Australian investors seek court action in ETPI board dispute

In a bid to stop the conduct of a due diligence on Eastern Telecommunications Philippines Inc. (ETPI) by ISM Communications, Roger Buckeridge, erstwhile chairman of the board of ETPI, has filed a complaint with the Makati Regional Trial Court.

Buckeridge has asked the Makati RTC for a temporary restraining order TRO), a status quo ante order and preliminary mandatory and prohibitory injunctions.

Named defendants in the case were ETPI, ISM Communications owned by former Marcos Trade Minister Roberto Ongpin, PCGG assignees to the ETPI board Emiliano Jurado and Basilio Cruz, current

ETPI corporate secretary Barbara Anne Migallos, and former ETPI president and CEO Nenita Lim Cruz, who is impleaded as an unwilling co-plaintiff.

Buckeridge represents Australian Gigahertz Network, Pty. Ltd. (AGNI) and its Philippine subsidiary, Australian Gigahertz Network Philippines (AGNP), which has a 40 percent stake in ETPI and has invested A$40 million in the company.

As of 2003, ETPI, which operates an international telecommunications gateway, had around 4,000 corporate clients, 12,000 residential customers and 14 POPs nationwide, with more than 50 percent of the country’s local Internet traffic going through its network.

Buckeridge is asking the Court to reinstate him as chairman of the ETPI board and Lim-Cruz as CEO and president.

Buckeridge maintains that the decision of PCGG appointees Jurado and Cruz to approve a resolution ousting him and Lim-Cruz runs counter to a standing PCGG policy that the sale of any PCGG recovered assets should be conducted through public bidding and should not be offered to known Marcos associates.

In an ETPI board meeting last May 10, 2004, Cruz, Jurado and Pablo Lobregat ousted Buckeridge as chairman of the board and Lim-Cruz as president and CEO.

The three also created a new management committee composed of themselves, appointed Cruz as president and CEO, and also approved a resolution allowing the conduct of due diligence of ETPI by ISM.

Buckeridge said that the decision of Lobregat and the two PCGG assignees allowing ISM to conduct due diligence on ETPI violates the firm’s articles of incorporation.

Article 10 of the said articles of incorporation states, among others, that the corporation or its stockholders have the right of first refusal in the purchase of the shares of stock of the corporation offered for sale or assignment by any of the corporation’s incorporators or stockholders.

Buckeridge argues that ISM or its owner are not incorporators of ETPI and neither do they own a single share of stock in the corporation.

Buckeridge alleged that the action of the PCGG assignees in ousting him and Lim-Cruz allowed the conduct of due diligence on ETPI by ISM, violating the guidelines established by the Supreme Court in banc dated 30 April 2003 in the case of Republic of the Philippines vs. Sandiganbayan, which involves sequestered firm Bataan Shipyard and Engineering Corporation (BASECO).

The said guidelines set limitations on the powers that can be exercised by the PCGG over government-sequestered firms. Among others, it states that the role of the PCGG is that of conservator, caretaker, watchdog or overseeer, and not of manager, innovator, much less an owner.

The guidelines further set forth, among others, the following limitations: "The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation, except for weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets.

Directors are not to be voted out simply because the power exists"; "Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at all possible, and undertaken only when essential to prevent disappearance or wastage of company property, and always under such circumstances as to assure that replacements are truly possessed of competence, experience and probity;" and, "There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect to viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG."