Full transcript
0:00hi guys welcome to another episode of attorneys of vlogger law for the everyday layman today we continue with our discussion on the revised corporation code and specifically we'll take up the topic of the solution so if you like my videos and you want to see more please hit the subscribe button also please remember that this is only
0:19for educational purposes and it's not a substitute for proper legal advice or for studying and understanding the law a like on this video or any of my other videos would also be greatly appreciated so what is the solution the solution is simply the extinguishment or the death of the franchise of a corporation and
0:41the termination of its existence remember that even though it is the incorporators that set up a corporation a corporation cannot exist without a special grant by the state either through a general law such as the revised corporation code or a special law i discussed this in my
1:02previous videos therefore what a what the law itself has granted the law may take away and a corporation may come to an end and its life extinguished only by the act or with the consent of the state by which it was established now the solution may be uh
1:22the hurry the solution or a dissolution in law brought on by the act of or with the consent of the sovereign power meaning the state which may be by a judicial sentence or expiration of the corporate life the solution may also be a de facto dissolution which takes place in substance and in
1:43fact where the corporation by reason of insolvency cessation of business or otherwise suspends all of its operations and goes into liquidation while still retaining its primary franchise to be a corporation generally there are two steps in
2:03corporate dissolution first the termination of the corporate existence in so far as the right to go on doing ordinary business is concerned meaning when the solution happens the corporation should no longer continue operating in the normal course of business because it's already dissolved
2:23but take note of the second step which is the winding up of affairs or liquidation with in which case the debts of the corporation are paid to creditors and its assets will be distributed to the stockholders and other persons in interest this is important because it is
2:44only after the winding up or liquidation phase is completed that the corporate existence will be terminated for all purposes in other words during the first phase of the solution the court where the corporation can no longer do ordinary business the corporation will still exist but
3:04only to wind up its affairs after the affairs have been fully wound up that is when the corporation will cease to exist that's when it dies okay of course even after the formal dissolution of a corporation any of its stockholders may form another
3:24corporation which will engage in the same line of business and this may also be done during the liquidation or winding up winding up period there is nothing that will prevent the stockholders from making another corporation except if there is uh there are stipulations in a contract prohibiting them from competing no like non-compete
3:45losses etc but under the law there is nothing that will prevent them from making another corporation okay now remember the default term of existence for a corporation is that it can exist perpetually unless of course it is expressly stated in the articles that the corporation will only exist for
4:07a limited term i also discussed this previously okay but despite this perpetual existence the law allows for the dissolution of a corporation through two methods okay we have the voluntary dissolution and we have the involuntary dissolution
4:28let's first talk about the voluntary dissolution under voluntary dissolution there are two ways in general know how to resolve a corporation voluntarily this is by filing an application for the solution with the sec and or or
4:49by amending the articles of incorporation to shorten the corporate term okay let's talk about the first way which is the filing of an application for the solution with the sec under this method no there are also two way two situations rather no first is where no creditors are affected and
5:11second is where creditors are affected in case there are no creditors that will be affected all that is needed is for the board to arrive at a majority vote calling for the solution and this majority vote of the board must be ratified by at least majority of the outstanding
5:33capital stock or members okay of course that ratificat that vote ratifying the majority vote of the board must be arrived at during a meeting called for the purpose with notice that is given to the stockholders at least 20 days prior to the meeting that same notice must also be published
5:55once in a new in a newspaper where the principal office of the corporation is located or if there is none in a newspaper of general circulation now publication of that notice is necessary no for the protection of creditors so after that majority vote of the board
6:16is ratified then a verified uh request for the solution will now be filed by the corporation with the sec okay you file a verified request for the solution now within 15 days from the receipt of the verified request for the solution and in the absence of any withdrawal
6:39within the same period of 15 days as stated in section 137 then the sec will now approve the request and the sec will also issue the certificate of the solution upon which the dissolution shall take effect take note that this solution takes effect upon the
6:59issuance of the certificate of dissolution same with bringing a corporation into life a corporation only comes into existence upon the issuance of the certificate of incorporation a corporation dies upon the issuance of the certificate of the solution in this case okay now
7:20what about the situation where creditors are affected then unlike earlier which involved a verified request for the solution here what should be filed is a verified petition for dissolution okay since it's verified it should be signed by majority of the board
7:40and verified by the president or secretary and ratified by at least two-thirds of the outstanding capital stock or the members of the corporation okay take note of the difference no where no creditors are affected the ratificatory vote is majority of the outstanding capital stock or members
8:00but where creditors are affected the ratificatory vote is two-thirds of the outstanding capital stock or members okay now here the sec will now issue an order okay which should be published once a week for three consecutive weeks in a newspaper of general circulation and posted for
8:23three consecutive weeks in three public places in the municipality or city of the principal office of the corporation and what's the purpose of that order and the publication of the order it's to allow for objections to be filed to the dissolution now if there are people who want to
8:43give their objections to the dissolution these objections must be given not less than 30 days nor more than 60 days from the time the order was issued by the sec okay after five days from the time to file objections has
9:04expired okay the sec will now hear the petition and it will decide on any issue if there are objections so a hearing is required if no objections are sufficient and the material allegations of the petition are true then the sec will now dissolve the corporation
9:25and direct the disposition of the corporation's assets and may even appoint a receiver to collect the assets and pay the debts of the corporation now the dissolution will take effect only upon the issuance of the sec of a certificate of dissolution okay
9:45now let's go to uh the other way of voluntarily dissolving the corporation which is by amending the articles to shorten the corporate term okay so we just follow the same procedure to amend the articles which i discussed in a previous video so you just have to submit the amended articles to the sec
10:07okay you underline the the portion which shortens the corporate term and uh the sec will now receive that no and in that case the dissolution will automatically take effect on the day following the last day of the corporate term without need of of the issuance by the
10:30sec of a certificate of the solution okay so the solution in case of shortening of corporate term is automatic okay the sec does not have to issue a certificate of the solution anymore of course take note that uh this does not uh apply to the other requirements like uh
10:51winding like uh for the lgu for the sss etc okay i'm just talking about requirements with sec okay now let's talk about uh involuntary dissolution so uh there are several uh ways by which a corporation may be
11:12dissolved involuntarily but simply put no the corporation is dissolved practically against its own will no it was not the one who initiated the the solution so uh first case no in case the corporation was set up with a limited term then the corporation will be dissolved by expiration of that term now if that
11:34day arrives the corporation will be deemed dissolved as of the day following the last day of its existence another instance of involuntary dissolution would be legislative dissolution not by the legislature okay especially with regard to public utility franchises when the common good show requires of
11:55course since the franchise is granted is a grant is a privilege granted by congress congress can take that privilege away okay another instance of involuntary dissolution would be a co warranto suit against a de facto corporation which is the proper remedy
12:16i talked about this de facto corporations in a previous episode another uh case for involuntary dissolution would be where minority stockholders file a suit for the solution on justifiable grounds especially under section 104 in case the directors or officers of the
12:38corporation had committed illegal fraudulent dishonest oppressive or unfairly prejudicial acts against the corporation or the stockholders or when corporate assets are being misapplied or wasted now under section 138 this solution may also be by order
13:00of the sec either motor proprio meaning on its own initiative or upon verified complaint someone complained no and these are the grounds for the sec to dissolve the corporation first non-use of corporate charter and i talked about this in a previous episode remember that under section 21 if a
13:22corporation does not formally organize and commence its business within five years from the date of its incorporation then its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period in this case the dissolution is not automatically
13:44it's not automatic the corporation continues to exist until the sec orders its dissolution after notice and hearing take note that in case the components of the corporation attempt to complete the organization after such time that is wholly
14:04ineffective and will not even give the corporation the status of a de facto corporation okay that said there will still be no automatic dissolution until the dissolution has been lawfully declared by the sec after notice and hearing okay but if the sec so declares a dissolution
14:26the effect of such declaration will retroact it will go back to the time that the corporation was deemed dissolved okay next ground where the sec can issue an order dissolving the corporation would be for continuous in operation of a corporation which is also under
14:48section 21. so if a corporation has commenced its business but subsequently becomes inoperative for a period of at least five consecutive years the sec may after june notice and hearing place the corporation under delinquent status
15:09delinquent status a delinquent corporation shall have a period of two years to resume operations and comply with all the requirements that the sec may prescribe and upon compliance the sec will now issue an order lifting the delinquent status but failure to comply with the
