Corporate Dissolution and Liquidation in the Philippines: Revised Corporation Code

A corporation formed or organized under the provisions of the Revised Corporation Code may be dissolved voluntarily or involuntarily. The Securities and Exchange (SEC) has jurisdiction over corporate dissolution. The SEC, however, has no jurisdiction over corporate liquidation, as discussed below.

I. VOLUNTARY DISSOLUTION WHEN NO CREDITORS ARE AFFECTED

If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of directors or trustees, and by a resolution adopted by the affirmative vote of the stockholders owning at least majority of the outstanding capital stock or majority of the members of a meeting to be held upon the call of the directors or trustees. 

At least 20 days prior to the meeting, notice shall be given to each shareholder or member of record personally, by registered mail, or by any means authorized under its bylaws whether or not entitled to vote at the meeting, in the manner provided in Section 50 of the Revised Corporation Code and shall state that the purpose of the meeting is to vote on the dissolution of the corporation. Notice of the time, place, and object of the meeting shall be published once prior to the date of the meeting in a newspaper published in the place where the principal office of said corporation is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines. 

A verified request for dissolution shall be filed with the SEC stating: 

  • (a) the reason for the dissolution; 
  • (b) the form, manner, and time when the notices were given; 
  • (c) names of the stockholders and directors or members and trustees who approved the dissolution; 
  • (d) the date, place, and time of the meeting in which the vote was made; and 
  • (e) details of publication. 

The corporation shall submit the following to the SEC: 

  • (1) a copy of the resolution authorizing the dissolution, certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation; 
  • (2) proof of publication; and 
  • (3) favorable recommendation from the appropriate regulatory agency, when necessary. 

Within 15 days from receipt of the verified request for dissolution, and in the absence of any withdrawal within said period, the SEC shall approve the request and issue the certificate of dissolution. The dissolution shall take effect only upon the issuance by the SEC of a certificate of dissolution. 

No application for dissolution of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate government agency. 

II. VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED

Where the dissolution of a corporation may prejudice the rights of any creditor, a verified petition for dissolution shall be filed with the SEC. The verified petition shall be signed by a majority of the corporation’s board of directors or trustees, verified by its president or secretary or one of its directors or trustees, and shall set forth:

  • (a) all claims and demands against it;
  • (b) the reason for the dissolution; 
  • (c) that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least 2/3 of the outstanding capital stock or at least 2/3 of the members at a meeting of its stockholders or members called for that purpose;
  • (d) the form, manner, and time when the notices were given; and 
  • (e) the date, place, and time of the meeting in which the vote was made. 

The corporation shall submit to the SEC the following: 

  • (1) a copy of the resolution authorizing the dissolution, certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation; and 
  • (2) a list of all its creditors. 

If the petition is sufficient in form and substance, the SEC shall, by an order reciting the purpose of the petition, fix a deadline for filing objections to the petition which date shall not be less than 30 days nor more than 60 days after the entry of the order. [See Powers and Jurisdiction of the SEC]

Before such date, a copy of the order shall be published at least once a week for 3 consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for 3 consecutive weeks in 3 public places in such municipality or city. 

Upon 5 days’ notice, given after the date on which the right to file objections as fixed in the order has expired, the SEC shall proceed to hear the petition and try any issue raised in the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation. 

The dissolution shall take effect only upon the issuance by the SEC of a certificate of dissolution

III. DISSOLUTION BY SHORTENING CORPORATE TERM

A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of the Revised Corporation Code. A copy of the amended articles of incorporation shall be submitted to the SEC.

Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of the Revised Corporation Code on liquidation, below. 

In the case of expiration of corporate term, dissolution shall automatically take effect on the day following the last day of the corporate term stated in the articles of incorporation, without the need for the issuance by the SEC of a certificate of dissolution. 

IV. WITHDRAWAL OF REQUEST AND PETITION FOR DISSOLUTION

A withdrawal of the request for dissolution shall be made in writing, duly verified by any incorporator, director, trustee, shareholder, or member and signed by the same number of incorporators, directors, trustees, shareholders, or members necessary to request for dissolution as set forth in the foregoing sections. The withdrawal shall be submitted no later than 15 days from receipt by the SEC of the request for dissolution.

Upon receipt of a withdrawal of request for dissolution, the SEC shall withhold action on the request for dissolution and shall, after investigation:

  • (a) make a pronouncement that the request for dissolution is deemed withdrawn;
  • (b) direct a joint meeting of the board of directors or trustees and the stockholders or members for the purpose of ascertaining whether to proceed with dissolution; or
  • (c) issue such other orders as it may deem appropriate. 

A withdrawal of the petition for dissolution shall be in the form of a motion and similar in substance to a withdrawal of request for dissolution but shall be verified and filed prior to publication of the order setting the deadline for filing objections to the petition. 

V. INVOLUNTARY DISSOLUTION

A corporation may be dissolved by the SEC motu proprio or upon filing of a verified complaint by any interested party. The following may be grounds for dissolution of the corporation: 

  • (c) Upon receipt of a lawful court order dissolving the corporation; 
  • (d) Upon finding by final judgment that the corporation procured its incorporation through fraud; 
  • (e) Upon finding by final judgment that the corporation: (1) Was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices; (2) Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders knew; and (3) Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers, or employees. 

If the corporation is ordered dissolved by final judgment pursuant to the grounds set forth in subparagraph (e) above, its assets, after payment of its liabilities, shall, upon petition of the SEC with the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be without prejudice to the rights of innocent stockholders and employees for services rendered, and to the application of other penalty or sanction under the Revised Corporation Code or other laws. 

The SEC shall give reasonable notice to, and coordinate with, the appropriate regulatory agency prior to the involuntary dissolution of companies under their special regulatory jurisdiction. 

VI. WINDING UP OF BUSINESS

Every corporation (except banks) whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless remain as a body corporate for 3 years after the effective date of dissolution, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, dispose of and convey its property, and distribute its assets, but not for the purpose of continuing the business for which it was established. 

At any time during said 3 years, the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors and other persons in interest. After any such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons-in-interest. 

Except the distribution of assets of nonstock corporations, upon the winding up of corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated in favor of the national government. 

VII. CORPORATE LIQUIDATION

Except by decrease of capital stock and as otherwise allowed by the Revised Corporation Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. 

The Revised Corporation Code, as discussed above, show that SEC has jurisdiction to order the dissolution of a corporation. The SEC, however, has no jurisdiction over liquidation of corporations. There is no need or requirement for the SEC to approve the liquidation.

Liquidation is distinct and separate from dissolution. Jurisdiction over the liquidation of corporations pertains to the appropriate regional trial courts. The liquidation of a corporation requires the settlement of claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. [Consuelo Metal Corporation vs. Planters Development Bank, G.R. No. 152580, 26 June 2008; See also Powers, functions and jurisdiction of the SEC, and Liquidation of Insolvent Juridical Persons]

P&L Law

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