Dissolution of corporations with the SEC
By: John Philip Siao - @inquirerdotnet
INQUIRER.net / 02:09 AM February 06, 2024
In the dynamic landscape of business, corporations play a significant role in our
economy. However, just as corporations are formed, they can also be dissolved due
to various reasons.
In the Philippines, the creation and dissolution of corporations are governed by the
Revised Corporate Code, or Republic Act No. 11232 (RCC).
The Securities and Exchange Commission (SEC) has also issued SEC Memorandum
No. 5, series of 2022 to clarify the different modes upon which corporations may
carry out the process of dissolution.
A corporation may have various reasons for deciding to dissolve and it by doing so, it
ensures that the corporation is no longer liable for paying annual fees, filing annual
reports, paying business taxes, and incurring business debts or liabilities.
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The following discussion focuses on dissolution of the corporate charter with the
SEC.
Note that aside from the SEC, the corporation will have to cancel its registration with
other government agencies, such as the Bureau of Internal Revenue, the local
government for its business permit, the Social Security System, Philippine Health
Insurance System, Home Development Mutual Fund, Department of Labor and other
agencies that may have regulatory supervision over the company such as the Bangko
Sentral ng Pilipinas, Insurance Commission, and the like.
Automatic dissolution (Sec. 21, RCC)
If a corporation does not formally organize and commence its business within five
years from the date of incorporation, its certificate of incorporation shall be deemed
as automatically revoked the day following the end of the five year period. This is a
change from the old Corporation Code which provided for a period of 2 years for
automatic dissolution.
Voluntary dissolution w/o creditors (Sec. 134, RCC)
This type of dissolution is by way of submission of a petition with the SEC.
If no creditors will be affected by the dissolution of the corporation, it may be made
by a majority vote of the board of directors or trustees and affirmed by a vote of the
shareholders holding at least a majority of the capital stock of the corporation.
Twenty days before the meeting by the shareholders to approve the board resolution
on dissolution of the corporation, a notice must be given to them. This notice must be
published once before the date of the meeting in a newspaper in the area of the
principal place of business of the corporation or in a newspaper of general
circulation.
After approvals by the board and shareholders, the corporation shall file a verified
request with the SEC for dissolution.
Among the documents to be submitted in support of the petition for dissolution are:
a. BIR Tax Clearance Certificate;
b. A secretary’s certificate that there are no pending intra-corporate disputes, and
c. If the corporation is regulated by a separate agency, such as banks, quasi banks,
insurance companies, pawnshops, and other financial intermediaries, a favorable
recommendation from the agency.
Voluntary dissolution where creditors are affected (Sec. 135, RCC)
When the dissolution of the corporation may affect creditors, it follows the same
process above but with a few additional requirements. The petition must be verified
and signed by majority of the board and verified by president or secretary or one
director or trustee, it must declare the claims, demands and names of creditors
against the corporation, and approved by shareholders who hold two-thirds of the
outstanding capital stock of the corporation.
Interested persons or entities are given the opportunity to submit their objections to
the dissolution and the order of the SEC shall be published once a week for three
consecutive weeks in a newspaper of general circulation as well as posted for three
consecutive weeks in three public places in the city and municipality where the
corporation is located.
In resolving the petition for dissolution, the SEC may also direct the disposition of its
assets or appoint a receiver to collect assets and pay the debts of the corporation.
In both instances above, shareholders of non-voting shares shall also be entitled to
vote on the dissolution of the corporation. The dissolution of the corporation shall
take effect only upon the issuance by the Commission of a certificate of dissolution.
Shortening corporate term (Sec. 136, RCC)
A corporation may amend its articles of incorporation to shorten its term and the
requirements differ depending on the remaining term applied for.
a. The proposed expiration of the corporate term is one year or more from approval
of the application for amendment by the SEC
The amendment is required to be approved by majority vote of directors or trustees
and shareholders owning 2/3 of the outstanding capital stock including those holding
non-voting shares.
b. The proposed expiration of the corporate term is less than one year from approval
of the application for amendment by the SEC
The amendment is required to be approved by majority vote of directors or trustees
and shareholders owning 2/3 of the outstanding capital stock including those holding
non-voting shares.
An additional requirement is the submission of audited financial statements for the
previous year except where the corporation has ceased operations as of the last year
in which case the president of the corporation shall submit an affidavit of non-
operation under oath.
There must also be submitted a Tax Clearance Certificate from the Bureau of Internal
Revenue as well as publication of the Notice of Meeting at least once in a newspaper
of general circulation.
Note that while in both cases the corporation will have to obtain the BIR clearance to
close its business, the difference is the timing of when this clearance will be
processed.
Applications to shorten the corporate term to one year or more from SEC approval
does not require the submission of the BIR clearance to the SEC. It may process the
retirement with the BIR and undergo audit after the SEC proceedings.
This is material in that obtaining a clearance from the BIR could be a tedious and
lengthy process which may result in a longer process.
Upon the expiration of the shortened term, the corporation shall be deemed
dissolved without any further proceedings. There is no more certificate of
dissolution to be issued by the SEC.
Involuntary dissolution (Sec. 138, RCC)
The RCC also provides for involuntary dissolution where any interested party may
file a complaint with the SEC to dissolve the corporation under the following
grounds:
a. Non-use of corporate charter;
b. Continuous non-operation of a corporation;
c. There is a court order dissolving the corporation;
d. There is a final judgment that the corporation procured its incorporation through
fraud;
e. Upon finding by final judgment that the corporation:
i. 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;
ii. Committed or aided in the commission of securities violations, smuggling, tax
evasion, money laundering, or graft and corrupt practices, and its stockholders
knew; and
iii. Repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts by its directors, trustees, officers, or
employees.
For involuntary dissolutions granted by the SEC based on the grounds in letter e.
above, the assets of the corporation, after the payment of its liabilities, shall, upon
petition of the Commission with the appropriate court, be forfeited in favor of the
national government, without prejudice to the rights of innocent stockholders and
employees and other penalties and sanctions.
