2021 Corpo E4

BUSINESS ORGANIZATION II
From the lectures of Atty. Raymund Christian S. Ong-Abrantes, A.Y. 2020-2021 and 3-Manresa 2019-2020 TSN
4th Exam Q. Is it correct to say that all family corporations are close
corporations?
A. No, not necessarily because ang meaning lang ng close
corporation is there is a restriction as to the movement of
CLOSE AND OTHER SPECIAL CORPORATIONS shares, icloclose mo lang siya. So merong mga nuances on how
they conduct dealings, sometimes di na kailangan ng notice
This is the main revision talaga of the Revised Corporation kase sila sila lang naman, kakaunti lang sila so di na practical
Code, previously kase you need to have at least five (5) to conduct it.
incorporators to create a corporation. But now, another estate,
an entity can have one stockholder, ang tawag dun ay One
CONCEPT OF CLOSE CORPORATION
Person Corporation. Having said that, instead of using the suffix
Inc., you should use the the acronym OPC, that would signify  Under American jurisprudence, from which much of our
that the entity is a one person corporation. won corporate concepts are derived, close corporations
are those in which the major part of the persons to
But there is a lot of questions on it but we do not have whom the powers have been granted, on the happening
jurisprudence yet, because again, bago pa lang. Di pa umaabot of vacancies among them, havve the right of
sa Supreme Court yung mga controversy pertaining sa OPC. themselves to appoint others to fill such vacancies,
without allowing to the stockholders in general any vote
ONE PERSON CORPORATION or choice in the selection of such new officers; or where
The OPC is not new in other jurisdiction. Again, we just adopted the business policy and activites are entirely dominated
it because a lot of jurisdiction around the world has already for practical purposes by the majority stok ownership of
created that time of corporation. a family whose stock is not traded in any market and is
very infrequently sold.
[Note: Naputol si sir pero based on the 2019 TSN]
The creation or the enactment of the provisions of a one  One of the most significant features of a close
person corporation is based on the clamor of businessmen corporation is the indentity of stock ownership
to ease the doing of business in the Philippines. So it’s a very and corporate management, whereby all or most
prevalent problem when businessmen who want to do of the stockholders are active in the corporate
business in the Philippines and sabi nila what if isa lang affairs as directors or key officers.
akong negosyante and I have to make a corporation?
Because a corporation is an attractive vehicle for business
because of the doctrine of limited liability. You can shelter Discussion: Again, when you talk about close corporation,
whatever liability that the corporation might assume in the meaning nun ay si stockholder is necesssarily meron rin siyang
future. So it’s an attractive vehicle. But the problem before seat sa corporate management, whereby all or most of the
the revision is that you need at least 5 incorporators, and stockholders are active in the corporate affairs as directors or
what happens if wala kang kakilala? Then there is that key officers. That is why, family corporations are often close
proliferation of having dummies, may tatlong dummy, may corporations but not necessarily. Di naman lahat ng family
apat na dummy, tapos isa lang ang totoong mag ooperate corporations are close corporation. Depende lang yung sa
ng corporation. provisions under the articles of incorporation because there is
a determining feature under the articles of incorporation for
It’s okay at the first instance but how about when later on you to say that it is a close corporation. We will go to that later.
you have to amend, or you have to do certain acts which
requires the approval of the majority or 2/3? What happens Section 95. Definition and Applicability of Title. – A
if hindi mo na mahagilap kase ito yung mga labandera, mga close corporation, within the meaning of this Code, is one
kapitbahay, lessor etc. and after 5 years hindi mo na sila whose articles of incorporation provides that:
mahagilap, at di mo na alam kung saan sila. And that has
become a problem for businessmen. So that’s why they (a) all the corporation’s issued stock of all classes, exclusive
suggested na why not just make a one person corporation. of treasury shares, shall be held of record by not more than
a specified number of persons, not exceeding twenty (20);
Discussion: There was really a lot of unnecessary things that (b) all the issued stock of all classes shall be subject to one
was streamlined by the revisions of the Corporation Code and or more specified restrictions on transfer permitted by this
one of which is the creation of the OPC. Title; and
Now, let’s discuss it and know for ourselves if it is really (c) the corporation shall not list in any stock exchange or
advantageous or disadvantageous. I for one would not make any public offering of its stocks of any class.
