A CONVERTIBLE share is that kind of share which is changeable by the shareholder from one class to another class at a certain price and within a certain period (De Leon, The Corporation Code of the Philippines, Annotated, 2002 Ed., p. 83). It can be said also that this is tantamount to a right to convert stock into a new kind of stock given to the stockholder by the contract under which he acquires the said stock (In re Phoenix Hotel Co. of Lexington, Ky., 83 F2d 724, affg 13 F Supp 229).

This can be done simply by reclassifying the shares into some other classification in such amount as would be necessary to cover the conversion through an amendment of the articles of incorporation of the company and must be done in accordance with Section 16 of the Corporation Code. Take note, however,  that where a corporation has previously issued stock to the entire authorized limit, it cannot, of course, issue additional stocks (11 Fletcher, Cyc. Corp. 1986 Rev. Vol. 4, 5144, citing Hill v. Small, 228 GA, 31, 183 SE 2d 752, and others) If the authorized common stock of a corporation is fully subscribed, it is necessary to create additional common stocks into which the preferred stocks (if these are to be the object of the change) can be converted. Thus, although the preferred shares possess the quality of being convertible into common shares per articles of incorporation, such conversion is not automatic. The same requires an amendment of the articles of incorporation to formalize the conversion (SEC Opinion dated, 9-3-1990). Therefore, such a classification is required to be provided in the articles of incorporation, either in the original or amended form.

If it is clearly contemplated in the Amended Articles of Incorporation wherein it explicitly states that its preferred shares “may be redeemable or nonredeemable, convertible or nonconvertible to common stock, as may be determined by the Board of Directors, by a resolution duly approved” such guideline in the said articles must be respected (SEC Opinion dated 1-17-2003). However, when the articles of incorporation is silent as to the convertibility feature of shares of stock, it is only the Board of Directors which is authorized to determine its convertibility (SEC Opinion dated 4-30-1992).

Likewise, a corporation may provide for carrying out a duly authorized reduction of its stock by exchanging for it pro rata stock of another corporation which it owns (New Jersey. Wellner v. Gerth, 81NJL 10, 79 A 895). These mechanisms permit shares of any class to be made convertible into shares of any other class or into cash, indebtedness, securities, or other property.

This can be elaborated where preferred shareholders (or, as discussed in a previous article, founders’ shares) of a corporation plan to convert said shares into common. If the set-up states that the preferred or founders’ shares are convertible into common stock at the option of the stockholders after five (5) years from date of issue of such shares these are immediately convertible at the holders’ option whenever the rights which may have been acquired by them mature. The preferred shares have been outstanding for more than five (5) years without any dividend having been paid therefore and the authorized common stock of the company is fully subscribed so that it cannot issue new common shares for the requested conversion (Ibid.) the corporation must immediately amend its articles and provide for additional common shares to complete the conversion.

This amendment can be done simply by reclassifying the preferred shares into common in such amount as would be necessary to cover the conversion in accordance with Section 16 of the Corporation Code. Thus, although the preferred shares possess the quality of being convertible into common shares per articles of incorporation, such conversion can not be considered automatic. This requires an amendment of the articles of incorporation to formalize the conversion. In no event, however, should the conversion of the preferred shares into common result to watering of stocks or issuance of stocks in excess of the authorized capital stock of the corporation.

THE Development Bank of the Philippines (DBP) has expanded the coverage of its hedging facility to include overseas Filipino workers (OFWs).

Local stocks fall on high oil costs

PHILIPPINE stocks fell the most in a week on higher oil prices and renewed concern over the US housing slump after Citigroup Inc. said defaults may worsen in the world’s biggest economy.

THE Philippine peso fell from near a seven-year high against the dollar as renewed concern about the US housing market prompted investors to cut holdings of emerging-market assets. Government bonds fell.

SHOEMART Inc., the main property arm of the Sy Group, is allotting as much as P5.1 billion for the acquisition of shares held by public investors in listed SM Development Corp. (SMDC), which invests in residential development.

SMART Broadband Inc. (SBI), the wireless broadband unit of Smart Communications Inc., is acquiring some assets of Mindano-based Cruz Telephone Co. Inc. (Cruztelco).

A CONVERTIBLE share is that kind of share which is changeable by the shareholder from one class to another class at a certain price and within a certain period (De Leon, The Corporation Code of the Philippines, Annotated, 2002 Ed., p. 83). It can be said also that this is tantamount to a right to convert stock into a new kind of stock given to the stockholder by the contract under which he acquires the said stock (In re Phoenix Hotel Co. of Lexington, Ky., 83 F2d 724, affg 13 F Supp 229).