Arguments

-Quando aliquid prohibitur ex directo, prohibitur et per obliquum.1 What cannot be legally done directly
cannot be done indirectly. If acts that cannot be legally done directly can be done indirectly, then all
laws would be illusory.

-A Philippine Depositary Receipt(s) (PDR) is a security which grants the holder the right to the delivery of
sale of the underlying share.7 A PDR consists of a deposit price and an option price, which is considered
as payment when the buyer opts to exercise his option of converting said PDRs to a corporation’s share.
PDRs are not evidences or statements nor certificates of ownership of a corporation.8 However, each
PDR represents a share, even in a restricted company, and when bought by a foreign entity, gives the
buyer the right to all the dividends due the shares of stock acquired.

-The Constitutional and legal mandate:

Section 11, Article XVI of the 1987 Constitution provides:

1. The ownership and management of mass media shall be limited to citizens of the Philippines, or
to corporations, cooperatives or associations, wholly owned and managed by such citizens.

The Congress shall regulate or prohibit monopolies in commercial mass media when the public
interest so requires. No combinations in restraint of trade or unfair competition therein shall be
allowed.

Consistent with the State policy of developing an economy that is effectively controlled by
Filipinos, the Constitution explicitly reserves the ownership and operation of public utilities to
Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens,
or corporations or associations at least 60 percent of whose capital with voting rights belongs to
Filipinos.

The above-quoted constitutional provision undoubtedly states that the ownership and
management of mass media must be totally under the control of Filipinos. Said requirement was
reiterated by Republic Act No. (R.A.) 7042 otherwise known as Foreign Investment Act, as
amended by R.A. 817914 and its Implementing Rules and Regulations as well as Executive
Orders which has, from time to time, reiterated the same in order to emphasize the mandatory
requirement of full ownership of Filipinos to mass media corporations’ shares.

-Ranhilio Callangan Aquino

Article XVI, Sec. 11 (1) requires that control and management of mass media be limited to
Filipino citizens. In short, for corporations engaged in mass media 100% of voting shares and
equitable ownership should be Filipino.

Piercing the veil of corporate personality: This is a judicially crafted doctrine that allows a court or a
quasi-judicial body to look beyond the fictive personality of a corporation into the persons behind it,
when the fiction of corporate personality is used for fraudulent, illegal or dishonest purposes.
So if A, B, C, D, and E set up Corporation X and the corporation borrows heavily while A, B, C, D
and E squander its resources and its income, the Court will ignore the personality of Corporation X
and make A, B, C, D, and E liable for the debts of Corporation X.
Owning virtually all the shares of another corporation and having the same officers though not
conclusive are red flags.
Facts
4.1. In 2013, Rappler, Inc negotiated with Omidyar for funding. Omidyar is a foreign entity.
4.2. In 2014: Rappler, Inc negotiated with North Base Media also for funding. North Base is likewise
foreign.
4.3. Maria Ressa admits this much when she says that they looked for foreign investors to be
"independent".
4.4. Rappler Holdings Inc. came into being -- a corporation supposedly distinct from Rappler, Inc, but
NOT REALLY distinct, because 98.84% of all of Rappler, Inc.'s shares were held by Rappler
Holdings.
4.5. In fact, the roster of officers for both corporations -- Rappler, Inc. and Rappler Holdings is the
same:
President: Maria Ressa
Treasurer: Jose Maria Bitanga
Secretary: Jose Hofileña
4.6. Rappler Holdings issued 12 Million Philippine Depositary Receipts covering shares of Rappler
Inc to NBM (North Base Media) Rappler (a foreign juridical entity).
4.7. Rappler Holdings announced partnership with North Base Media in 2015.
4.8. Rappler Holdings issued 7 Million Philippine Depositary Receipts covering Rappler shares to
Omidya Network (foreign).
4.9. In the PDRs issued to Omidya, there is the clause that Rappler was required to seek the
"approval of Omidya Network on corporate matters". Clearly this meant DILUTION of the
constitutionally-required all Filipino control.

Rappler therefore attempted to disguise foreign ownership by creating Rappler Holdings.

However, Rappler Holdings is clearly the alter ego of Rappler -- as the holdings and the roster
of officers show, as well as the acts by which Rappler Holdings issued PDRs covering shares
of Rappler.

Why this harsh a sanction? "Harsh" is debatable. If you violate a key provision of the
Constitution on corporate control, is that not serious enough to warrant cancellation.

Corporation; piercing the corporate veil; alter ego theory. In this connection, case law lays
down a three-pronged test to determine the application of the alter ego theory, which is also
known as the instrumentality theory
The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary be
completely under the control and domination of the parent. It examines the parent corporation’s
relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be ignored. It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, “is operating the business directly for itself.”

The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of “an
element of injustice or fundamental unfairness.”

The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and, thereby, suffer
damages.

To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing
the corporate veil.