February 3, 2004
DAR OPINION NO. 03-04
MEMORANDUM
TO : Director Jeffrey M. Galan
PARC Secretariat
SUBJECT : Policy Issues in the Implementation of Approved Stock Distribution Option (SDO) Plans
This refers to your memorandum dated 11 November 2003 (with follow up memorandum dated 13 January 2004), requesting for clarifications on some issues which affect the implementation of the Stock Distribution Option (SDO) plans approved by the Presidential Agrarian Reform Council (PARC).
You stated as a background that pursuant to Section 31 of R.A. No. 6657, "corporations or associations which voluntarily divest their proportion of their capital stock, equity or participation in favor of their workers or other qualified beneficiaries . . . shall be deemed to have complied with the provision of this Act"; that in consonance with this provision, DAR Administrative Order No. 10, series of 1988, was issued which provides the guidelines and procedures for the processing and approval of applications submitted by the corporate landowners desiring to avail themselves of the SDO scheme; that there are at present 14 SDO plans approved by the PARC since 1988 which are mostly located in Region VI, particularly in Negros Occidental; that the monitoring of these approved SDO plans, however, as regards the compliance with the terms and conditions set forth in the Memorandum of Agreement signed between the corporation and the farmworkers, has not been given much significant attention by our field offices probably in view of their preoccupation to deliver their LTI targets; and that there are gray areas in the policy which have to be clarified to guide the field offices in the implementation of the SDO plans, to wit:
a) Which entity has the jurisdiction to decide on the protest of the farmworkers to cancel the SDO plans?
Your Office already received a protest from concerned farmworkers to cancel the SDO plan of Negros Industrial By Product and Processing, Inc. (NIBPPI) which, accordingly, has not benefited them; that initially, the PARC ExCom took cognizance of this protest in 1999 and decided it in favor of the corporation; that recently, the farmworkers again, through the PARCCOM of Negros Occidental, submitted another protest to your office with a prayer that said SDO plan should be cancelled as it did not bring economic benefits to them; that the PARC ExCom, accordingly, took cognizance of the said issue on the ground that it is the same body which recommended to the PARC the approval of that SDO plan; that, on the other hand, the DARAB has jurisdiction over contracts and joint venture agreements as provided for in the CY 2003 DARAB Rules and Procedures; and
b) Are the approved SDO plans held in perpetuity?
Corollary to the above-cited issue is the open-ended tenure of the SDO plan which, once approved by the PARC, could mean that these approved SDO plans would be held in perpetuity by the corporation; that under DAR Administrative Order No. 10, series of 1988, the DAR shall issue a Certificate of Compliance to the corporation once the latter had complied with the terms and conditions stipulated in the SDO plan. Could this Certificate of Compliance be perpetually held by the corporation? Nowhere in the guidelines are provisions which would guide the field implementors if there will be violations committed by said corporation. DSETcC
Pertinent to the abovecited issues are the provisions of Republic Act No. 6657 (Comprehensive Agrarian Reform Law) and DAR Administrative Order No. 10, Series of 1988 (Guidelines and Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock Distribution Plan Under Sec. 31 of R.A. No. 6657 and Superseding Department of Agrarian Reform Administrative Order No. 04, Series of 1987):
Republic Act No. 6657 [Section 31, 2nd and 3rd paragraphs (a to d)]
"Section 31. Corporate Landowners. —
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Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to purchase such proportion of the capital stock of the corporation that the agricultural land actually devoted to agricultural activities, bears in relation to the company's total assets, under such terms and conditions as may be agreed upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed he reduced. The same principle shall be applied to associations, with respect to their equity or participation.
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in favor of their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of this Act: Provided, That the following conditions are complied with:
a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial benefits, the books of the corporation or association shall be subject to periodic audit by certified public accountants chosen by the beneficiaries;
b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the corporation or association;
c) Any shares acquired by such workers and beneficiaries shall have the same rights and feature as all other share; and
d) Any transfer of shares of stock by the original beneficiaries shall be void ab initio unless said transaction is in favor of a qualified and registered beneficiary within the same corporation." (emphasis supplied)
Administrative Order No. 10, Series of 1988
A. Section 1 (b)
"1b) Qualified Beneficiaries — The qualified beneficiaries in the stock distribution plan are all those identified as beneficiaries of land transfer enumerated under Sec. 22 of RA 6657.