recommend it unless it is extremely necessary for the reasons Notwithstanding the foregoing, a corporation shall not be
that we will later explore. deemed a close corporation when at least two- thirds (2/3)
of its voting stock or voting rights is owned or controlled by
NOTE: Sir showed the slide on Close Corporation then later on another corporation which is not a close corporation within
realized na he was initially discussing OPC. He then opted to the meaning of this Code.
discuss first the Other Special Corporations, so he proceeded
to discuss Close Corporation. Any corporation may be incorporated as a close corporation,
except mining or oil companies, stock exchanges, banks,
insurance companies, public utilities, educational institutions
FIRST TYPE OF SPECIAL CORPORATION IS CLOSE and corporations declared to be vested with public interest
in accordance with the provisions of this Code.
CORPORATION.
Ampog | Apostol | Cagas | Cavite | Dahilig | Guerrero | Laguting | Luz | Martinez | Paclibar | Suarez | Suaybaguio | Tan | Vi va
Case digests by: 3-Sanchez Roman, ‘20-‘21
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The provisions of this Title shall primarily govern close

corporations: Provided, That other Titles in this Code shall (b) A classification of directors into one (1) or more classes,
apply suppletorily, except as otherwise provided under this each of whom may be voted for and elected solely by a
Title. particular class of stock; and
2019 TSN Discussion (c) Greater quorum or voting requirements in meetings of

A close corporation, within the meaning of this Code, is stockholders or directors than those provided in this Code.
one whose articles of incorporation provides”
A close corporation must comply with the provision under The articles of incorporation of a close corporation may provide
Section 95 and whose Articles of Incorporation must provide that the business of the corporation shall be managed by the
for the specific provisions listed therein. Otherwise, the stockholders of the corporation rather than by a board of
corporation will not be considered as a close corporation but directors. So long as this provision continues in effect, no
will just be considered as a regular corporation. meeting of stockholders need be called to elect directors:
Provided, That the stockholders of the corporation shall be
deemed to be directors for the purpose of applying the
(a) all the corporation’s issued stock of all classes, exclusive of provisions of this Code, unless the context clearly requires
treasury shares, shall be held of record by not more than a otherwise: Provided, further, That the stockholders of the
specified number of persons, not exceeding twenty (20); corporation shall be subject to all liabilities of directors.
So kung twenty (20), pwede ka mag close corporation. The articles of incorporation may likewise provide that all
officers or employees or that specified officers or employees
(b) all the issued stock of all classes shall be subject to one or shall be elected or appointed by the stockholders, instead of by
more specified restrictions on transfer permitted by this Title; the board of directors.
and
The Articles of Incorporation may provide that the business be
This is what I was talking about, there must be some kind of managed directly by the stockholders, wala ng BOD kase nga
restriction in the transferrability of shares. sila lang din, you have a limited number of stockholders.
Necessarily, its not practical to create a Board. That’s the
c) the corporation shall not list in any stock exchange or make peculiarity of closed corporations. So wala ng kailangan, no
any public offering of its stocks of any class. meeting of stockholder. Yung si stockholder member naman ng
Board.
Because, it will negate (a) because if you offer it in public, there
is a possibility that the stockholders will exceed twenty. So lets talk about validity of restrictions. Is it possible, this is a
question that I get a lot from yung may mga corporations na
Notwithstanding the foregoing, a corporation shall not be family-owned, kasi ayaw nila na kapag yung anak nila nag-
deemed a close corporation when at least two- thirds (2/3) of asawa, hindi nila kasundo yung in-laws, tapos itransfer yung
its voting stock or voting rights is owned or controlled by shares sa company sa asawa ng kanilang mga anak. Hindi nila
another corporation which is not a close corporation within the gusto masala yung mga in-laws sa kanilang corporation. That’s
meaning of this Code. a valid question and always a concern sa mga family-owned
corporation. So sinasabi nila, tinatanong nila, pwede bang
So if an entity that is not a close corporation is owning at least lagyan ng clause ang Articles of Incorporation that prevents
2/3 of the shares of the corporation, then the subject entity is the anak or children who owns it currently to sell it to someone
not considered as a close corporation. other than the family member. Is that particular restriction
valid? Can it pass the scrutiny of the SEC? Please take note:
Any corporation may be incorporated as a close corporation,
except mining or oil companies, stock exchanges, banks, Section 97. Validity of Restrictions on Transfer of Shares.
