a Chapter IV \d Consolidation, Dissolution, Mea ae Offenses and Penalties Sse eee" Oe SS degre 9 Coe issolson Offense and Penis MERGER AND CONSOLIDATION Merger and Consolidation, Distinguished "Two" (2)"8Fmore=-corporations=may=-merge-into~2 single corportan which shal be one of the constituent corporations. OF care ronsolisate into 2” new single corporation whichshall be: the> Consolidated corporation. (Sec. 75, RCCP) fancther corporation that sui ‘Andrada Electric & Engineering incase of merger, s plan of merger; and, in case ‘consolidated corporation wuent corporations ithe consolidated corporation shal possess 3 and shall sof a corporation Chapter V— Mergers and Consist, Ooution, OMenes and Penaes 143, be prosecuted by or against the sur corporation. The rights of credit property of such constituent corporations shall not be Impaired by the merger or consolidation. (Sec. 79, RCCP) Nell Doctrine ‘The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall not render the latter liable to the liabilities of the transferor. If any of the above-cited ins are present, then the transferee corporation shall assume jes of the transferor, (Nell v. Pacific Farms, Inc., 122 Phil. Exceptions to the Nell Doctrine (2) Where the purchaser expressly or impliedly agrees to assume such debts; Where the transaction amounts to @ consolidator merger of the corporations; Where the purchasing corporati of the selling corporation; and 2 e “ Mendoza in ¥-1 Leisure i, September 8, 2015 explains t Corporation expressly or impl Aebis, is provided under Article 2047 ofVIEW NOTES ON CORPORATION LAW ae ‘Explained, Concise and Substantiated binds himself solidarily with the suretyship Is produced. Ne for impliedly agrees to assu to the same. ime the transfe under the doctrine, as to the merger and tablished under Sections 76 TF the transfer of assets of, ‘one cor te another amounts to a merger then the transferee corporation must take over th transferor. for damages suffered. Thus, the assets of the transferor this except such transfer, the transferee corporation's interest goes beyond the assets of the transfer business enterprise, Including its good ily parc 27 Undertne Nell Doctrine, so caled because twas frst pronounced bythe ‘Supreme Courtine 1985 ruling in Nel v.Pacc Farms, Ine. (15 SCRA 419), the general ru i that carporation sels or otherwise arses al of s assets to anotharcorpratn, the late is not Babe for the ebis and labile of the tanseor. ‘ ‘Stale the exceptions io the Nell Done. Business-Entorprise Transfer 1ess enterprise conveyed. Many oft of the business-enterprise transfer have been related by the Court to the application of the piercing doctrine. ChvpterIV— Mergers nd Conslition,Disltion, Oferses ard Pets 15 ‘The purpose of the business-enterprge transfer isto the creditors of the business by allowing them a remagy thee owner of the osets and busmers stipe, Chere Creditors would be left “holding the bose bec fle to recover ffom the transferor wh hes eereeorcn ton of the creditors 1, and does not depend Fraud Is Not an Essential Consideration in a Business-Enterprise Transfer Notably, an evaluation of the relevant: 1ud is not an essential element for the appli enterprise transfer. x3 rudence reveals that n of the business- ‘The exception of the Nell doctrine, which finds its legal basis transferee corporation assumes sferor corporation because itis n of the latter's business. A cursory reading of the exception shows that it does not require the existence of fraud it takes f GR. No, 207181, September 8, 2¢ Illustrative Case: ‘Leisure Philippines, nc. Yu GR. No. 207181, September 8, 2015 Mando, J. The Case: Rul Yu bought 500 golf and 150 county | The pettoner is Kable based on the club shares from Mt Aayal Dev. Co, | business enterprise transfer. Ine. (MADC!) Upon ful payment. YU | Wn the Corporation Code allows the owe Bat io gaat cant | vane aha at Re lub was non-estent. YU impleaded | SONS Of Oo sure lr Potioner "corporations snoe he | SsS8is OP cOraR Oe tars Aiscovered that al the asets MAD! | 67"tng assignor corraion. Under ere sald othe said corporations. “aleach corporation, party fove a plan of merger or any, in the articles of ing corporation in case of ‘Chapter IV — Mergers and Consolidation, Dissolution, Offenses and Penahies 147 (Sec. 75, RCP) -Effectivity of Merger or Consolidation ‘The articles of merger or of consolidation, signed and certified as required by this Code, shall be submitted to the Commission for ‘ts approval. the case of merger or consolidation of banks or banking "an associations; trust companies, insurance companies, ‘educational institutions, and other special corporations: Pecial laws; the favorable recammendation. of the. appropriate government agency shail frst be obtained. _If the Commission is satisfied that the merger or consolidation ‘of the corporations concerned is consistent with the provisions of this Code and existing laws, it shall issue a certificate approving the articles and: plan of merger or.of_consolidation,.at-which time the, _merger or consolidation shall be effective: (Sec. 78, RCCP) Corporation Code? Explain, TP] Whats meant by ado facto merger? Discuss.ue Mlustrative Case: ee PNB v. Andrada Electrical & Engineering Company GR. No. 142936, April 17, 2002 angen The Case Ruling: Pangan Supt Mis, (PASUML) | Pliten meio engaged the services of respondent | The merge, however, does not become: company. (Came END coaeed Be tteckre ip te mere agent ct assets of PASUIL, and thereat | constituent corporations. Since a merger ganized the atonal” SYX2" | or consaldaton involves fundamental Development Cop.