CA junks Rappler's petition vs. SEC ruling

The Court of Appeals has dismissed a petition for review filed by Rappler Inc. and Rappler Holdings Inc. against a Securities and Exchange Commission ruling that revoked online news site’s certificate of incorporation over allegations of being controlled by a foreign entity.

The appellate court remanded the case back to the SEC for evaluation, particularly the impact of investment firm Omidyar Network donating its Philippine Depositary Receipts (PDR) to Rappler’s staff.

READ: Petition for Review ng @rapplerdotcom laban sa ginawang pagbawi ng Securities and Exchange Commission sa certificate of incorporation ng Rappler Inc. at Rappler Holdings Inc., ibinasura ng Court of Appeals. | via @VargasMannysen pic.twitter.com/QWU6Xr8tv7

— DZBB Super Radyo (@dzbb) July 26, 2018

The CA directed the SEC to “hereby conduct an evaluation on the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depositary Receipts to the staff of Rappler Inc.”

The SEC has said that Rappler violated the Constitution and laws by allowing Omidyar Network, one of the holders of PDRs issued by Rappler, to exercise control over its corporate affairs as provided for in their internal agreement, in exchange for a fund infusion of $1 million.

Rappler maintained that Omidyar did not exercise control over the news site and that there was no declaration made by the SEC on this matter.

The media outfit filed a petition for the CA to review the (SEC) decision revoking the Certificate of Incorporation of Rappler Inc. and Rappler Holdings Corp.

The petition claimed that the SEC violated Rappler Inc. and Rappler Holdings Corporation’s right to due process and equal protection under the Constitution when the corporate regulator issued the decision to put Rappler Inc. and Rappler Holdings “out of business.”

To set the matter aright, Omidyar donated its depositary receipts to 14 Rappler managers in February.

The CA recognized the move as a “new development” not factored in by the SEC when it sanctioned the nascent media organization for violating constitutional restrictions against foreign ownership of mass media companies.

On Thursday, July 26, the appeals court tasked the corporate regulator to assess the impact of Omidyar’s donation.

“The SEC is hereby directed to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its PDRs to the Staff of Rappler, Inc.”

Associate Justice Rafael Antonio M. Santos penned the CA decision, and Associate Justices Apolinario Bruselas Jr. and Germano Francisco Legasp concurred with the ruling.

‘Some foreign control’

The CA noted that a provision in Omidyar’s PDR amounted to an extent to “some foreign control,” but that the rights spelled out in the contested clause were never exercised.

A clause in Omidyar’s PDR requires “good faith discussion” with and approval of PDR holders over any change in the company’s articles of incorporation or by-laws that could prejudice Omidyar’s rights in connection with the PDRs.

“In the present case, while the Omidyar PDR states that the right to vote on the Rappler shares is retained by RHC, said right to vote is being shared with or exercised jointly by RHC, as the owner of the shares, and Omidyar, through clause 12.2.2,” the CA said.

“Thus, under a ‘zero’ foreign control standard, it would appear that this is tantamount to some foreign control.”

In December 2017, Omidyar affirmed it never exercised such rights and agreed to waive them altogether, the CA said.

Rappler argued that the waiver and the PDR donation showed the company’s intention “to comply in good faith with the rules and regulations of the SEC.”

The CA found merit in the argument.

“In view of the donation made by Omidyar of all the Omidyar PDR to the Rappler staff, the negative foreign control found objectionable by the SEC appears to have been permanently removed,” the court said.

“Thus, it is incumbent upon the SEC to evaluate the terms and conditions of said alleged supervening donation and its legal effect, particularly, whether the same has the effect of mitigating, if not curing, the violation it found petitioners to have committed.”

‘Last resort’

The CA also noted that the SEC practices a policy that the revocation of registration papers should be a “last resort.”

It said that under a “relaxed” policy, the regulatory commission ought to issue a suspension order against delinquent corporations, or later enter a suspended status in their records in the event of non-compliance with requirements within the prescribed deadline.

In cases involving non-compliance with the Corporation Code, the SEC is mandated “to give incorporators a “reasonable time within which to correct or modify the objectionable portions of their articles of incorporation or amendment thereof,” according to the CA.

“Moreover, the SEC, in the past, had pursued a policy that the revocation of the certificate of registration should be the last resort,” the CA said.

Rappler has cited lack of due process in the procedure adopted by the SEC as it allegedly differed from the rules.

While the CA agreed that the procedure under the 2016 SEC rules “was not observed to the letter,” the act by itself did not “amount to a violation of procedural due process.” — With Nicole-Anne Lagrimas/BAP/KBK/VDS, GMA News