insurance companies, public utilities, educational institutions –
and corporations declared to be vested with public interest in Restrictions on the right to transfer shares must appear in
accordance with the provisions of this Code. the articles of incorporation, in the bylaws, as well as in
the certificate of stock; otherwise, the same shall not be
So you have these regulated entities which should not be a binding on any purchaser in good faith. Said restrictions shall
close corporation: not be more onerous than granting the existing stockholders or
1. mining or oil companies, the corporation the option to purchase the shares of the
2. stock exchanges, transferring stockholder with such reasonable terms,
3. banks, conditions or period stated. If, upon the expiration of said
4. insurance companies, period, the existing stockholders or the corporation fails to
5. public utilities, exercise the option to purchase, the transferring stockholder
6. educational institutions and may sell their shares to any third person.
7. corporations declared to be vested with public interest in
accordance with the provisions of this Code. This is actually the limitation. Pwede maging valid yung
restriction as long as its not more onerous than granting the
right of the corporation to just buy it. Instead of selling it to
Section 96. Articles of Incorporation. – The articles of third persons why not the corporation buy, it should have the
incorporation of a close corporation may provide for: option to purchase the share. So yun lang yung magiging
(a) A classification of shares or rights, the qualifications for gauge or magiging litmus test niya if such restriction is valid.
owning or holding the same, and restrictions on their transfers,
subject to the provisions of the following section;
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Upon the expiration of said period, the existing stockholders or So whats the effect of issuance or transfer of stock in breach
the corporation fails to exercise the option to purchase, the of qualifying conditions?
transferring stockholder may sell their shares to any third
person. Why is that the reason? Why can you not provide an
absolute restriction on the transferability of shares? Remember Section 98. Effects of Issuance or Transfer of Stock in
that ownership of shares of stock is the property of the Breach of Qualifying Conditions
stockholder. And if you own something, based on your Property
Laws, you have different ownership right. One is Jus (a)If a stock of a close corporation is issued or transferred
Disponendi or the right to dispose. Now if you curtail that to to any person who is not eligible to be a holder thereof
someone, then you are actually curtailing that someone’s under any provision of the articles of incorporation, and if
ownership rights. So you cannot say that a person absolutely the certificate for such stock conspicuously shows the
owns it, if that person cannot dispose it in his own will and qualifications of the persons entitled to be holders of
intention. So you are actually violating the right of the owner record thereof, such person is conclusively presumed to
on his ownership rights if you provide an absolute restriction. have notice of the fact of the ineligibility to be a
What you can provide are layers or barriers of restrictions. stockholder.
Ultimately, pagpumasa na to sa mga barrier, ultimately, pwede
na ibenta sa iba. So that is the validity of restrictions. (b) If the articles of incorporation of a close corporation
states the number of persons, not exceeding twenty (20),
ANDAYA vs RURAL BANK OF CABADBARAN who are entitled to be stockholders of record, and if the
G.R. No. 188769 certificate for such stock conspicuously states such number,
August 3, 2016 and the issuance or transfer of stock to any person would
Facts: cause the stock to be held by more than such number
Andaya bought from Chute shares of stock in the Rural Bank of persons, the person to whom such stock is issued or
of Cabadbaran. Chute and Andaya requested for the transferred is conclusively presumed to have notice of
registration of the transfer in the corporation. However, the this fact.
bank’s corporate secretary informed Chute that he could not
register the transfer on the ground that under the previous What will happen?
stockholder’s Resolution, existing stockholders were given
priority to buy the shares of others in the event that the (c) If a stock certificate of any close corporation
latter offered those shares for sale. If no other stockholder conspicuously shows a restriction on transferof stock of the
would buy them, she could then proceed to sell her shares corporation AND THE TRANSFEREE ACQUIRES THE STOCK
to outsiders. The bank’s legal counsel also responded to IN VIOLATION OF SUCH RESTRICTION, the transferee of the
Andaya stating that the request is under evaluation. stock is conclusively presumed to have notice of the
However, Andaya responded that he could not be deprived fact that he has acwuired stock in violation of the restriction.
of his right as a transferee since the restriction of shares did
not appear in the articles of incorporation, bylaws, or (d) Whenever any person to whom stock of a close
certificates of stock as required under Section 98 of the corporation has been issued or transferred has, or is
Corporation Code (Section 97 under the Revices CC). The conclusively presumed under this section to have notice
bank eventually denied Andaya’s request on the ground that either
there was conflict of interest, as he was then president and (i) that he is a person not eligible to be a holder of
chief executive officer of Green Bank of Caraga, a competitor stock of the corporation; or
bank. (ii) that transfer of stock to him would cause the stock
of the corporation to be held by more than the
Issue: Whether or not Section 98 applies– NO. number of persons permitted by its articles of
incorporation to hold stock of the corporation, or
Held: Section 98 applies only to close corporations. Hence, (iii) that the transfer of stock is in violation of a
before the Court can allow the operation of this section in restriction on transfer of stock,
the case at bar, there must first be a factual determination the corporation may, at its option, refuse to register
that respondent Rural Bank of Cabadbaran is indeed a close the transfer of the stock in the name of the transferee.
corporation. There needs to be a presentation of evidence
on the relevant restrictions in the articles of incorporation Ans: The Corporation may at its option refuse to register the
and bylaws of the said bank. From the records or the RTC transfer in line with the conclusive presumption of notice.
Decision, there is apparently no such determination or
allegation that the bank is a close corporation. But please take note, in order to be valid it must be indicated
in the certificate, hindi lang sya enough na nandoon sa AOI or
by-laws. Remember, what’s the probative value of by-laws?
Sir: The entity is a bank tama? Can the bank be a closed Hindi naman sya considered as notice to the public its just for
corporation? Kailangan pa ba i-determine ng RTC yun? internal rules lang. Kapag sa certificate nakalagay that he is
notice into that particular fact, there is restriction on the
Answer: No sir. Because banks are subject to public interest transfer.
and are regulated entities by the government.
(e) The provisions of subsection (d) shall not be applicable
Sir: So di na kailangan iremand sa RTC, they could have if the transfer of stock, though contrary to subsections (a),
disposed of that issue, kasi bawal naman talaga. Anyway just (b) or (c), has been consented to by all the
an observation. (Because in the case, the court remanded the stockholders of the close corporation, or if the close
case to the RTC to resolve the factual determination that the corporation has amended its articles of incorporation in
rural bank is indeed a closed corporation) accordance with this Title.
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corporation you do have that preemptive right on all issuance

(f) The term “transfer”, as used in this section, is not limited of shares, reissuance of treasury shares kasali.
to a transfer for value.
DEADLOCKS
(g) The provisions of this section shall not impair any right
which the transferee may have to either rescind the transfer What is the remedy in cases of deadlock?
or recover the stock under any express or implied warranty.
The Commission, upon written petition by any
stockholder, shall have the power to arbitrate the dispute.
Transfer is not limited for transfer for value, pwede ring In the exercise of such power, the Commission shall have
donation or any other transfer. authority to make appropriate orders, such as:
i.i. cancelling or altering any provision contained in the
Section 99. Agreements by Stockholders. – articles of incorporation, bylaws, or any stockholders'
agreement;
(a) Agreements duly signed and executed by and among ii.ii. cancelling, altering or enjoining a resolution or act of
all stockholders before the formation and organization of the corporation or its board of directors, stockholders,
a close corporation shall survive the incorporation and shall or officers;
continue to be valid and binding between such stockholders, iii.iii. directing or prohibiting any act of the corporation
if such be their intent, to the extent that such agreements or its board of directors, stockholders, officers, or other
are consistent with the articles of incorporation, irrespective persons party to the action;
of where the provisions of such agreements are contained, iv.iv. requiring the purchase at their fair value of shares
except those required by this Title to be embodied in said of any stockholder, either by the corporation regardless
articles of incorporation. of the availability of unrestricted retained earnings in its
(b) A written agreement signed by two (2) or more books, or by the other stockholders;
stockholders may provide that in exercising any voting right, v.v. appointing a provisional director;
the shares held by them shall be voted as provided or as example 3-3 yung vote, appoint si commission ng
agreed, or in accordance with a procedure agreed upon by provisional director just to break a tie.
them. vi. vi. dissolving the corporation; or
(c) No provision in a written agreement signed by the vii.vii. granting such other relief as the circumstances may
stockholders, relating to any phase of corporate affairs, warrant.
shall be invalidated between the parties on the ground
that its effect is to make them partners among Who is a provisional director?
themselves.