15:31requirements and to resume operations within the period will cause the revocation of the corporations certificate of incorporation which results in the solution next ground upon receipt of a lawful court order meaning there is a case before the court and the court has
15:52found that uh the corporation should be dissolved okay also upon finding by final judgment no the corporation procured its incorporation so fraud okay their incorporation was fraudulent okay final judgment
16:13next round also final judgment upon finding by final judgment that the corporation was created for the purpose of committing concealing or aiding the commission of securities violation smuggling tax evasion money laundering or graft and corrupt practices or final judgment finding that the
16:33corporation committed or aided in the commission of securities violations smuggling tax evasion and the stockholders knew of the same okay and third no by final judgment also repeatedly and knowingly tolerated the commission of graft and corrupt
16:53practices or other fraudulent or illegal acts by its directors trustees officers or employees now don't worry those are all codal now that list is called you can just find it in the law okay but take note that uh the sec and the courts may order the dissolution
17:14of the corporation on the grounds that i just mentioned okay so in the last three cases i mentioned involving the final judgment the assets of the corporation after payment of its liabilities the assets shall upon petition of the sec with the appropriate court the assets
17:34shall be forfeited in favor of the government without prejudice of course to the rights of innocent stockholders and employees for services rendered and to the application of other penalties or sanctions under the law also take note that under section 158 the sec may order dissolution of the
17:56corporation and for feature of its assets after notice and hearing in case of a finding that the corporation has violated the revised corporation code or any of the sec's orders okay so uh now let's talk about the effects of the
18:17solution first legal title to the corporate properties is transferred to the stockholders who now become the co-owners okay second the corporation ceases as a body corporate to continue the business for which it was established okay it ceases as a body corporate
18:39to continue the it can no longer continue its business in other words okay third the corporation however will still continue as a body corporate for three years for the purposes of winding up or liquidation and finally upon expiration of the three year winding up period then the corporation now ceases to exist
19:01for all intents and purposes take note that uh despite the solution again the stockholders are not prevented from conveying their respective shareholdings toward the creation of a new corporation to continue the business of the whole okay they can re-incorporate by filing new articles and bylaws okay with that
19:24that's the solution now we can talk about liquidation liquidation is also known as the winding up of affairs it's the same liquidation winding up okay and the liquidation is the process by which all the assets of the corporation are converted into liquid assets or cash in order to
19:46facilitate payment of obligations to creditors and the remaining balance if there is any you give that to or distribute that to the stockholders or members take note that the liquidation i will be talking about here is the liquidation of a solvent corporation in general or one that is not
20:07is in distress no or it's not insolvent okay because that is covered under the financial rehabilitation and insolvency or freya okay which i may discuss in a future episode let's see okay now i really reiterate and emphasize that in this dissolved corporation continues to be a
20:29body corporate for three years from the time it is dissolved for the purpose of liquidation liquidation or winding up of its affairs take note that uh under the case of helano versus ca claims which are brought within or even before the three-year period
20:49for liquidation may be prosecuted even beyond said period let's say for 10 years no as long as the claim is brought within the three-year period for liquidation or before that okay if the three-year period has ended any time after that you cannot bring
21:09claims anymore it has to have been brought during the life of the corporation or after the solution during the winding up okay anything after that no more if it has been brought during the life of the corporation or it has been brought during the winding up period it may continue even past the three years okay but as long as the three years has
21:31ended and you didn't file any claim then it cannot contain it cannot be uh recognized and you cannot prosecute that it's unenforceable in other words the termination of the life of the juridical entity does not by itself cause the extinction or diminution of the rights and liabilities
21:53of such entity nor those of its owners and creditors this is supported by section 184 which says that no right or remedy in favor of or against any corporation its stockholders members directors trustees or officers nor any liability incurred by them shall be
22:14removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of the revised corporation code in other words they can't the corporation or the stockholders no or it's directors or members they cannot evade liability by the mere expedient of dissolving the corporation
22:35okay that's obvious but faith okay so that's contained in section 184 now let's go to the methods of corporate liquidation we have three no we have liquidation by the corporation itself under section 139 liquidation by a dually appointed receiver under section 135 and liquidation by
22:58trustees to whom the board of directors or trustees had conveyed the corporate assets again this is only under the revised corporation code and this is different from liquidation under the freya not the financial rehabilitation and insolvency act okay so for the first method