(NASUDECO). | changes inthe corporation, 2s well asin PASUMILIf an unpaid balance tothe | the rts of stockholders and creditors, respondent. Petoner corporations | there must be an express provision of were held jonly and severally labe | law authorzing them. Fora valid merger with PASUMIL of consoldation, the approval by the Secuties and Exchange Commission Argument (GEC) of the artides of merger or "| Respondent futher clans that | Consolidation is required. These articles petoners should be held lable for the unpaid obligations of PASUMIL by vidue of LOI Nos. 189-8 and 3 ich expressly authorized PASU and PNB to merge or consolidate, On the otter hand, pettones contend | '. te coro be pened | Serve ested une he Wo PASUMI did nativohe any corporate | ‘he conorddon Code wes cot cng merger or consoldation, because the later had never lst its separate identity as a corporation, Investigation in Case Necessary 1, upon investigation, the Commission has reason to believe that 9 consolidati trary to or inconsistent ing laws, to each constituent corporation at wo hearing, The Commission shall thereafter, i Code. (Sec. 78, RCCP) ter proceed as provided in this ‘Chapter V— Mergers and Conscidation,Distluton, Ofeses and Penahies 169 DISSOLUTION Methods of Dissolution Codesmay be:dissolvedvoluntarily orinvoluntariy (Sec. 133, RCCP) Voluntary dissolution may be any of the following: a (Sec. 134, RCCP) 2 Sec. 135, RCCP) (3) Dissolution by shortening:corporateterny (Sec. 136, RCCP) Voluntary Dissolution Where No Creditors Are Affected Jf dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the diss effected by of the members of a meeting to be held upon the call of the directors ortrustees: (Sec. 134, RCC) Notice of Meeting ‘At least twenty (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, led to vote at the meeting, in the manner Of this Code and shall state that the purpose vote on the dissolution of the corporation. Notice of the time, place, and object of the meeting shall be rior to the date of the place where the pr Verified Request with SEC A verified request for dissolution shall be filed with the Commission stating: (a) the reason for the di ‘Manner, and time when the notices were giver stockholders and directors or members and the dissolution; (d) the date, the vote was made; and (e)170 REVIEW NOTES ON CORPORATION LAW Toplined, Conese ond Substantatod The corporation shall sm re hori when necessary. (Sec. 134, RCCP) When Dissolution Effective a ee crawl in sad perio, sa arlacon sel take efect only upon the wsuance Sy the Commision ofa cerineate of dissolution. Mo apreatin (esa aroce tt compe Where the dissolution ofa cor of any creditor, a verified petition the Commission. (2/3) of the outstanding ca the members at a meeting the ing the dissolution, and ‘llits creditors. (Sec. 135, RCC Chapter — Merges and Coacaton, Disclton Oferes and Order of the Commission lon is sult in form and subs ny an order re the pu eres where the principal office of the corpe be no such newspaper, th pines, anda si consecutive weeks in three ty, Upon five (5) days’ notice, given ater the dete on whic the right to fle objections fed inthe order hos eure lon and directing sun its assets as justice requires, and may appoint a receiver to lect such assets and pay the debts ofthe corporation. ‘The dissolution shall take effect only upon the issuance by the Commission of a certificate of dissolution. (Sec. 135, RCCP) Hilly Bar Exam 2012 (8) Wil te sale of all assets and abisies of AAA Corporation to BBE Barking Cocevation automaticaly Aissohe or terminate the corporate existence of AAA Corporation? Explan your answer. Dissolution by Shortening Corporate Term A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuanton aw pores oN CORORATION A eve Erne 5 objections to the petition. (Sec. Involuntary Dissolution ‘A corporation may ropr mmission motu (Gee. 138, acc) Interested party “the following may be grounds for dssolution ofthe corporation imeigmomererrantternsaennmniiatinleyiee tian (b)- Continuous inoperation ofa corporation as provided under Section 21 of this Code; (©) Upon: receipt of a lawful court “order” dissolving” the “corporation; (@) -Upon-finding” by” final judgment that the “corporation procured Its incorporation through