GSIS asks court to stop EBCII from voting its shares in Equitable PCI

The Government Service Insurance System (GSIS) is seeking a temporary restraining order (TRO) to stop EBC Investments Inc. from exercising the latter’s voting rights over its shares in Equitable PCI Bank du-ring the bank’s annual stockholders meeting on April 20.

In a complaint filed with the Pasay City Regional Trial Court on April 16, the GSIS through its trustee Fulgencio S. Factoran Jr. asked the court to order EBCII, its directors and representatives to immediately refrain from voting the said shares and to enjoin Equitable PCI not to recognize the voting rights of EBCII over the shares.

The GSIS argued that the shares of EBCII in Equitable PCI are considered treasury shares and thus have no voting rights in Equitable PCI.

The GSIS owns 11.5 percent of Equitable PCI while EBCII owns 10.8 percent of the bank’s outstanding capital stock. EBCII is the wholly-owned investment banking subsidiary to Equitable PCI. As a stockholder, EBCII has exercised and continues to exercise voting rights in Equitable PCI.

The GSIS noted that as its wholly-owned subsidiary, Equitable PCI through its appointees to the board of directors of EBCII, exercises complete control over the finances, business and policies of EBCII. The directors of EBCII, including the EBCII president, are all directors and officers of Equitable PCI or the latter’s subsidiaries.

"Based on the foregoing, it is patently clear that Equitable PCI Bank and EBC Investments Inc. are one and the same corporation. Consequently, shareholdings in Equitable PCI in the name of EBCII are deemed shares in the name of Equitable PCI and thus, considered treasury shares insofar as voting rights are concerned," the GSIS said.

The GSIS pointed out that treasury shares have no voting rights, as a corporation cannot be a stockholder in itself. He cited Sec. 57 of the Corporation Code (RA No. 68) which denies voting rights to treasury shares.

The GSIS also noted that the Bangko Sentral ng Pilipinas through BSP Circular Bo. 280, Series of 2001, treats as treasury shares those "shares of the parent bank held by a subsidiary financial allied undertaking in a consolidated financial condition."

As a result of this arrangement of putting shares of the parent bank in a wholly-owned subsidiary, EBCII has been able "to unlawfully exercise voting rights to the detriment not only of SSS but the other shareholders of Equitable PCI Bank," the state pension fund said.

"If used to favor any shareholder, the shares of Equitable PCI owned by EBCII can effectively perpetuate control of management or of certain shareholders even if that shareholder is actually in the minority to the prejudice of the rest of the shareholders," the GSIS said.