LIABILITIES OF CORPORATIONS VESTED WITH PUBLIC INTEREST
By: Euney Marie J. Mata-Perez on September 5,2019
With the passage of the Revised Corporation Code (RCC), it is now important for corporations to determine whether or not they qualify as “corporations vested with public interest”. If they so qualify, they will be subject to following additional obligations under the code:
Required to have independent directors comprising at least 20 percent (but not less than two) of the entire board;
Required to have a compliance officer;
Required to have its material contracts with self-dealing directors approved by at least 2/3 of the entire membership of the board, with at 11 least a majority of the independent directors approving the same;
Required to submit to the Securities and Exchange Commission (SEC) and shareholders a directors’ compensation report;
Required to submit a report on director or trustee appraisal or performance report and standards or criteria used to assess each director or trustee; and
May be required to have an independent transfer agent.
The RCC defines corporations vested with public interest to include corporations covered by Section 17.2 of Republic Act No. 8799 (the Securities Regulation Code) namely a) those whose securities are registered with the SEC, b) corporations listed with the stock exchange, or c) those with assets of at least P50 million and having 200 or more stockholders, each holding at least 100 shares of a class of its equity shares. (Note that it is not enough to have assets of P50 million; the corporation should also have at least 200 stockholders, each holding at least 100 shares).
Also included as corporations vested with public interest are, of course, banks and quasi-banks, non-stock savings and loan associations, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries.
However, a third category of corporations vested with public interest are those which may be determined as such by the SEC, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director. Such factors would include the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.
This third category is broad and seems to cover not just those which offer securities to the public, but also include those deemed vested with “public interest” based on the nature of their business operations. The SEC shall have the power to expand the list on this basis.
The concept of corporations vested with public interest is not new.
It has been settled in jurisprudence that with respect to businesses impressed with public interest, like banks, the trust and confidence of the public is of paramount importance, such that the appropriate standard of diligence must be very high, if not, the highest degree of diligence, is required. (PCI Bank v. Court of Appeals, 350 SCRA 446 ).
Also, common carriers, because of the nature of their businesses and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance of the goods transported and for the safety of their passengers.
So, the question would be if and when the SEC declares certain corporations as vested with public interest, will the high degree of diligence apply to such corporations, including its officers and directors?
We believe that it does not automatically apply.
It is clear that the consequence of a corporation’s being determined as one vested with public interest under the RCC would be the subjecting of such corporations to the additional regulatory requirements under the code. However, the RCC does not impose any additional liability or a higher degree of diligence on those corporations, including its officers and directors.
Thus, whether or not the higher degree of diligence requirement will be imposed upon corporations determined to be vested with public interest shall still be dictated by the nature of their businesses, in accordance with law, public policy and jurisprudence. The coverage of the RCC is limited to the imposition of additional compliance and reporting requirements.
In any case, it should be borne in mind that under the RCC, it is now expressly stated that directors and trustees shall perform their duties not just in accordance with or as prescribed by law and by-laws of a corporation, but they should also so perform their duties in accordance with the rules of good corporate governance. (RCC, sec. 23). This mandate applies to all corporations, whether declared to be corporations vested with public interest or not.