fraud; (e) Upon finding by final judgment that the corporation: ascets, after pay Commission with the appropriate C national government. sure shall be without prejudice to innocent stockholders and employees for services ren the application of other penalty or sanction under Jaws, ‘The Commission be forfeited in favor of the reasonable notice to and coordinate ry agency prior to the involuntary heir special regulatory Jurisdiction.4 REVIEW NOTES ON CORPORATION LAW plone, Conc and Subsantated Corporate Liquidation Except for banks, which shall be covered by the applicable provisions of Republic Act No. 7653, otherwise known "New Central Bank Act," as amended, and Rept bbut net 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 beneftt of stockholders, mer creditors and other rest. After any such conveyance by the corporation in trust for the S stockholders, members, istees, rest In the stockholders, members, creditors rest, kolder or member bbe found shall be escheated in favor of ‘national government. Except by decrease of capital stock and as otherwise allowed by, this Code, no corporation shall distribute any ofits assets or property septa fd after payment of ats debe on liabilities. (Sec, aes fame INVESTIGATIONS, OFFENSES, AND PENALTIES Investigation and Prosecution of Offen The Commision may investigate an allege Code, oF ofa rule, reguaten or ce or ee ions of Rept "Data Privacy Act of 20: Chapter IV —Mergers and Consolidation, Disolton, Oferees and Penoies 178 The Commission shall give reasonable notice to and coordinate with the appropriate regulatory agency prior to any such publication involving companies under their regulatory jurisdiction. (Sec. Isa, CCP) Administration of Oaths, Subpoena of Witnesses and Documents The Commission, through its designated officer, may admini ‘oaths and affirmations, issue subpoena and subpoena duces tec (Sec. 155, RCCP) Coase and Desist Orders Whenever the Commission has reasonable basis to believe bot lay issue a cease and desist order ex parte ice which Is fraudulent or can be reasonably for a' maximum period of twenty (20) days, without order being made permanent after due natice and: Administrative Sanctions If; after due notice. and hearing, the: Commission finds. that ‘any-provision-of this Code, rules or regulations, or-any-of thethe Commission may impose ‘any.or all. of the: following sanctions, taking into-consideration the extent of participation, nature, effects, frequency and seriousness of the violation’ @ (b) © @ Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two esos (P2,004 Issuance of a permanent cease and desist order; ‘Suspension orrevocation of the certificate of incorporation; and Dissolution of the corporation and forfeiture of its assets Under the conditions in Title XIV of this Code. (Sec. 158, RCCP) ‘Summary of Offenses, chapter W — Mergers and Consolidation, Dissolution, Offenses ond Pn con ofreanpite, | Fre aroma fan P200100 so or Mis ‘200,000.00 Staiaments of Reports. (Sec: 162) | wan the wrong cafcaton is i Independent Auditor Colusion. (Sec 163) ‘Oslainng Corporate Registration Through Fraud. (Sec. 164) (Geo, 160) wilfuly conceals such disqualification Ofenses Peraiy Regetos comics [rs aia ton FONT a Vilaon of Daquaiicaon ProvSion ranging fron PIO00000 Wo Faas a Toa ee Fee oe oe Whe he Yin is (Sec. 16 Valation of Duty to Maintain Records, Fine ranging from P1000000 to ‘Alow thir Inspection or Reproduction. | P200,000.00, Without prejudice to the Commission's exercise ots contempt powers. Taira cate te Gand Coript races, (Se. 18) Engaging Intermediaries for Graft and Caan rats. 150)ve REVIEW NOTES ON CORPORATION LAW Explained, Conca and Substarited ‘Wonirg Gatrd Conn Paccs re range Fon PS0000000 (Sec. 168) A ye at RetlatasAga atiows | Fre_rxorg ton PRODODY ee 89 oa joe sna esr ho bres wal omar an a Starman fori omen Fey tense orton une Code. cy eration alae 0) |e loos fan PLD OD Ba a re tan 00000, Is @ corporation, the penalty may, at the be imposed upon such corpo: ‘or employees respor for the violation or indispensable to its commission. (Sec. 171, RCCP) eae Liability of Aiders and Abettors and Other Secondary Liability command, induce, or is Code, oF any rule, re after taking into account RCCP) Reportorial Requirements of Corporations Except as otherwise provided inthis Code orn the ru in this Code or nthe rules tsued by the Commission, every corporation, domestic of Business inthe Philippines shall submit tothe Commission 9 statements audited by an independent (©) A general information sheet. ‘Chapter IV — Mergers end Conscdation, Dissolution, Offenses and Penis 179 terest must also submit (1) A director or trustee compensation report; (2) Adirector or trustee appraisal or performance report ‘and the standards or erteria used to. assess each director or trustee, The reportorial requirements shall be submitted annually and within such period as may be prescribed by the Commission. (See. 177, RCCP) Reportorial Requirement vis-b-vis Right Against SelfIncrimination By virtue of the fiction that wers to the State, the repor powers. In other words, the repar means by which the State may see toitthatits to the powers and functions conferr extensively discussed in Bataan Shipyard & Engineering Co, Inc. v. Presidential Commission on Good Government (G.R. No. (-75885, May at the st ‘could net invoke the right at State demanded the production of its tatensively discussed the purpose of reportorial requirements, viz: ‘The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special fanchises, and holds them subject to eater ets and nd out whether It has exceeded its toe terange anomaly 0 Rok that a state, Having ould be gn to make use of cerein franchises, coud Te a cor aaverey, nqure ow these franchises had at In te ered wetner they Rad been abused, and demand Been employed 2 orporte books and papers fr tet purpose te production of ts that an officer of te corporation which tena asaton of the statute Moy plead theth special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law E4., 771, 780) Effect of Failure to Comply In under delinquent requirements three latory jurisdiction, report with the Commission may sm such required report: Provided, together with @ req iment of the report and the specific grounds (Sec. 177, RCCP) the grant there Visitorial Powor and Confidential Nature of Examination Results | powers over all ude the examination and enforcement of compliance, with this Code. Should the obstruct the Com Commission may prejudice to the imposit this Code es propounded by the Commission and the as the results of any examination made by the Commission or by any other official authorized by law to make an ‘examination of the operations, books, and records of any corporation, Powers under this Code, results are necessary to (Bee. 178, RECP) presented as evidence before any court, Chapter V — Mergars and Consaistion,Dtsoiticn, ents and Power, Functions, and Jurisdiction of the Commission ‘The Commission shall nave the power and authority to @ provided under this Code; (©) Pursuant to Presidential Decree No. 902-A, retain Jurisdiction over pending cases involving int ites submitted for final resoluti lover pending suspension of cases filed as of June 30, 2000 pose sanctions for the vi implementing rules and orders of (@ Promote corporate governance and the protection of n of this Code, its 1 Commission; © regulations; (0) Issue cease and desist orders ex parte to prevent imminent fraud or injury to the public; (9) Hold corporations in direct and indirect contempt (*)tssue subpoena duces tecum and summon witnesses Sppear in proceecings btore the Commis rite cases search and Sesircer doc 5, and books ‘seizure of document of accounts of any may be necessary for the proper disposition ofthe cases, Subject to the provisions of existing la (1) Suspend or revoke the certificate proper natice and hearing: ote or mpose sections on corporations uP Ma cot or is ing, aiding ‘the commission rthering. secur Incorporation after attachment ts of execution and attachment to, enitee ‘of fees, administrative ‘under this Code; 0ee REVIEW NOTES ON CORPORATION LAW Explained, Condse ond Subsantated (m) Prescribe the number dependent directors an minimum criteria in determining the independence cfs director; (0) Impose or recommend new modes by which ‘member, director, or trustee may attend me (© Formulate and enforce standards, guid rules, and regulations to carry out the py Code; and ) Exercise such other powers provided by law or those ‘which may be necessary or incidental to carrying out the Powers expressly granted to the Commission, {In imposing penalties and additional Tequirements, the Commission si rectly the exereise of the powers, duties and responsi i les of the Commission that falls exclusively Within its jurisdiction. (Sec. 179, RCP) Arbitration for Corporations offenses and ZThe arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or manager, To be enforceable, the ar the number of arbitrators an: ‘The power to appoint the a shall be granted to a designa to appoint the or the period specified in the arbitration agreemer Fequest the Commission to appoint the aro manner and within the parties may s. In any case, (Chapter — Margrs and Consolidation Dsl, fens and Peraies 19, arbitrators must be accredited or must belong to organizations Sceredited for the purpose of arbitration, 2 separate agreement. ‘The arbitral tribunal shall have the power to grant inte shall be stayed only by the filing of a bond or the issuance by the appellate court of an injunttive writ rmulate the rules and regulations, inder this section, subject to existing 1, RCCP) which shall govern laws on arbitration. (See Jurisdiction over Party-List Organizations ‘The powers, authorities, and responsibilities involving party:list organizations are transferred (on Elections (COMELEC). the Commission the Commission (Bec. 182, RECP)