Topic No. 8: Revised Corporation Code of
Distinguish: Constituent and
the Philippines (RA 11232)
I. MERGER AND CONSOLIDATION
A. Definition and Concept
Merger – a corporation absorbs the other and
remains in existence while the others are
dissolved [Sec.75].
Mergers may be horizontal (between
competing firms), vertical (if a corporation
acquires another which uses or distributes its
products) or conglomerate (neither competing
nor related in the chain of production or
distribution). [Campos]
Consolidation – a new corporation is created,
and consolidating corporations are
extinguished [Sec.75].
B.
Consolidated Corporation
Constituent Corporations – the parties to a
merger or consolidation
Consolidated Corporation – The new single
corporation created through consolidation.
Surviving Corporation – one of the
constituent corporations which remain in
existence after the merger
C. Plan of Merger or Consolidation (Sec. 75)
Each of the constituent corporations must draw
up a Plan of Merger or Consolidation which
shall set forth:
a) Names of the corporation involved;
b) Terms and mode of carrying it to effect;
c) Statement of changes, if any, in the
present articles of the surviving
corporation to be formed in the case of
merger; and with respect to the
consolidated corporation in case of
consolidation.
The Plan must be approved by the board of
directors or trustees of each constituent
corporation by majority vote.
D. Articles of Merger or Consolidation (Sec.
77)
The Articles of Merger or Consolidation:
1. take the place of the AOI of the
consolidated corporation; or
2. amend the Articles of Incorporation of
the surviving corporation.
Articles of Merger/Consolidation Requisites:
 Executed by each of the constituent
corporations
 Signed by the president/vice-president
 Certified by the secretary/assistant
secretary of each corporation
Contents
The Articles must contain the following:
 Plan of the merger/consolidation
 As to stock corporations, the number of
shares outstanding, or in the case of
non-stock corporations, the number of
members;
  As to each corporation, the number of
shares or members voting for or against
such plan, respectively;
 the carrying amounts and fair values of
the assets and liabilities of the
respective companies as of the agreed
cut-off date;
 The method to be used in the merger or
consolidation of accounts of the
companies;
 The provisional or pro-forma values, as
merged or consolidated, using the
accounting method; and
 Such other information as may be
prescribed by the Commission
E. Procedure
1. Approval of Plan of Merger or
Consolidation by BOD and Stockholders
of Constituent Corporations [Sec. 76]
2. Execution of Articles of Merger or
Consolidation by each of the constituent
corporations.
3. Submission to SEC of the Articles.
4. Action by SEC. Conduct hearing or
issue certificate. [Sec. 78]
o If necessary, the SEC shall set a
hearing, notifying all corporations
concerned at least 2 weeks
before.
o SEC shall issue a certificate
approving the articles and plan of
merger or of consolidation.
5. Upon issuance of the certificate of
merger or consolidation, such merger or
consolidation shall become effective
[Sec. 78].
AS TO THE CONSTITUENT
CORPORATIONS
Corporate existence
The constituent corporations shall become a
single corporation.
The separate existence of the constituents
shall cease, except that of the surviving or the
consolidated corporation.
The absorbed or constituent corporations are
ipso facto dissolved by operation of law [SEC
Opinion, July 16, 1981].
Assets and liabilities
There is no liquidation of the assets of the
dissolved corporations [CAMPOS].
The surviving or the consolidated corporation
shall possess all the rights, privileges,
immunities, powers, and franchises of each
constituent corporation and the properties shall
be deemed transferred to and vested in the
surviving or consolidated corporation without
further act or deed.
The surviving or the consolidated corporation
shall be subject to all the duties and liabilities of
the dissolving corporation(s).
AS TO CREDITORS
The creditors of a corporation cannot prevent
its merger or consolidation with another even if
the surviving or new corporation is not as
acceptable a debtor as the absorbed
corporation [CAMPOS].
Any claim, action or proceeding pending by or
against any of the constituent corporations may
be prosecuted by or against the surviving or
consolidated corporation; and
The rights of the creditors or lien upon the
property of any of each constituent corporation
shall not be impaired by such merger or
consolidation.
