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Inal Xamination: G I ID NUMBER and SECTION On The Upper Right Hand Corner of This Questionnaire and
Inal Xamination: G I ID NUMBER and SECTION On The Upper Right Hand Corner of This Questionnaire and
FINAL1 EXAMINATION
GENERAL INSTRUCTIONS: DO NOT WRITE YOUR NAME. Write your STUDENT
ID NUMBER and SECTION on the upper right hand corner of this questionnaire and
your exam booklet. Take note, further instructions will be given. Good luck!
1
16 May 2018
Philippine Corporate Law
FINALS
May 2018
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COMMON FACTS
Mr. John Wayne Gacy, a Filipino citizen, set up a holding company, Le Gacy Holdings,
Inc. (“LG Holdings”), of which he owns all of the outstanding capital stock (“OCS”),
except for four (4) shares, which are in the name of the four (4) other directors of LG
Holdings.
Mr Gacy and LG Holdings in turn each own forty percent (40%) or a combined eighty
percent (80%) of the OCS of the following corporations (collectively “LG Subsidiaries”):
Le Gacy Bank, Inc. (“LG Bank”), a commercial bank duly organized and existing
under Philippine laws and authorized to operate as such by the Banko Sentral ng
Pilipinas. The remaining twenty percent (20%) of the OCS of LG Bank is owned
by Ng Brothers, Inc. (“NBI”), which is equally owned, foreign and Filipino, at
fifty-fifty (50%-50%).
Le Gacy Pre-Need Company, Inc. (“LG Pre-Need”), a pre-need company duly
organized, registered with the Securities and Exchange Commission (“SEC”), and
authorized to operate as such by the Insurance Commission (“IC”). The remaining
twenty (20%) of the OCS of LG Pre-Need is owned by JM Enterprises, Inc., a
holding company which is equally owned, foreign and Filipino, at fifty-fifty
(50%-50%).
Le Gacy Realty Development Corporation, Inc. (“LG Realty”), a corporation duly
organized and registered as such with the SEC, the primary purpose of which is to
engage in real estate business. The remaining twenty percent (20%) of the OCS of
LG Realty is equally owned by NBI and JME.
LG Holdings and the LG Subsidiaries have the same five (5) directors, namely Messrs.
Gacy, Ely, Raymund, Marcus, and Budd, all Filipino Citizens. Except for Mr. Gacy, all
remaining directors are all nominees of the former (for LG Holdings) and LG Holdings
(for the LG Subsidiaries). As such, they all executed nominee agreements and blank
Deeds of Assignment, and indorsed in blank the stock certificates covering their
qualifying shares in LG Holdings and the LG Subsidiaries.
PROBLEM I
ADDITIONAL FACTS
Due to the sudden global economic meltdown, Mr. Gacy wanted to hoard as much cash
as he can in preparation for his candidacy in the 2022 Federal Elections (due to the
upcoming approval of Charter Change). Thus, Mr. Gacy caused LG Holdings to borrow
(ostensibly for additional capital requirements) the amount of Php1,000,000,000.00 (the
“Loan”) from LG Bank using LG Holdings’ shares in all LG Subsidiaries as collateral.
The Loan falls exactly within the maximum allowable limits mandated by the General
Banking Law and BSP regulations.
PROBLEM I
QUESTIONS
2. Without going into the requirements under banking laws, can LG Bank validly
accept its own shares as collateral without violating the Trust Fund Doctrine?
6. If the Loan is shown to be fraudulent, can NBI exercise its appraisal right as
stockholder of LG Bank on the premise that it did not approve of such use of funds?
PROBLEM II
ADDITIONAL FACTS
Due to the sagging confidence of the Filipino people in the pre-need industry, JME
sought to sell its shares in LG Pre-Need to FJ Ventures, Inc. (“FJV”), a one-hundred
percent (100%) Filipino-owned holding company, which owns one-hundred percent
(100%) of the OCS of FJ Pre-Need Corp. (“FJP”), a direct competitor of LG Pre-Need.
PROBLEM II
QUESTIONS
1. Mr. Gacy and LG Holdings sought to block the intended sale of shares by
amending the By-Laws of LG Pre-Need to prohibit the sale of shares to direct
competitors, their holding companies, subsidiaries, and affiliates (the “Prohibition”), such
that a violation of the Prohibition would render the sale void. Assuming the SEC
approves such amendment of LG Pre-Need’s By-Laws prior to the sale by JME of its
shares in LG Pre-Need to FJV, can the sale be declared void based on the Prohibition?
3. Assuming the Prohibition is void, and FJV requests a recording of its purchase of
JME’s shares in the stock and transfer book (“STB”) of LG Pre-Need. Can the Corporate
Secretary of LG Pre-Need be compelled to record such transfer, and if so, how?
PROBLEM III
ADDITIONAL FACTS
Due to the sagging confidence of the Filipino people in the pre-need industry, Mr. Gacy
and LG Holdings sought to liquidate their interest in LG Pre-Need in favor of FJV, a one-
hundred percent (100%) Filipino-owned holding company, which owns one-hundred
percent (100%) of the OCS of FJ Pre-Need Corp. (“FJP”), a direct competitor of LG Pre-
Need.
PROBLEM III
QUESTIONS
2. If LG Pre-Need sells its entire portfolio of pre-need plans (liabilities) and the
corresponding trust fund (assets) to FJP, is FJP liable to the holders of the said pre-need
plans under this mode of acquisition?
3. If LG Pre-Need sells its entire portfolio of pre-need plans (liabilities) and the
corresponding trust fund (assets) to FJP, and as a result ceases operations, can FJP be
held liable for the claims of the displaced employees of LG Pre-Need, if the latter no
longer has assets sufficient to pay for such claims?
4. If LG Pre-Need sells its entire portfolio of pre-need plans (liabilities) and the
corresponding trust fund (assets) to FJP, can such sale be declared null and void on the
ground that the stockholders’ ratification was not obtained in a meeting duly called for
that purpose. Even if Mr. Gacy and LG Holdings collectively own eighty percent (80%)
of the OCS of LG Pre-Need?
PROBLEM IV
ADDITIONAL FACTS
In the year 2016, due to the downtrend in the real estate market, LG Realty sought to take
the following measures to generate income:
Issuance of ten percent (10%) preferred shares (apart from existing common
shares) to attract investors to infuse capital; and,
Investment of its surplus profit in Philippine Treasury Bonds.
PROBLEM IV
QUESTIONS
2. Assuming that the preferred shares were issued for past services rendered, can the
holders of the common shares object to such issuance?
PROBLEM V
ADDITIONAL FACTS AND BONUS QUESTIONS2
1. Please state section 123 (Place of Incorporation Test) of the Corporation Code
verbatim.
2. Prior to 2016, there had been no dividend declaration for two (2) years. In a twist
of fate (mainly due to an unexpected property boom and settlement of several law suits),
LG Realty completely reversed its position and is now, quite literally, swimming in cold
cash. In line with the adopted strategy, at the close of LG Realty’s fiscal year for 2016,
Php1,000,000,000.00 had been earmarked for the purchase of Philippine Treasury Bonds.
At such time, the capital accounts of LG Realty are stated as follows:
Also, because net income after tax for the same year was Php10,000,000,000.00, the
Board of Directors issued a resolution that fifty percent (50%) of the retained earnings
will be declared as dividends, payable on the first day of the first month immediately
following the close of the above-mentioned fiscal year. Ignoring any applicable taxes,
how much should go to each share if the preferred shares are: a) cumulative and
participating; b) non-cumulative and participating; c) cumulative and non-participating;
and, d) non-cumulative and non-participating.
3. Having completed the both courses (ATP and Corp), what specific aspects did
you not like? In the interest of improving the courses for future students, what changes
would you suggest?
2
Additional Instructions for Nos. 1 and 2: Absolutely no erasures allowed. This is all or nothing. Thus,
in order to get full bonus credit, the answers to both questions (including sub-questions) must be entirely
correct. Otherwise, no points will be awarded.
Additional Instructions for No. 3: Your answer must be truthful and constructive, but, as much as
possible, should not contain anything positive, congratulatory or any form of affirmation.
5 MSEUF-LAW (2nd Semester)
Philippine Corporate Law
FINALS
May 2018
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