G.R. No. 146214 ; October 5, 2007
Rodolfo M. Cuenca, petitioner, vs. Hon. Alberto P. Atas, Julito F. Fabrero, and Hon. Nathaniel A. Lobigas, in their capacity as Hearing Officers of the Securities and Exchange Commission; Philippine National Construction Corporation, Asset Privatization Trust, Philippine National Bank, Development Bank of the Philippines, National Development Company, Philippine Export and Foreign Loan Guarantee Corporation, and Government Service Insurance System, respondents.

FACTS

Petitioner Rodolfo M. Cuenca was an incorporator and President of Construction Development Corporation of the Philippines (CDCP), later renamed Philippine National Construction Corporation (PNCC). In 1983, due to CDCP’s massive unpaid obligations to various Government Financial Institutions (GFIs), President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1295, directing the conversion of these debts into equity. Pursuant to LOI 1295 and a subsequent stockholders’ meeting, CDCP increased its authorized capital stock and issued stock certificates to the GFIs in 1983, making them the majority (70%) stockholders. The GFIs were given board seats and participated in management. In 1988, some GFIs transferred their PNCC shares to the Asset Privatization Trust under the government’s privatization program.
In 1996, over a decade later, Cuenca filed a complaint with the SEC. He alleged that despite the issuance of stock certificates, the GFIs never truly accepted the shares as they refused to cancel the corresponding loans in their books and continued to collect payments from PNCC. He sought a declaration on the GFIs’ status as stockholders and an order to compel PNCC to hold regular meetings. In 1998, he also sought to enjoin the GFIs from voting their shares in a scheduled stockholders’ meeting. The SEC ruled against Cuenca, declaring the GFIs as legitimate majority stockholders. This was affirmed by the SEC En Banc and subsequently by the Court of Appeals.

ISSUE

Whether the Securities and Exchange Commission correctly declared the respondent Government Financial Institutions as the legitimate majority stockholders of PNCC based on the debt-to-equity conversion under LOI No. 1295.

RULING

Yes, the SEC ruling was correct. The Supreme Court upheld the findings of the SEC and the Court of Appeals, emphasizing that factual findings of administrative agencies, when supported by substantial evidence, are accorded great respect and finality. The Court found that the debt-to-equity conversion was duly implemented. The issuance of stock certificates in the names of the GFIs was recorded in PNCC’s corporate books, and the change in corporate control was publicly known, with GFIs actively participating in the board and management for years. Petitioner Cuenca failed to present clear and convincing evidence to overturn these established facts. His claim that the GFIs did not cancel the loans was insufficient to disprove the conversion, as the GFIs’ internal accounting treatment does not negate the legal completion of the stock issuance and the consequent change in ownership. The Court also noted petitioner’s undue delay in challenging the conversion over a decade after its implementation, which undermined his claim. Therefore, the GFIs were rightfully declared the majority stockholders of PNCC.