MERGERS/CONSOLIDATION ON
EMPLOYEES
Because there is no legal break by the act of
merging, consolidating, it is logical to expect
that the contractual rights of employees and
the existing collective bargaining agreement, if
any, would have to be absorbed by the
surviving/consolidated corporation
However, SC has made contrary rulings. Rule
on automatic assumption/absorption does not
impair the right of an employer to terminate the
employment of the absorbed employees for a
lawful or authorized cause or the right of such
an employee to resign, retire, or otherwise
sever his employment, whether before or after
the merger, subject to existing contractual
obligations (The Philippine Geothermal Inc.
Employees Union vs. Unocal Philippines, Inc,
September 26, 2016)
II. DISSOLUTION AND LIQUIDATION
Dissolution of a corporation is the
extinguishment of its franchise and the
termination of its corporate existence or
business purpose.
However, for the purpose only of winding up
its affairs and liquidating its assets, its
corporate existence continues for a period of 3
years from such dissolution [Sec. 139].
Upon dissolution, the corporation ceases to be
a juridical person and consequently can no
longer continue transacting its business
[Campos].
Note: If no dissolution papers are filed with the
SEC by a corporation claiming dissolution
voluntarily, such corporation is still deemed
legally existing, notwithstanding the fact that it
has ceased to operate [De Leon].
Dissolution may be voluntary or involuntary:

Methods of Liquidation
Liquidation is the process by which all the
assets of the corporation are converted into
liquid assets (cash) in order to facilitate the
payment of obligations to creditors, and the
remaining balance if any is to be distributed to
the stockholders.
 Among corporate creditors, the rules on
concurrence and preference of credits
apply.
 It is a proceeding in rem.
The end of corporate relations does not result
in the immediate termination of corporate
existence. A corporation shall have the
extended term of 3 years to wind up its
corporate affairs and liquidate its assets.
[Herbosa]
Winding up of corporate affairs
Under Sec. 139 of the RCC, a corporation
loses its juridical personality and can nolonger
enter into transactions that have the effect of
continuing its business.
The only exception to this is the “winding-up”
period which takes place for 3 years after the
loss of the corporation’s juridical personality.
 It continues to be a body corporate for
purposes of prosecuting and defending
suits by and against it and to enable it to
settle and close its affairs, culminating in
the disposition and distribution of its
remaining assets.
 It may, during the 3-year term, appoint a
trustee or a receiver who may act
beyond that period.
A corporation in the process of liquidation has
no legal authority to engage in any new
business, even if the same is in accordance
with the primary purpose stated in its article of
incorporation.
 It may not acquire new rights or incur
new obligations.
 It may only have rights as may be
required by the process of liquidation.
[Herbosa]
Pending actions against the corporation are
not extinguished
Pending actions against the corporation may
still be prosecuted against the corporation even
beyond the 3-year period.
General Rule: The creditors of the corporation
who were not paid within the 3-year period may
follow the property of the corporation that may
have passed to its stockholders ;
Exceptions:
 Unless the action is barred by
prescription or laches; or
 Unless there was a disposition of said
property in favor of a purchaser in good
faith.
Suits not brought against the corporation
within the 3-year period may still be
prosecuted against the corporation, since there
is nothing in Sec. 122, par. 1 which barsaction
for the recovery of the debts of the corporation
against the liquidator thereof after the lapse of
the winding up period of 3 years [Republic of
the Philippines vs. Marsman Dev. Co., G.R.
No. L-175109, April 27, 1972].
Right of the corporation to appeal a
judgment is not extinguished by the
expiration of the 3-year period. Corporations
whose certificate of registration was revoked by
the SEC may still maintain actions in court for
the protection of its rights which includes the
right to appeal [Paramount Insurance Corp. v.
A.C. Ordonez Corp., G.R. No. 175109, August
6, 2008]
Methods of liquidation:
1. By the corporation itself or its board of
directors or trustees (Sec. 139[1], RCC)
2. By conveyance to a trustee within a
threeyear period (Sec. 139[2], RCC;
Board of Liquidators v. Kalaw, G.R. No.
L-18805, Aug. 14, 1967)
3. By a management committee or
rehabilitation receiver appointed by SEC
(Sec. 119, RCC)
4. By liquidation after three years