the rehabilitation plan even over the
opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.
2. No. it could not. In the rehabilitation plan, Y Corporation is envisaged merely as a rehabilitation
receiver. A rehabilitation receiver implements the rehabilitation plan after its approval by the
court. Its primary task is to study the best way to rehabilitate the debtor and to ensure that the
value of the debtor’s property is reasonably maintained pending the determination of whether
or not the debtor should be rehabilitated. It does not take over the management and control of
the corporate debtor but simply oversees and monitors closely the operations of the latter
during the pendency of the proceedings.
80. What is the purpose of rehabilitation of corporation under the FRIA?
This is an attempt to conserve and administer the assets of an insolvent corporation in the hope
of its eventual return from financial stress to solvency. It contemplates the continuance of corporate
life and activities in an effort to restore and reinstate the corporation to its former position of
successful operation and liquidity. This process enables the company to gain a new lease on life
and thereby allow creditors to be paid their claims from its earnings.
81. May secured creditors enforce their preference in payment during the rehabilitation by
virtue of a contractual agreement?
Secured creditors retain their preference over unsecured creditors but enforcement of such
preference is equally suspended upon the appointment of a management committee, rehabilitation
receiver, board or body.
In the event that the assets of the corporation, partnership or association are finally liquidated,
however, secured and preferred credits under the applicable provisions of the Civil Code will
definitely have preference over unsecured ones.
82. X, a secured creditor questions the constitutionality of pari passu treatment (placing
secured creditors and unsecured creditors in equal footing and treatment during
rehabilitation of the corporation) and claims that the same offends the Non-impairment
clause of the Constitution? Decide.
Rehabilitation of corporation is not a proper subject of the Non-impairment Clause of the

Constitution. This process is designed to benefit both debtor and creditors alike. It gives the
corporation a chance to continue its business operation without claims yet being enforced so that
it can return and regain from financial stress to solvency. At the end of the day, creditors are
satisfied in their full claims rather than recover at a lesser amount if corporate properties are
immediately sold.
83. X Corporation filed a petition before the RTC for corporate rehabilitation. Subsequently,
the court issued a stay order and appointed a rehabilitation receiver. Prior to the
petition and particularly during the initial stage of X’s operation Y Corporation
accommodated X by allowing the later to mortgage Y’s properties in support of X’s loan
application. Having notice of X’s petition in court, the creditors of Y moved for the
foreclosure of the accommodation mortgages. Are the properties of Y (third party
mortgagors) included in the stay order? (Situs Dev’t. Corp. et. al., vs. Asia Trust Bank, et.
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al. G. R. No. 180036, January 13, 2013)
Answer. The issuance of a stay order empowers the court to suspend claims against the debtor, its
guarantors and sureties not solidarily liable with the debtor. Hence, it cannot suspend the foreclosure
of accommodation whether or not the properties subject to the third-party mortgage are used by the
debtor-corporation (X) or are necessary for its operation is of no moment, as the Interim Rules do not
make a distinction It is beyond the rehabilitation court’s jurisdiction to suspend foreclosure
proceedings against properties of third-party mortgagors.
84. ABC Corporation secured loans from banks and financial intermediaries. Among the
banks that granted loans to ABC was RR Bank, a secured creditor and unsecured.
Loans from XY Finance & Investment Corporation a secured creditor. After several
years, ABC filed a petition for rehabilitation, to which XY filed an opposition contending
that the rehabilitation plan unduly benefits unsecured creditors. The regular
commercial court granted the petition. (Robinson’s Bank Corp. vs. Trade & investment
Dev’t. Corp. et. al., G. R. No. 195289, Sept. 24, 2014)
XY appealed the ruling of RTC before the CA. RR then filed a Motion for
Intervention with the CA to participate in the proceedings. CA denied RR’s Motion for
violation of the Rules of Procedure on Corporate Rehabilitation. “Motion for
Intervention” is a prohibited Motion. [Rule 3,Sec, 1 par 2(g)]
Is RR allowed to participate in the proceedings in question?
Answer. The nature of XY’s petition mandates the participation of RR , an unsecured credito
because the latter has an interest in the main issued at hand., RR is already a party to the case and
it does not need to file a motion for intervention to participate in the proceedings. XY cannot refuse
or object to the participation of RR in the case.
85. XYZ Corporation filed a petition for rehabilitation claiming serious financial distress
brought about by long labor disputes. The petition was given due course. Employees
of XYZ were not allowed to report for work. A labor case for illegal dismissal was filed
by employees against XYZ. The Labor Arbiter decided the case in favor of the
employees and warded then reinstatement with backwages. Can employees enforce
the payment of their backwages while corporation is under rehabilitation? (PAL, Inc. vs.
Eeynaldo Paz, G. R. No. 192924, November 26, 2014)
Answer. All kinds of money or pecuniary claims against a corporation under rehabilitation shall be
suspended including employees claim for their accrued unpaid salaries.
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Academicus Review Center Inc.

