PHILIPPINES Law and Practice Contributed by: Rose Marie M. King-Dominguez, Melyjane G. Bertillo-Ancheta and Franco Aristotle G. Larcina, SyCip Salazar Hernandez & Gatmaitan
In the midst of the COVID-19 pandemic, a material adverse change (MAC) clause is also an important tool in managing risk. Structuring the scope of the MAC clause and any related carve-outs is of particular importance. 6.8 Additional Governance Rights Shares in a local company may be voting or non- voting. Voting shares in a local company would have voting rights (one share, one vote) on matters that require shareholder approval. These voting rights of voting shares also permit holders thereof to vote for the directors who will sit on the board of the company. Non-voting shares (particularly, non-voting preferred shares) have the right to vote only on matters that the law specifically mentions as being subject to the approval of holders of the outstanding capital stock of the company, which includes both voting and non- voting shares. A shareholder who holds at least two- thirds of the outstanding capital stock of a company would have effective control of the company, subject to minority rights. Shareholders of a company may agree to higher quo - rum and approval requirements. This could allow a minority shareholder to possess a power of veto. The shareholders could also agree that specific sharehold - ers, regardless of their percentage of voting stock ownership, could nominate a certain number of direc - tors or particular officers. Flexibility in governance provisions, however, is sub - ject to nationality restrictions that apply to a local company. If the local company must be partially Filipino-owned, then the ability of a foreign owner to exercise governance rights would generally be lim - ited to its allowable shareholding and other applicable restrictions. 6.9 Voting by Proxy Shareholders in a Philippine company can vote by proxy. 6.10 Squeeze-Out Mechanisms A company may consider undergoing a reverse stock split to eliminate minority interests and cease being a public company. This can be done at a duly convened special stockholders’ meeting, by the stockholders
owning at least two-thirds of the outstanding capi - tal stock present in person or by proxy, unanimously approving the following amendments to such com - pany’s articles of incorporation: • increasing the par value per share; and • providing that the company will not issue fractional shares and that fractional shares resulting from any increase in par value or any corporate action will be paid for in cash based on an amount to be deter - mined by the board of directors. The SEC has said that a reverse stock split is legally feasible, provided that the transaction is carried out in good faith on the strength of a legitimate and proper corporate objective, duly warranted by the organisa - tion’s corporate affairs, and subject to: • the facts being fully disclosed and formally approved; • the corresponding taxes and fees legally imposable being paid; • non-impairment of legal capital and that no preju - dice shall be caused to the stockholders and credi - tors; and • filing by the corporation of an application for amendment of the articles of incorporation and/or a certificate of increase/decrease of capital stock, if any, to reflect the changes in the capital structure. 6.11 Irrevocable Commitments Tender offers in the Philippines are usually triggered by the signing of definitive agreements between or among the target company’s principal shareholders and the acquirer for the sale and purchase of shares meeting or exceeding the thresholds for mandatory tender offers. They may also be triggered by a sub - scription for new shares in a local company reaching the relevant threshold. Although the definitive agree - ment typically provides for conditions precedent to closing (eg, the completion of the tender offer process as required by the law and regulations), it does not usually provide a way out for the principal shareholder or the local company, as applicable, if a better offer is made. However, it is also possible to launch a mandatory tender offer on the basis of creeping acquisitions – eg,
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