Case Digest: Philippine Coconut Producers Federation, Inc. v. Republic, G.R. No. 177857-58, September 17, 2009

 Corporation Law | Classification of Shares, Redeemable Shares, Treasury Shares

Non-voting shares are not totally deprived of the right to vote. The shareholders who hold non-voting shares still retain some measure of effective control. Thus, holders of non-voting shares may still vote on some matters.

Shares that are originally common may be reclassified into preferred shares. Reclassification of shares is a legitimate exercise of corporate powers under the Corporation Code.

Although the investment of a shareholder is usually locked-in and cannot be returned to the shareholder until liquidation, the redemption feature of shares was envisaged to  effectively eliminate the market volatility risks on the side of the share owners. There are clear advantages and benefits that inure to  the redeemable preferred share owners who, on one hand, prefer a stable dividend yield on their investments and, on the other hand, want security from the uncertainty of market forces over which they do not have control.

A treasury share may be common or preferred share. Treasury shares may be used for a variety of  corporate purposes, such as for a stock bonus plan for management and employees or for acquiring another company. 

  • Philippine Coconut Producers Federation, Inc. (COCOFED) filed an Urgent Motion seeking Court approval for the conversion of 753,848,312 San Miguel Corporation (SMC) Common Shares held by Coconut Industry Investment Fund and the "14 Holding Companies" into SMC Series 1 Preferred Shares.
  • SMC has the option to redeem the preferred shares after three years at the issue price plus unpaid dividends, with preference in case of liquidation.
  • COCOFED proposes establishing the "Coconut Industry Trust Fund (CITF) for the Benefit of the Coconut Farmers," with the Republic acting through the Philippine Coconut Authority (PCA) as trustee.
  • The trust fund's terms mirror SMC's conversion offer, detailing the conversion ratio, dividend rates, redemption terms, and preference in case of liquidation.

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