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MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioner, v. Instead, they endorsed the minority stockholders Alternative Plan.

rs Alternative Plan. At the hearing of

MIGUEL LIM et al., Respondents. the petition for the creation of a new management committee, three (3) members
of the original management committee (Lim, ALFC and Pilipinas Shell) opposed the
FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in Revised BENHAR/RUBY Plan on grounds that:(1) it would legitimize the entry of
glass manufacturing. Reeling from severe liquidity problems beginning in 1980, RUBY BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor of
filed on December 13, 1983a petition for suspension of payments with the Securities RUBY;(2) it would put RUBYs assets beyond the reach of the unsecured creditors and
and Exchange Commission (SEC) docketed as SEC Case No. 2556. the minority stockholders; and (3) it was not approved by RUBYs stockholders in a
On December 20, 1983, the SEC issued an order declaring RUBY under suspension of meeting called for the purpose.
payments and enjoining the disposition of its properties pending hearing of the
petition, except insofar as necessary in its ordinary operations, and making payments
outside of the necessary or legitimate expenses of its business. Notwithstanding the objections of 90% of RUBYs creditors and three members of the
MANCOM, the SEC Hearing Panel approved on September 18, 1991the Revised
BENHAR/RUBY Plan and dissolved the existing management committee.
On August 10, 1984, the SEC Hearing Panel created the management committee It also created a new management committee and appointed BENHAR as one of its
(MANCOM) for RUBY, composed of representatives from Allied Leasing and Finance members. In addition to the powers originally conferred to the management
Corporation (ALFC), Philippine Bank of Communications (PBCOM), China Banking committee under Presidential Decree (P.D.) No. 902-A, the new management
Corporation (China Bank), Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and committee was tasked to oversee the implementation by the Board of Directors of
RUBY represented by Mr. Yu Kim Giang. the revised rehabilitation plan for RUBY.
The MANCOM was tasked to perform the following functions: (1) undertake the
management of RUBY; (2) take custody and control over all existing assets and
liabilities of RUBY; (3) evaluate RUBYs existing assets and liabilities, earnings and ISSUE: Whether the minoritys pre-emptive rights were violated
operations; (4) determine the best way to salvage and protect the interest of its
investors and creditors; and (5) study, review and evaluate the proposed
rehabilitation plan for RUBY. HELD: Yes. COMMERCIAL LAW: Corporation Law, Pre-emptive right

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the Yes, THERE WAS BLATANT VIOLATION/.
BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim Giang,
and the Alternative Plan of the minority stockholders represented by Miguel Lim (TAKE NOTE OF THIS DOCTRINE)
Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a
stockholder of a stock corporation to subscribe to all issues or disposition of shares
of any class, in proportion to their respective shareholdings. The right may be
Both plans were endorsed by the SEC to the MANCOM for evaluation. restricted or denied under the articles of incorporation, and subject to certain
exceptions and limitations.The stockholder must be given a reasonable time within
which to exercise their preemptive rights. Upon the expiration of said period, any
On April 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the stockholder who has not exercised such right will be deemed to have waived it.
Revised BENHAR/RUBY Plan and the creation of a new management committee.
The validity of issuance of additional shares may be questioned if done in breach of “Generally speaking, the voice of the majority of the stockholders is the law of the
trust by the controlling stockholders. Thus, even if the pre-emptive right does not corporation, but there are exceptions to this rule.There must necessarily be a limit
exist, either because the issue comes within the exceptions in Section 39 or because upon the power of the majority. Without such a limit the will of the majority will be
it is denied or limited in the articles of incorporation, an issue of shares may still be absolute and irresistible and might easily degenerate into absolute tyranny.x x x”
objectionable if the directors acted in breach of trust and their primary purpose is to (Additional emphasis supplied.)
perpetuate or shift control of the corporation, or to “freeze out” the minority

In this case, the following relevant observations should have signaled greater Lamentably, the SEC refused to heed the plea of the minority stockholders and
circumspection on the part of the SEC — upon the third and last remand to it MANCOM for the SEC to order RUBY to commence liquidation proceedings, which is
pursuant to our January 20, 1998 decision — to demand transparency and allowed under Sec. 4-9 of the Rules on Corporate Recovery.
accountability from the majority stockholders, in view of the illegal assignments and Under the circumstances, liquidation was the only hope of the minority stockholders
objectionable features of the Revised BENHAR/RUBY Plan, as found by the CA and as for effecting an orderly and equitable settlement of RUBYs obligations, and
affirmed by this Court: compelling the majority stockholders to account for all funds, properties and
documents in their possession, and make full disclosure on the nullified credit
There can be no gainsaying the well-established rule in corporate practice and
procedure that the will of the majority shall govern in all matters within the limits of Oblivious to these pending incidents so crucial to the protection of the interest of
the act of incorporation and lawfully enacted by-laws not proscribed by law. the majority of creditors and minority shareholders, the SEC simply stated that in the
interim, RUBYs corporate term was validly extended, as if such extension would
It is, however, equally true that other stockholders are afforded the right to provide the solution to RUBYs myriad problems.
intervene especially during critical periods in the life of a corporation like
reorganization, or in this case, suspension of payments, more so, when the majority
seek to impose their will and through fraudulent means, attempt to siphon off Rubys Extension of corporate term requires the vote of 2/3 of the outstanding capital stock
valuable assets to the great prejudice of Ruby itself, as well as the minority in a stockholders meeting called for the purpose. The actual percentage of
stockholders and the unsecured creditors. shareholdings in RUBY as of September 3, 1996 — when the majority stockholders
allegedly ratified the board resolution approving the extension of RUBY’s corporate
life to another 25 years was seriously disputed by the minority stockholders, and we
Certainly, the minority stockholders and the unsecured creditors are given some find the evidence of compliance with the notice and quorum requirements
measure of protection by the law from the abuses and impositions of the majority, submitted by the majority stockholders insufficient and doubtful. Consequently, the
more so in this case, considering the give-away signs of private respondents perfidy SEC had no basis for its ruling denying the motion of the minority stockholders to
strewn all over the factual landscape. declare as without force and effect the extension of RUBY’s corporate existence.

Indeed, equity cannot deprive the minority of a remedy against the abuses of the
majority, and the present action has been instituted precisely for the purpose of
protecting the true and legitimate interests of Ruby against the Majority
Stockholders. On this score, the Supreme Court, has ruled that: