January 31, 2018
Is there a proceeding: whether or not a natural
So we are in DISSOLUTION.
Remember the SC says that dissolution is one
procedure. Although one, it has phases. There is
the phase up to dissolution. Then dissolution is
always followed by liquidation.
Now, all the way up to dissolution, it is the SEC.
Is it not the intracorporate court? No, it is the SEC.
After the SEC, then it is the courts, intracorporate
courts.
Now, can it happen that dissolution begins in xxx?
It can happen if the dissolution is based on a fatal
defect of the corporation. In which case, it is
through the so-called quo warranto proceeding
that is initiated by the Solicitor General. When that
happens, the Sol-Gen brings the suit to the court.
That is a specific special proceeding: quo
warranto. Special proceedings always begin with
a verified petition. That is because it is based on
a defect, a defect that is fatal. It’s not just an
ordinary defect.
Likewise, the SEC can also bring this dissolution
proceeding because that is divided in P.D. 902-A.
If there is a culpable violation of the Corporation
Code and it is a serious violation, then the SEC
can bring the proceeding of dissolution.
There is a general principle. There can be no
dissolution unless there is notice and hearing.
And the SC has ruled that not any hearing can
xxx into dissolution. There must be a notice that
this is a serious violation that could result in
dissolution. Not just an ordinary notice or ordinary
hearing.
That is one of the issues in the Rappler case
because they were just called on a possible
breach of the rule on ownership. And they were
heard not en banc. They were heard in division
and all of a sudden, here comes the ruling. So the
issue is: did they have due process? The SEC
said that to be a corporation is a privilege; it is not
a right. There is substantial compliance because
you were given your day in court for purposes of
this defect – to verify as to whether or not this
defect had caused us to lose our right to exist as
a corporation. That is the issue.
You could lose your franchise to be media but you
can still exist as a corporation because a
dissolution proceeding means you lose your right
to exist as a corporation. You are juridically dead.
person should die? Yes, there is. If it is heinous
crimes. That is why, in proceedings of a natural
person, once the lower court makes a penalty of
death, what happens? There is mandatory
appeal. Di man ka muingon ana, patya na lang
ko. The court will not allow that. you have to go
up and it will be the court en banc who will review.
Di na pwede na mag-division lang. That enjoys
the highest protection: no person shall be
deprived of life, liberty, property. That is
mandatory. So it seems that the Constitution sees
to it that nobody is meted with finality of execution
by accident. (chika about death penalty and the
life of a person)
When you come to dissolution and it is legal death
for a juridical person, then it demands
publication. Di man na automatic ka lang.
One of the effects in Section 22 – failure to
commence the transaction of its business or the
construction of its works within two (2) years from
the date of incorporation, or so-called continuous
inoperation for a period of five (5) years. You have
already begun your business. You have already
constructed your works and all of a sudden, you
stop. No more business. So the board no longer
meets and no more reports to the SEC. If you do
that for five years, look at the language of the law.
Section 22. Effects on non-use of corporate
charter and continuous inoperation of a
corporation. – If a corporation does not
formally organize and commence the
transaction of its business or the
construction of its works within two (2) years
from the date of its incorporation, its
corporate powers cease and the corporation
shall be deemed dissolved. However, if a
corporation has commenced the transaction
of its business but subsequently becomes
continuously inoperative for a period of at
least five (5) years, the same shall be a ground
for the suspension or revocation of its
corporate franchise or certificate of
incorporation. (19a)
This provision shall not apply if the
failure to organize, commence the transaction
of its businesses or the construction of its
works, or to continuously operate is due to
causes beyond the control of the corporation
as may be determined by the Securities and
Exchange Commission.
The same shall be a ground for the suspension or
revocation of its corporate franchise or certificate
of incorporation. Is that automatic? That cannot
be automatic. In Chung Ka Bio vs. IAC, 163
SCRA 534, it is not automatic but only a ground.
This is prosecuted under Section 6(i) of P.D. 902-
A. This case is a SEC proceeding and yet it leads
to dissolution.
Now, the moment there is an order of dissolution
that is issued, after of the lapse of the period to
file a motion for reconsideration under the rules of
the SEC, then the SEC will petition the court to
now handle the liquidation. Then it endorses
everything to the intracorporate court. Then the
court will appoint a receiver in liquidation. [Father
said ‘receiver in dissolution’ but in previous TSNs
and commentaries, it is ‘receiver in liquidation.’]
What does the receiver in liquidation do? He
will sell the assets because after the order, the
properties that do not belong to the corporation
but are entrusted to the corporation for its use
according to its specific purpose, they must be
returned to their owners. That normally happens