The stock distribution plan shall be agreed upon by both the corporate landowner-applicant and the qualified beneficiaries and subject to approval by PARC. DAR shall monitor and device a system of ensuring the voluntary acceptance by the beneficiaries of this plan for stock distribution. The acceptance of the stock distribution plan by the majority of all the qualified beneficiaries shall be binding upon all the said qualified beneficiaries within the applicant-corporation." (emphasis supplied)
B. Section 5 (paragraph a-e)
"Section 5. Criteria for Evaluation of Proposal — The stock distribution plan submitted by the corporate landowner-applicant shall meet the following minimum criteria:
a) that the continued operation of the corporation with its agricultural land intact and unfragmented is viable, with potential for growth and increased profitability;
b) that the plan for stock distribution to qualified beneficiaries would result in increased income and greater benefits to them, than if the lands were divided and distributed to them individually;
c) that the stock distribution plan is acceptable to a majority, defined as 50% + 1 of all the qualified beneficiaries; TCIDSa
d) that the plan shall include a provision that the books of the corporation shall be subject to periodic audit by Certified Public Accountants chosen by the beneficiaries;
e) that irrespective of the value of the beneficiaries equity in the corporation, they shall be assured of at least one (1) representative in the Board of Directors or in a management or executive committee, if one exists, of the corporation and the corporation must amend its by-laws and/or articles of incorporation to provide such;
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(emphasis supplied)
C. Section 11, 2nd paragraph
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Upon completion, the corporate landowner-applicant shall be issued a Certificate of Compliance. The Secretary of Agrarian Reform or his designated representatives shall strictly monitor the implementation to determine whether or not there has been compliance with the approved stock distribution plan as well as the requirements of the CARP. For this purpose, the corporate landowner-applicant shall make available its premises for ocular inspection, its personnel for interview, and its records for examination at normal business hours." (emphasis supplied)
D. Section 12
"Section 12. Revocation of Certificate of Compliance — Non-compliance with any of the requirements of Sec. 31 of R.A. No. 6657, as implemented by this Implementing Guidelines shall be grounds for the revocation of the Certificate of Compliance issued to the corporate landowner-applicant." (emphasis supplied)
As to the first issue, since the SDO plan is subject to the approval of the PARC pursuant to Section 1(b), 2nd paragraph of DAR Administrative Order No. 10, Series of 1988, and since the Certificate of Compliance issued by the DAR Secretary may be revoked for non-compliance with any of the requirements of Section 31 of R.A. No. 6657 (Comprehensive Agrarian Reform Law) pursuant to Section 12 of DAR Administrative Order No. 10, Series of 1988, and, considering further, that SDO Agreement cancellation is an agrarian law implementation (ALI) case strictly involving the administrative implementation of R.A. No. 6657 and other agrarian laws and guidelines, it is therefore the DAR Secretary, through and with the recommendation/approval of the PARC, who/which has jurisdiction on the matter.
The power or authority to issue the Certificate of Compliance and approve the SDO plan inherently carries with it the power to revoke said Certificate and cancel the SDO Plan/Agreement if there is non-compliance with the requirements/conditions expressly provided for in Section 31 of R.A. No. 6657 as implemented by DAR Administrative Order No. 10, Series of 1988 (Section 12, DAR Administrative Order No. 10, Series of 1988).
Concerning the second issue, corollarily and given our answer on the first issue above, SDO plan could not therefore be held in perpetuity considering that, as already mentioned, the Certificate of Compliance may be revoked on the ground of non-compliance with any of the requirements of Section 31 of R.A. No. 6657 as implemented by DAR A.O. No. 10, Series of 1988 (Section 12, DAR A.O. No. 10, Series of 1988). cESDCa
We hope to have clarified the matters.
(SGD.) RICARDO S. ARLANZA
Undersecretary for Policy, Planning and Legal Affairs Office