CRMD and SEC vs.

Ching Bee Trading Corporation (GR No 205291)

COMPANY REGISTRATION AND MONITORING DEPARTMENT & SEC VS. CHING
BEE TRADING CORPORATION

DOCTRINE: While CBTC should have probably filed the amended articles of
incorporation earlier (within the 5 years period), there is nothing which prohibits
the application of extension on the last day of its existence.

Under Sec. 17, the SEC must give reasonable time within which to make
necessary corrections should there be objectionable portions in the amendment.

FACTS: CBTC was registered with the SEC on December 23, 1960. Its corporate
existence being limited to a period of only 50 years, it was to expire on December 23,
2010.

On December 22, 2010 or one (1) day before the last day of its corporate existence,
CTBC filed with the CRMD of the SEC, an application seeking the approval of its
amended AOI extending its term for another 50 years.

CRMD, however, refused to accept the application because of failure to state in the
required Directors’ Certificate that the stockholders, owning and representing at least
two third (2/3) of its capital stock, voted and approved the amendment. The CRMD
processor in the name of Erlinda Cabatic then verbally advised CBTC to submit a letter
requesting an extension to file requirements.

On December 23, 2010, or just hours before CBTC’s corporate personality expires,
such a letter was filed. On January 6, 2011, however, the SEC denied the request,
citing SEC Resolution No. 394, dated November 13, 2008, as basis. The said resolution
contained SEC’s policy of denying the filing of any amended AOI extending the
corporate life of a corporation, whose original term has expired.

On appeal to SEC En Banc, the request was likewise denied.

The CA reversed the decision of the SEC en banc and ordered SEC to admit CBTC’s
amended articles of incorporation. It stated that CBTC should have been given
reasonable time to correct or modify any portion in the article pursuant to Sec. 17 of the
Corporation Code.

Sec. 17. Grounds when articles of incorporation or amendment may be rejected or

disapproved – The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not compliance with
the requirements of this Code: Provided, That the Commission shall give the
incorporators a reasonable time within which to correct or modify the objectionable
portions of the articles or amendment.

The SEC maintains that a corporation seeking to extend its life must take all the
necessary steps before its life expires at the end of the 50-year period.
Issue: Whether CBTC is entitled to additional time to file its amended article of
incorporation extending its corporate life, despite its attempt to file it before the original
term expired.

Held: Yes.

A corporation ceases to exist upon the expiration of the corporate term indicated in its
articles of incorporation. After this time, all acts are invalid or ultra vires Nevertheless, a
corporation may avoid death by perpetuation (extension) of the life of a corporation thru
Sec. 11 of the Code.

Section 11. Corporate term. - A corporation shall exist for a period not exceeding fifty
(50) years from the date of incorporation unless sooner dissolved or unless said period
is extended. The corporate term as originally stated in the articles of incorporation may
be extended for periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this Code; Provided,
That no extension can be made earlier than five (5) years prior to the original or
subsequent expiry date(s) unless there are justifiable reasons for an earlier extension
as · may be determined by the Securities and Exchange Commission.

While CBTC should have probably filed the amended articles of incorporation earlier
(within the 5 years period), there is nothing which prohibits the application of extension
on the last day of its existence.

Unfortunately, CRMD processor refused to receive the application on the ground that
there was a substantial in accordance with the form prescribed, which is allowed by
Sec. 17 – The following are grounds for such rejection or disapproval: 1. That the
articles of incorporation or any amendment thereto is not substantially in accordance
with the form prescribed herein…

However, also under Sec. 17, the SEC must give reasonable time within which to make
necessary corrections should there be objectionable portions in the amendment.
Reasonable time is defined as so much time as is necessary under the circumstances
for a reasonably prudent man and diligent man to do, conveniently, what the contract or
duty requires that should be done, having regard for the rights and possibility of loss, if
any to the other.

ITCAB, CRMD did not give CBTC reasonable time to comply with the requirements o
SEC should have given formal notice to CBTC that the latter had 1 day to cure any
defect before CBTC’s life would expire. SEC’s position that the extension should be
secured within the life of the corporation places the burden on the corporation to make
sure that SEC will approve the extension. This is wrong, because this burden falls on
both the corporation and the State (acting thru the SEC)
The corporation submit the application before the end of its life. Then, the burden falls
on the SEC to review, approve, or disapprove the same before the life ends. If no
approval is secured within the limited time, the fault is the SEC’s. Court believes that
despite that rightful rejection, CBTC was deprived of its right to a reasonable period to
complete the requirements in view of the suggestion made by the processor to instead
submit a letter requesting for extension. That suggestion caused a misunderstanding as
to the proper recourse that CBTC should have taken. Had the processor notified CBTC
about the urgency of fulfilling the requirements prior to the expiration of the corporate
term, it would have been likely that the requirements for the filing would have been
completed.