Guidelines on Corporate Dissolution under Sections 134, 136 and 138 of the Revised Corporation Code

On February 15, 2022, the Securities and Exchange Commission (SEC) issued SEC Memorandum Circular No. 5, series of 2022 or the Guidelines on Corporate Dissolution under Sections 134, 136 and 138 of the Revised Corporation Code (RCC) (SEC MC No. 5-2022), which is intended to standardize the procedure on corporate dissolution.

SEC MC No. 5-2022 provides for the following methods of corporate dissolution:

 I. Voluntary dissolution where no creditors are affected under Section 134 of the RCC

Under the old Corporation Code, voluntary dissolution where no creditors are affected may be implemented by majority vote of the board of directors or trustees and by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members. On the other hand, under the RCC, the dissolution may be effected by majority vote of the board of directors or trustees and only by the affirmative vote of the stockholders owning at least majority of the outstanding capital stock or majority of the members.

Moreover, the old Corporation Code mandated the publication of the notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located, and if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines. The RCC only requires that the same notice be published once prior to the date of the meeting.

After fifteen (15) days from receipt of the Verified Request for Dissolution, and if no request for withdrawal was filed during said period, the SEC shall approve the request and issue the Certificate of Dissolution.

 II. Dissolution by shortening of corporate term under Section 136 of the RCC

A corporation may also be voluntarily dissolved by amending its articles of incorporation to shorten the corporate term. SEC MC No. 5-2022 lays out different documentary requirements for amendments to shorten corporate term where the proposed expiration of the corporate term is one year or more than one year from approval of the application (which is treated by the SEC as an ordinary amendment of the articles of incorporation) and those where the proposed expiration of the corporate term is less than one year (where the SEC requires the submission of a tax clearance from the Bureau of Internal Revenue, among others, to support the application). The application for amendment for the former is approved by the Corporate and Partnership Registration Division (CPRD) of the Company Registration and Monitoring Department (CRMD) or SEC Extension Office while the latter is approved by the Financial Analysis and Audit Division (FAAD) of CRMD or SEC Extension Office.

Upon the expiration of the shortened term as stated in the approved amended articles of incorporation, the corporation will then be deemed dissolved without any further proceedings, subject to the provisions of the RCC on liquidation. Dissolution shall automatically take effect on the day following the last day of the corporate term as stated in the amended articles of incorporation, without the need for the issuance by the SEC of a Certificate of Dissolution unlike the first method above.

 III. Involuntary dissolution under the Section 138 of the RCC and Section 6(i) of Presidential Decree No. 902-A (SEC Reorganization Act)

The old Corporation Code provided that a corporation may be dissolved by the SEC only upon filing of a verified complaint and after proper notice and hearing. On the other hand, the RCC provides that a corporation may be dissolved by the SEC motu proprio or upon filing of a verified complaint by any interested party.

Furthermore, the RCC now provides for five (5) specific grounds for involuntary dissolution, namely:

1. Non-use of corporate charter;
2. Continuous inoperation of a corporation;
3. Upon receipt of a lawful court order dissolving the corporation;
4. Upon finding by final judgment that the corporation procured its incorporation through fraud; and
5. Upon finding by final judgment that the corporation:
   1. Was created to commit, conceal, or aid 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.

 

SEC MC No. 5-2022 also lists down the following additional grounds for involuntary dissolution as provided under the SEC Reorganization Act:

1. Fraud in the procurement of certificate of registration;
2. Failure to file or register any of the following for a period of at least five (5) years:
   1. Financial Statements;
   2. General Information Sheet; and
   3. Stock and Transfer Book or Membership Book.

 

You can access the full copy of the SEC MC No. 5-2022 here.