Philippine Stock Exchange (PSE) had been condemned
by the minority shareholders when it delisted Calata Corporation (CAL) due to
violations of the disclosure rules under the Securities Regulation Code (SRC). Disclosure
rules stated in SRC Rule 17.1 require a public company to file a current report
to make an accurate disclosure to the public of every material fact or event
that occurs which is expected to influence the investors decisions in relation
to those securities. In the event a news report appears in the media involving
an alleged material fact or event, a current report must be made within the prescribed
period in order to clarify the news report that can create public speculation
if not denied or clarified by the public company. PSE alleged that CAL had
committed 55 violations of the disclosure rules from 6 October 2016 to 20 June
2017. First violation of the disclosure rules carries a fine of P50,000, second
violation carries a fine of P75,000, third violation carries a one month
trading suspension, and fourth violation will be a ground for delisting. CAL
was fined a total of P300,000 and the PSE decided to start involuntary
delisting proceedings. The imposition of monetary penalties and trading
suspension are without prejudice to any regulatory action that can be
undertaken by the regulators in connection with the violations. Despite the
absolute violation of the disclosure rules, the minority shareholders are
against the decision of the PSE to delist CAL due to the absence of an exit
mechanism. To appease the minority shareholders, the PSE proposed voluntary
rather than involuntary delisting on the condition that a tender offer will be
conducted. CAL rejected the proposed voluntary delisting as it does not have
enough retained earnings to buy back outstanding shares at book value per share.
Although the tender offer price must be based on a fairness opinion valuation
of the business, there are no rules under the SRC that pegs the tender offer price
to the book value per share. PSE had bended the disclosure rules to accommodate
an exit mechanism but CAL had chosen the road most traveled to enrich
themselves at the expense of the minority shareholders. When corporate
governance breaks down, minority shareholders must sell and never forget. Those
who break the rules are scum but those who abandon those rules are worse than
scum.
