Court of Appeals to SEC: Give Rappler corrective period

MANILA, Phillippines (5th UPDATE) – The Court of Appeals (CA) upheld the Securities and Exchange Commission (SEC) findings that Rappler's agreement with a foreign investor constitutes "some foreign control" contrary to the Constitution, but said Rappler must be given "reasonable time" to correct the disputed parts of the deal.

“The Court notes that, in cases where the articles of incorporation or any amendment thereto is found by the SEC to be non-compliant with the requirements of the Corporation Code, under Section 17 of 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," the CA said in a 72-page decision promulgated Thursday, July 26.

The CA agreed with Rappler's argument that Omidyar's earlier waiver of its Philippine Depositary Receipts (PDRs) and then its donation of the PDR's to Rappler managers "show the intention to comply in good faith with the regulations of the SEC." (Read Rappler's statement: Court of Appeals says license revocation is wrong)

The CA even noted that the SEC allowed other corporations like ABS-CBN, GMA, and Globe to issue PDRs.

"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. (READ: Business as usual for Rappler, CA urges review of shutdown order)

The Court reminded the SEC that in 2015, the SEC en banc relaxed its policy against "delinquent corporations."

The SEC earlier revoked Rappler's license to operate, but the dispositive portion of the Court's decision does not mention a directive on whether Rappler should cease to operate.

Instead, the CA remanded the case or gave it back to the SEC to assess the legal impact of Omidyar donating its $1.5-million worth of PDRs to 14 of Rappler’s Filipino managers.

“The Securities and Exchange Commission is hereby directed to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depositary Receipts to the Staff of Rappler Inc. Accordingly, the case is hereby remanded to the Securities and Exchange Commission for this purpose,” the CA said. (READ: FAQs: Rappler SEC case)

Francis Lim, lawyer for Rappler, said: “We have not yet received a copy of the decision but we will surely not take the decision sitting down and will take all legal actions necessary to have the issue finally resolved by the Supreme Court. Having said that, I’m glad that the Court of Appeals has ordered the SEC to conduct further proceedings to determine the legal effect of the donation of the PDRs to the Filipino staff of Rappler. What this means is that the SEC decision cannot be enforced or implemented until the issue is finally decided. Meanwhile, it’s business as usual for Rappler.

Some foreign control

The SEC revoked Rappler’s license to operate in January 2018, saying that the Philippine Depositary Receipts (PDR) sold by Rappler to Omidyar gave the foreign entity control of the company. Under the Constitution, media companies should have zero foreign control. (READ: Timeline: The case of Rappler's SEC registration)

The clause states that Rappler must have a “prior good faith discussion” with Omidyar first before the company can modify its articles of incorporation in a way that it “prejudices the rights in relation to the Omidyar PDRs.”

A PDR is a financial instrument that corporations resort to, to secure foreign investments without violating the nationality restrictions prescribed by the Constitution.

In denying Rappler's petition for review, the CA said that: “Under a ‘zero’ foreign control standard, it would appear that this is tantamount to some foreign control."

Rappler told the CA that under the SEC’s own rules, control is defined as something exercised only by the Board of Directors who have the power to vote. Omidyar, Rappler said, cannot vote and therefore does not have control.

“It does not matter whether the approval from Omidyar is required only when the actions taken by Rappler will prejudice the rights of Omidyar, because Rappler Holdings Corp (RHC) will still nonetheless be required to secure the approval of at least 2/3 of the PDR Holders before Rappler can carry out or implement any action which has the effect of altering, modifying or otherwise changing Rappler’s Articles of Incorporation or By-laws or take any other action where such alteration, modification, change or action will prejudice the rights in relation to the Omidyar PDR,” said the CA.

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

The decision was penned by Associate Justice Rafael Antonio Santos, with concurrences from Associate Justices Apolinario Bruselas, and Germando Francisco Legaspi.

Due process

Rappler said in its petition that the SEC violated its right to due process when it skipped several steps in its own procedure, and issued the decision after asking only an explanation from Rappler. According to the SEC’s procedures, the party can file a motion for reconsideration.

The CA said it agrees that the SEC did not follow its own rules, but said “the same does not, by itself, amount to a violation of procedural due process.”

“Due process in administrative proceedings cannot be fully equated with due process in its strict judicial sense, for in the former a formal or trial-type hearing is not always necessary, and technical rules of procedure are not strictyly applied,” said the CA. 

Rappler has decried all moves as blatant harrassment and an attempt to silence a free press.

The CA said: "Preliminarily, this Court notes that the exercise of press freedom is not an issue in this case. Rather, the issue involves the exercise of regulatory powers by the SEC over domestic corporations duly registered with it."

Presidential Spokesman Harry Roque said the CA was "correct to revoke Rappler's registration based on its previous investigation."

He acknowledged the other part of the decision remanding the case to the SEC for a reinvestigation.

"We are confident that the SEC will be able to resolve the case with the same competence and objectivity as before," he said in a statement Friday.

The CA decision came out one year after Duterte's 2017 State of the Nation Address, when he first publicly accused Rappler of being American-owned.

The Department of Justice (DOJ) is currently investigating Rappler for two complaints filed by the government, one for cyberlibel, and another for tax evasion.

The National Bureau of Investigation (NBI) is looking into alleged violation of the anti-dummy law. – Rappler.com

Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email lian.buan@rappler.com or tweet @lianbuan.

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