Cosmos’ legal battle back to SEC where it began

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Emeterio Sd. Perez

Emeterio Sd. Perez

COSMOS Bottling Corp. has changed ownership four times. It used to be owned and controlled by Filipinos since its founding in 1945. As the Philippines’ first cola bottler, it was sold by its original owners to RFM Corp., a Filipino corporation, in 1989.

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For 12 years, the Concepcions, who own RFM, have been bottling Sarsaparilla, shortened to Sarsi, among Cosmos’ more famous brands, until they decided Cosmos was not as profitable as they expected it to be and sold it to San Miguel Corp. in 2002.

Five years after buying Cosmos from RFM, SMC sold it to Coca-Cola Company, owner of Coca-Cola Bottlers Philippines Inc. (CCBPI), for $590 million. Cosmos, which was part of CCBPI, was included in the sale. Coca-Cola the international brand bottler did not know that two years after the acquisition, Cosmos would not be allowed to raise money from the public.

Incidentally, the issue raised by the Securities and Exchange Commission (SEC) concerned Cosmos’ 2005 annual report, the year when Cosmos and CCBPI were still part of San Miguel group. Ironically, the SEC went after Cosmos only after it was taken over by a foreign company.

That, in effect, is, to borrow somebody else’s slogan, SEC’s version of the Filipino first policy. SEC officials spared San Miguel and instead went after Cosmos, now a unit of foreigner-controlled Coca-Cola group.

I had written about SEC’s move against Cosmos in 2007 and forgotten all about the issue. I was not even aware that the controversy would be an issue to be resolved by regular courts.

Read the following piece and be the judge of the regulator’s selective application of the rule.

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WILL Cosmos Bottling Corp. become public again and relist its shares on the Philippine Stock Exchange?

Cosmos, along with Coca-Cola Company that owns it, may want to answer the above poser. After all, it won a favorable ruling from the Supreme Court against the imposition of the SEC.

In its ruling promulgated on Nov. 12, the High Court ordered the SEC to resolve Cosmos’ appeal for restoration of its permit to sell securities that was revoked by the SEC-Corporation Finance Department (SEC-CFD).
But, the High Court said, the SEC en banc should deliberate on Cosmos’ appeal for the restoration of its permit to sell securities “based on the merits.”

Cosmos’ legal battle with the SEC stemmed from the regulator’s suspension and eventual revocation of its permit to sell securities for failing to submit its 2005 annual reports in violation of the SEC’s reportorial requirements. Deprived of said permit, Cosmos could not tap either the public or institutional investors for additional capital.

The cola bottler, then and still is a subsidiary of the Coca-Cola group, won’t easily give up the fight to remain public. It went to the Court of Appeals which, however, sustained the SEC’s ruling.

Cosmos had only one and final recourse, which was to bring the fight to the Supreme Court (SC).

As securities regulator, the SEC decides the fate of companies that go against its rules. If its officials are harsh in their judgment, they can never be defied. In the case of Cosmos, it followed the rule but complied too late with the submission of annual reports to the SEC.

Cosmos lost on a technicality when it appealed the SEC ruling against it to the Court of Appeals. Noting the CA’s ruling, the High Court said: “…The SEC en banc’s ruling as well as the revocation order had already lapsed into finality and could no longer be disturbed.”

The SC ruling may have given Cosmos more time to effectively argue its case at the SEC en banc. But it does not end the company’s worries as it will be dealing with the same court – the SEC en banc – which, in the first place, upheld its CFD, which is the commission’s department directly responsible for regulating the activities of listed companies.
What if the SEC en banc sticks and continues to uphold its CFD department?

Everyone is entitled to his own speculation. But to Due Diligencer, Cosmos would be better appreciated by the public if it has been engaging the SEC in a protracted legal war because it plans to tap outsiders for additional capital

After all, Cosmos was publicly traded when it was acquired by Coca-Cola from San Miguel Corp. It became private again, meaning taken out of the stock market, when it lost to the SEC’s selective application of the rule on the submission of reports.

Anyway, Cosmos could never escape the SEC’s regulatory imposition. Even if it is not listed anymore, it remains under the commission’s jurisdiction.

A company does not simply vanish from the list of stock corporations by ceasing to operate. The SEC sees to it that it undergoes the requisite legal steps before finally closing shop to protect the interest of creditors.

How Cosmos and its lawyers would argue its case to overcome SEC’s powers over it may be worth watching. It found itself without an ally in its legal battle because from the SEC to the Court of Appeals, the rulings were against it.

Luckily, Cosmos got a reprieve from the High Tribunal that sent the case back to the SEC for the resolution of its appeal, where it started the legal battle six years ago.

esdperez@gmail.com

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