PROBLEM EXERCISES on Revised Securities Code

based on decided cases of the Supreme Court:

Prepared by: Dr. Virginia Jeannie P. Lim

1. Laws being administered by the SEC:

1. Securities Regulation Code;

3. What is the regulatory jurisdiction of the SEC:

4. Doctrine of Primary Jurisdiction of the SEC:

 A position created by the Board of Directors

9. If an action is filed by a stockholder against the Corporation claiming damages, is the

16. Is the SEC empowered to order dissolution of a corporation?

In the increase of the contributed capital of a “non-stock/non-profit”, it is not required that an

a) To prevent fraud or injury to the investing public. (Sec. 5(i), SRC.)

26. When is a SEC license issued?

A SEC license is issued upon compliance with the following requirements -

a) Proof of compliance with Principle of Reciprocity

31. What are the exempt securities?

c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

e) Any security issued by a bank except its own shares of socks.

33. When may a corporation issue uncertified security?

34. May uncertified securities be pledge?

36. Distinguish an issuer from a broker of securities:

37. Distinguish derivative, options and warrants:

Derivative Options Warrants

38. What is a Pre-need Plan?

a) Pre-need plan must be registered with the SEC

39. What is the Suitability Rule?

Network marketing is not an investment contract. Network marketing is a scheme adopted by

The touchstone is an investment in a common venture, premised on a reasonable expectation

Network marketing is not an investment contract. Network marketing is a scheme adopted by

45. Rule on intra-corporate disputes:

To determine whether a case involves an intra-corporate controversy, and is to be heard and

46. What is an intra-corporate controversy? (2006 Bar)

It is a civil case involving the following:

(c) controversies in the election or appointment of directors, trustees, officers or managers of

(d) derivative suits, and

1. Is there an intra-corporate controversy in this case? Explain.

50. What is a “Public Company”?

Publicly announced intention by a person or group of persons of their intention to acquire

53. What is creeping acquisition?

54. Why are tender offers regulated?

55. What is an insider trading?

56. Who is an Insider?

g) A government employee, or director or officer of an exchange, clearing agency and/or self

57. What is “material non-public information”?

An information is material non-public if –

b) would be considered by a reasonable person important under the circumstances in determining

58. What is margin trading (Sec. 48)?

59. What is the purpose of the Margin Trading Rule?

60. What acts or transactions are prohibited under RA 8799?

a. Manipulating of security prices, such as artificial measures of price control

61. Manipulation of prices of securities:

62. Manipulative devices that create false activated trading:

d) Hype and dump – buying at high prices to get high commission

j) Wash sales - engaging in transactions in which there is no genuine change in actual

63. Short swing profits defined (Sec. 23.2):

64. How may violation of the Securities Regulation Code be pursued?

66. Briefly explain the Mandatory Close Out Rule.

a) Is the arrangement lawful?

b. If the sale materializes, it is called a wash sale or simulated sale.

a) Is the controversy to be submitted to the SEC or the Regular Courts?

72. Distinguish an issuer from a broker of securities:

Stay Order in Corporate Rehabilitation Declaration in s State of Suspension of