if it is a non-stock non-profit corporation. Many
times they receive donations on the condition that
it may be used only for the purpose of the
corporation. So you have to return.
Is it possible that a non-stock non-profit
corporation is donated property and then the
property is to be used exclusively for that
purpose? And it is returned because it is no
longer used for that purpose? That is possible.
That is what happened to the property where the
People’s Park is now. That property used to
belong to Monteverde. And according to the
donation, it’s to be for educational purpose. What
happened? Before it was the athletic facilities of
the school. (chika about the property)
So dissolution can start from SEC, from the
Solicitor General and from a private citizen. The
private citizen can bring a suit through the Sol-
Gen on a permissive quo warranto. The Sol-Gen
can bring a case directly if public interest is
affected, like this Rappler. The Sol-Gen says it
affects public interest. Now if you are a private
citizen and you allege a fatal defect in the
constitution, you can ask the Sol-Gen to bring the
suit by way of permissive quo warranto.
Remember there are two kinds of quo warranto –
mandatory and permissive. But then when you do
that, you have to put up a security [bond] for the
Sol-Gen to answer for any damages that the
respondent might allege and prove, that your suit
was not meritorious. So the Sol-Gen has to have
that security so he can bring the suit without fear
that he cannot answer for counterclaims that the
respondent might prove.
Can you bring a dissolution through the so-called
Financial Rehabilitation and Insolvency Act of
2010 (FRIA)? This is when dissolution and
insolvency are two different animals. Dissolution
is not insolvency. Insolvency is entirely different.
That brings us to the question, because there is a
provision in FRIA which says that once the
liquidation of the debtor(?) has been completed,
then the court may be asked to also cancel his
registration of incorporation in the SEC.
One of these days, there will be a case brought
up. That that is not the proper court to handle
dissolution because there is a provision in FRIA
which says that the dissolution may be asked
after the liquidation by the debtor has been
completed. Unsa pa may buhaton na wa na man
syay property tanan? Gihatag na sa iyang mga
creditors. Wala nay nahibilin. And then you can
ask the court for dissolution. Mura bag incidental.
It’s just one more speck. Tantangan na ka sa
imong corporate personality. One of these days,
the validity of that provision will be questioned
because there are many corporations that
undergo dissolution and either way, to go get
back to business even after they have declared
insolvent.
So the law declares that there is three (3) years
from and after the time that you are declared
dissolved that you wind up the operations of the
corporation.
Section 122. Corporate liquidation. – Every
corporation whose charter expires by its own
limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for
other purposes is terminated in any other
manner, shall nevertheless be continued as a
body corporate for three (3) years after the
time when it would have been so dissolved,
for the purpose of prosecuting and defending
suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey
its property and to distribute its assets, but
not for the purpose of continuing the
business for which it was established.
At any time during said three (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. From and 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.
Upon the winding up of the corporate
affairs, any asset distributable to any creditor
or stockholder or member who is unknown or
cannot be found shall be escheated to the city
or municipality where such assets are
located.
Except by decrease of capital stock
and as otherwise allowed by this 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 the winding up, which is three years after there
is a declaration of dissolution, that is already in
the hands of the courts, not with the SEC.
Because it is no longer for the purpose of
continuing the business for which is was
established, there is no more board of trustees if
non-stock non-profit, no more board of directors if
it is stock and profit.
So who is there? It is the receiver in liquidation.
That is appointed by the court. And he runs the
liquidation. He/she engages the services of legal
counsel to retrieve properties of the corporation
because once it is retrieved, it is sold. The
proceeds are first applied to the creditors
according to the concurrence and preference of
credits. So sya nay mangita ug mga xxx, file sa
kaso aron mabawi tong mga properties. Syay mu-
organize sa public auctions. Naay property ang
corporation, he/she engages the services of an
auctioneer and the auction of the property. Then
the proceeds will be divided according to the plan
approved by the court because by then, the court
already declares who are the creditors to be paid,
who are stockholders who are junior claimants to
the creditor. So the court merely oversees that it’s
really the xxx is the receiver in liquidation. Sya na
ang mangusog ana. Because the judge has no
time.
Now, what happens if the three years are over
and a case began by a receiver in liquidation
continues? It has already been adjudged in the
lower court; the petitioner wins, namely the
corporation; then it is appealed to the CA; the
case is continued hantud nahurot na ang three
years unya niretire na ang receiver. Finally, after
