SEC witness: Unrestricted earnings don’t mandate dividends

Companies are not legally required to declare dividends simply because they have unrestricted retained earnings, a Securities and Exchange Commission (SEC) official testified Tuesday as the Senate impeachment court examined whether businesses linked to Vice President Sara Duterte and her husband, Manases Carpio, could have provided legitimate income to account for their declared wealth.

During day 28 of Duterte’s trial, Defense lawyer Justin Nicol Gular cited Section 42 of the Revised Corporation Code during his cross-examination of SEC witness Atty. Gerardo Del Rosario, noting that the provision says a stock corporation’s board “may declare dividends” out of unrestricted retained earnings.

“You confirm that under Section 42 of the Revised Corporation Code, with respect to the declaration and release of dividends, ang ginagamit po sa provision ang word na ‘may,’” Gular said.

“Tama po,” Del Rosario replied.

Gular then asked whether having unrestricted retained earnings automatically creates a legal duty to declare dividends. “It is not automatically required by law para magdeklara ng dibidendo. Tama po ba?” he asked.

The prosecution witness said: “Tama po.”

The SEC witness confirmed three exceptions under Section 42 that allow corporations to retain surplus profits beyond the 100% threshold: when justified by board-approved expansion projects; when restricted by a loan agreement requiring creditor consent to declare dividends; and when retention is necessary under special circumstances, such as maintaining a reserve for probable contingencies.

Gular then invoked Section 3(i) of the Code of Conduct and Ethical Standards for Public Officials and Employees to argue that a conflict of interest hinges on a public official’s substantial ownership or interest in a company.

Asked whether he could determine if Duterte met that threshold in any of the 18 companies discussed in court, Del Rosario said, “No.”

He also said the SEC had no records of inheritance, property sales or land valuations that could account for Duterte’s assets apart from dividends, as such records fall outside the agency’s mandate.

Dividend practices

Impeachment court presiding officer Francis “Chiz” Escudero asked the SEC witness whether it was unusual for companies with unrestricted retained earnings not to declare dividends.

“Base po sa inyong malawak na karanasan bilang opisyal ng SEC. Normal po bang nagde-declare ng dibidendo? Mas marami po ba nagde-declare ng dibidendo o hindi?” Escudero asked the SEC Director.

Del Rosario said there were many companies that declared dividends and many that did not. “Marami rin pong wala. Kung bibigyan niyo po ng porsiyento, 50-50,” he replied.

Senate President Sherwin Gatchalian likewise questioned if corporations with no recorded dividend payments could be ruled out as possible sources of income for Vice President Sara Duterte.

“Dahil kung by process of elimination titingnan natin ’yung mga corporations, pwede na nating i-rule out ’yung corporations,” Gatchalian said.

Del Rosario, however, declined to draw that conclusion from the SEC records.

“Kung ayon po rito at wala po siyang natanggap na benepisyo ’yung dibidendo, hindi ko po alam kung meron po siyang maideklarang kinita out of this company,” Del Rosario said.

The SEC Director testified Monday that Gencorp Industries Inc. had unrestricted retained earnings in 2024 that could have supported dividend payouts but declared none from 2021 through 2024, while Metro City Chow Foods Corp. had been running at a deficit since 2020 and had no earnings available for distribution.

Across the companies linked to Duterte or Carpio, Del Rosario said SEC records showed no dividend declarations for various years in 10 of the 18 companies reviewed.