PSE to overhaul rules on involuntary delisting

PSE president Ramon Monzon

The Philippine Stock Exchange is tightening the rules on involuntary delisting to improve the exit mechanism for minority investors, expand delisting grounds and impose harsher penalties against erring directors and officers.

This new framework – for which the PSE is now soliciting public feedback until Feb. 20 this year – is on top of the new rules on voluntary delisting being drawn up by the PSE.

The PSE agreed that without an acceptable exit mechanism, stockholders ultimately suffer the consequences of involuntary delisting for violations committed by the listed company while the erring directors and officers are only penalized with five-year disqualification.

Companies that are involuntarily delisted from the PSE are those that are booted out for certain violations, such as in the case of Calata Corp., which was stricken off the roster in 2017 due to multiple violations of disclosure requirements and trading restrictions.

In a circular containing the proposed amendments dated Feb. 3, PSE president Ramon Monzon acknowledged that without an acceptable exit mechanism, stockholders ultimately suffer the consequences of involuntary delisting for violations committed by the listed company while the erring directors and officers are only penalized with five-year disqualification.

To ensure an exit mechanism for shareholders, the PSE seeks to require a listed company that is subject to involuntary delisting proceedings to conduct a tender offer to all its stockholders of record, at a minimum tender offer price which shall be the higher of: the highest value based on the fairness opinion or valuation report prepared by an independent valuation provider; or,
volume-weighted average price of the listed security for one year immediately preceding the issuance of the delisting order.

If the listed company has been under suspension for at least one year as of the issuance of the delisting order, then the tender offer price will be the highest value based on the fairness opinion or valuation report. The tender offer may be conducted by the listed company, its principal stockholder, parent company, subsidiary, affiliate or any third party on behalf of the listed company.

The PSE also seeks to impose longer or even perpetual relisting prohibition in case of failure to comply with the tender offer requirement. Under the current rules, the relisting prohibition is for a period of five years from the effective date of delisting.

Even if involuntarily delisted, the involved companies are required to offer to continue their buy back of shares for a period of at least one year after delisting.

On penalties on erring directors and officers, including compliance officers and corporate information officers, the PSE wants leeway to impose a longer period to ban them beyond the current five-year period, or even perpetually ban them.

Such a perpetual ban had already been imposed in the Calata case, which was challenged by company founder Joseph Calata but upheld by the Securities and Exchange Commission in 2019 even if there was no provision yet on perpetual ban at that time.

Proposed grounds for delisting include: non-compliance with the listing agreement; non-submission or delayed submission of structured or unstructured reports; wilful issuance of false or misleading statement or omission of material information; having negative stockholders’ equity; engagement in operations which are contrary to laws, rules and regulations, public order, public interest, public policy, public morals, and good customs; existence of a false market in any securities of the listed company which can be attributed, whether directly or indirectly, to the listed company; failure to pay annual listing maintenance fee within the prescribed period; non-filing of an application for listing of all issued and outstanding shares, including treasury shares, within the prescribed periods; and, non-operation or suspension of business operations for any reason.