five years, daog. What are they going to do with
the judgment? If the lawyer is still there and the
lawyer move for execution and gets back the
property. Finally when the property is gotten
back, it is in the name of, supposed to be the
receiver, because there is no more corporation.
The lawyer of the corporation presents the final
order of the court, that the corporation has been
dissolved. Kinsa mang ngalan tong property?
That is where the SC says that the de facto
trustee is the lawyer and he has the obligation to
hold the property for the benefit of its rightful
beneficiaries. Kung naa kay dinha creditors na
wala pa mabayri, kana sila ang tagaan sa
proceeds. Kung na-satisfy na ang tanan
creditors, it should go to the next in line. Who are
the succeeding beneficiaries? The shareholders,
is it not? And then the lawyer should xxx because
he is the trustee.
The court who handled it is still there. So
paghuman nimo ug kuan ana, ihatag na sa
shareholder. And then you make a return to the
court. Unsa man ng return? Report na. Imo nang
ihatag sa court. This is in accordance with your
court order. Kasagaran ana, patay na ng judge na
originally nagpreside ana. Hain man ang
records? Ang uban ana, gisunog na. Di na makit-
an ang records. Kita ba mo anang court? (chika
about court) You have to refresh the mind of the
court.
There is no more receiver in liquidation. There are
no more stockholders presented. Maybe the
original stockholders are already dead and their
estates have already been settled. Dili na dakog
problema kung dako na nga proceeds. Kay naa
man kay ikagastos. Ang problema ana, kung igo-
igo ra ng proceeds. But if the proceeds are
considerable, then it is worth the trouble.
Now the last part, the second to the last title is
FOREIGN CORPORATIONS.
Are there foreign corporations composed of
100% Filipinos stockholders? Yes, there can be
because what makes a corporation foreign? It is
the laws under which it is incorporated. That is the
Corporation Code of a foreign corporation.
Foreign corporation in the Corporation Code is
contrasted with a domestic corporation, not a
Filipino corporation.
Section 123. Definition and rights of foreign
corporations. – For the purposes of this Code,
a foreign corporation is one formed,
organized or existing under any laws other
than those of the Philippines and whose laws
allow Filipino citizens and corporations to do
business in its own country or state. It shall
have the right to transact business in the
Philippines after it shall have obtained a
license to transact business in this country in
accordance with this Code and a certificate of
authority from the appropriate government
agency.
Domestic corporation is a corporation
incorporated under the laws of the Philippines.
Foreign corporation, under the Corporation Code,
is a corporation incorporated under laws other
than the Corporation Code.
So it can happen na puros mo mga Pilipino, nag-
incorporate mo sa California. Ngano nag-
incorporate man mo? Kay gusto mo magnegosyo
dinhi sa Pilipinas. What brought you together?
Classmate man mo unya nag-retire namo. Dugay
mo nagtrabaho sa America. Dual inyong
citizenship pero nag-incorporate man mo sa
California. Unsa ba gyud ning inyong negosyo,
nganong naa man mo sa California? Kay tua man
ang source sa inyong negosyo. Mag export mo
niini sa Pilipinas ug mga itlog para sa fighting
cock. Unya pag abot dinhi, anhi ninyo ipapusa
ang itlog unya ipamaligya nana sa mga training
farms. (chika about training farms, and eggs of
fighting cocks being a regulated item and not a
prohibited item)
When can a corporation, who does business
without a license, sue in the courts? If someone
conducts business with you, he cannot later on
claim that you, a foreign corporation, cannot
demand from him by way of court action on the
basis that you do not have a license because he
is estopped. But as to third parties, he cannot sue.
Now the big problem here is “doing business”.
You have to go through some cases where you
get a good understanding about “doing business”.
One transaction, is that doing business? Some
cases, the SC says it’s not doing business. Other
instances, the SC says it is doing business. So
you have to make a differentiation. Importation,
exporting, is that a business? Muingon ang SC,
he was just importing, so there was no business.
He was just exporting, therefore there was no
business.
You are in California and you exported goods
here in the Philippines. And then, there is another
corporation which receives it and distributes it.
Are you doing business? No, you are just
exporting. Wa ka may agent ba. You are
importing. You have a consignee here. But then
that’s it. Somebody else takes over. Is that doing
business? SC says no, it’s not doing business.
Xxx. A lease contract is doing business. It is
preparatory to succeeding transactions.
Nag-invest ka. Palit ka ug shares sa Rappler. Are
you engaged in doing business? We will
continue.

Does that require 100% Filipino? Must it be a

Filipino corporation? are you dealing there with
natural resources?

Now what is the rule if you are incorporated

outside the Philippines? To do business here, you
must have a license. What is the purpose for
having a license? That purpose is so that you are
within the court processes. So you can be
reached by the court. Remember, you are an
artificial person. Therefore, you must have a
place where you can be served(?).

What is the effect if you do not have a license and

you conduct business? You can be sued but you
cannot sue.