S.A 2020/21 B.E COMMERCIAL LAW | Question #18
SUGGESTED ANSWERS TO THE2020/21 BAR EXAMINATIONS IN COMMERCIAL LAW | Question No. 18
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A white hat hacker, a software engineer, a gamer, an ophthalmologist, and a computer engineer got together sometime in 2019 to develop a software that can identify a person using a photo of their eyes taken by a 10-megapixel camera. By early January 2020, they decided that they needed more equipment and capital, and that they had to protect their intellectual property rights.
A wealthy entrepreneur offered to give them the funds they needed. They negotiated that the funds would be treated as an investment rather than a debt liability. Thus, the entrepreneur would recover through dividends rather than through amortized payments. At the same time, they did not want the wealthy entrepreneur to be involved with creative decisions in their business projects.
To accommodate their desired arrangements, a new corporation was registered with the Securities and Exchange Commission. In this corporation, the wealthy entrepreneur held preferred, non-voting shares, while the other held common, voting shares.
By the middle of 2020, it became clear that the software was going to be highly profitable. Unlike other financial recognition software, theirs would be able to identify a person even with low-resolution cameras found in most smartphones. It could also identify persons even if they wore face masks. Mindful of its profitability, a Chinese corporation offered to buy all the assets of the corporation for YSD10,000,000,000.00.
Everyone wanted to close the deal except the wealthy entrepreneur, who insisted that they should not sell all corporate assets, but instead enter into software licensing arrangements as these would be more profitable.
Under the Revised Corporation Code, are the white hat hacker, software engineer, gamer ophthalmologist, and computer engineer required to allow the wealthy entrepreneur, who holds preferred shares, to vote on whether they can sell all the corporate assets? Express briefly.
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SUGGESTED ANSWER:
Yes, the wealthy entrepreneur who holds non-voting preferred shares may vote whether or not to sell all the assets of the corporation.
While preferred shares may be denied the right to vote, holders of non-voting preferred shares are, nevertheless, vested the right to vote in case of, among others, sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property (Section 6(c), RCC).
Sale of all or substantially all of corporate assets also requires not only the vote of at least majority of the entire board but also the approval of the stockholders representing at least 2/3s of the outstanding capital stock (Section 39, RCC)
Code: S.A 2020/21 B.E COMMERCIAL LAW | Question #18
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