23:18the corporation through its board and its officers they take charge of the winding up operations section 139 grants the corporation a period of three years after the solution within which to wind up its affairs any claims by or against the corporation which are not presented
23:39and settled within that period become unenforceable why why why are there unenforceable because of course there is no longer any corporate entity against which they may be enforced incorporation force okay however they take note of the case of republic
24:01versus mars man which says that there is nothing in the law that prevents an action for the recovery of deaths of the corporation against the liquidator after the lapse of the three year winding up period take note of that okay now for liquidation by a receiver
24:22no under the second method remember in my discussion earlier that in case the sec orders the dissolution of the corporation under section 135 the sec may also appoint a receiver okay take a receive no to collect the corporation's assets and pay the debts of the corporation
24:43courts may also appoint receivers in the proper cases not just the sec and such appointment of a receiver is discretionary okay the sec or the courts exercise discretion on whether they will appoint a receiver because a receiver will only be appointed if there is a showing that a receiver is
25:05necessary to protect and preserve the properties of the corporation for the use and benefit of its creditors and other interested parties in case the directors are guilty of a breach of trust the minority stockholders may also ask for receivership okay and that's uh the doctrine in the
25:26case of chase versus court of first instance okay now unless there is a specific limit to the duration of receivership then the receivership will exist indefinitely until the affairs of the dissolved corporation are completely settled and liquidated while under receivership claims can be
25:49presented and allowed as long as they are not barred by prescription okay or the statute of limitations so in this case the three-year period is not applied okay and that's the pronouncement in the case of summers versus valencia now liquidation may also be placed in
26:11the hands of a trustee or assignee under the third method no a trust uh the liquidation may be placed in the hands of a trustee or assignee to whom the corporate assets are conveyed okay the effect of the conveyance is to make the trustee the legal owner okay of the property
26:33subject to the beneficial interest of the creditors stockholders members and other persons of interest okay as such the trustee may sue and be sued as such in all matters connected with the liquidation take note under the same case of helano
26:53versus ca the word trustee okay the word trustee is understood in its general concept which may include the council or the lawyer entrusted with the prosecution of the suit filed by the corporation as i mentioned earlier the trustee may commence a suit which can proceed to final judgment
27:15even beyond the three-year period especially where it was the corporation itself that commenced the suit during its existence okay and the trustee by legal fiction he merely continues the legal personality of the dissolved corporation okay
27:37the purpose of the transfer of the assets of the corporation to a trustee upon its upon the dissolution of the corporation is for the protection of the creditors and stockholders of the corporation finally as to distribution of assets the last paragraph of section 139
27:59states that 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 so this is consistent with
28:20the trust fund doctrine which i have discussed in several episodes previously okay the trust fund doctrines consider the trust fund doctrine considers the subscribed capital as a trust fund for the payment of debts of the corporation to which the creditors may look to for satisfaction of
28:42their debts the debts owed to them until the corporation is liquidated no part of the subscribed capital may be returned or released to the stockholders without violating the trust fund doctrine except of course in the case of redeemable shares now how will the
29:02assets be distributed if the assets are enough to cover all the debts then there is no problem okay especially when it comes to priority in payment no you just distribute them okay according to uh what is owed to each priority in payment is only important when the assets are insufficient so generally this is the
29:25order that will be followed which of course is subject to the rules of freyja now the financial rehabilitation and insolvency ah no and the rules on concurrence and preference of credit either under the civil code or the personal property security act as the case may be if the corporation is
29:46insolvent then the creditors are entitled to have all its assets distributed first among them of course according to their rights and priorities no there may be uh uh incumbencies junior incumbencies etc this is consistent of course with the trust fund doctrine because you have to
30:06satisfy the debts owing to the corporate creditors next second no loans which have been made by stockholders or members or directors or trustees to the corporation that makes them creditors okay so you have to pay those next third the remaining assets will now be
30:27distributed among the stockholders or members in proportion to their shareholdings or interest no in the absence of course of any provision to the quantity such as those contained in preferred shares no remember in my discussion and preferred shares they may be preference as to assets in case of the
30:47solution so of course you have to follow that and finally under section 139 any asset which is distributable to any creditor or stockholder or member who is unknown or cannot be found will be exceeded in favor of the national government okay
31:08so the government gets that okay so uh that's it for my discussion on the solution i hope you may have picked up a thing or two and i hope to see you next time guys okay see you soon bye