(d) A written agreement among some or all of the A provisional director shall be an impartial person who is
stockholders in a close corporation shall not be invalidated neither a stockholder nor a creditor of the corporation or any
on the ground that it relates to the conduct of the business of its subsidiaries or affiliates, and whose further
and affairs of the corporation as to restrict or interfere with qualifications, if any, may be determined by the
the discretion or powers of the board of directors: Provided, Commission.
That such agreement shall impose on the stockholders who
are parties thereto the liabilities for managerial acts A provisional director is not a receiver of the corporation and
imposed on directors by this Code. does not have the title and powers of a custodian or
(e) Stockholders actively engaged in the management or receiver.
operation of the business and affairs of a close corporation
shall be held to strict fiduciary, duties to each other and A provisional director shall have
among themselves. The stockholders shall be personally ✓ all the rights and powers of a duly elected director,
liable for corporate torts unless the corporation has obtained ✓ including the right to be notified of and
reasonably adequate liability insurance. ✓ to vote at meetings of directors
until removed by
PRE-EMPTIVE RIGHT IN CLOSE CORPORATIONS 1. order of the Commission or
2. by all the stockholders.
The preemptive right of stockholders in close corporations
shall extend to all stock to be issued, including reissuance of The compensation of the provisional director shall be
treasury shares, whether for money, property or personal determined by agreement between such director and the
services, or in payment of corporate debts, unless the corporation, subject to approval of the Commission.
articles of incorporation provide otherwise.
Discussion: This is different from the usual preemptive right. Withdrawal of Stockholder or Dissolution of Corporation
Kapag preemptive right applicable sya for newly issuance of
shares to maintain the interest, kapag re-issuance na sya alam In addition and without prejudice to other rights and remedies
mo kasi yun lang ang authorized mo eh, alam mon a ang available under this Title, any stockholder of a close
authorized s aiyo isa 100, kumuha ka lang ng 20 tapos kung corporation may, for any reason, compel the corporation
naissue na doon sa 150 tapos nagincrease ng issuance may to purchase shares held at fair value, which shall not be
new subscription na 70, hindi mo sabihin na you would exercise less than the par or issued value, when the corporation has
to your for that additional 20. Kasi alam mon a on the onset na sufficient assets in its books to cover its debts and liabilities
100 lang talaga yung authorized and you just decided to get exclusive of capital stock: Provided, That any stockholder of a
only a portion. But for family corporation or close close corporation may, by written petition to the
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Commission, compel the dissolution of such corporation Religious corporations shall be governed by this Chapter and
whenever any acts of the directors, officers, or those in control by the general provisions on nonstock corporations insofar as
of the corporation are illegal, fraudulent, dishonest, oppressive applicable.
or unfairly prejudicial to the corporation or any stockholder, or
whenever corporate assets are being misapplied or wasted. Discussion: Before the OPC, itong corporation sole lang yung
parang OPC, pero hindi naman ganun because it has to be a
SPECIAL CORPORATIONS religious corporation. Ito lang yung rine-recognize before na
parang one-stockholder na certain entity.
So, these corporations sole and religious societies are governed

EDUCATIONAL CORPORATIONS by this particular chapter of the Revised Corporation Code, and
by the general provisions on the non-stock corporations as far
Incorporation as practicable.
They are governed by special laws in addition to the provision
of this code. CORPORATION SOLE
Section 106. Board of Trustees. - Trustees of educational Section 108. Corporation Sole. - For the purpose of
institutions organized as nonstock corporations shall not be less administering and managing, as trustee, the affairs, property
than five (5) nor more than fifteen (15): Provided, That the and temporalities of any religious denomination, sect or
number of trustees shall be in multiples of five (5). church, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi, or other presiding
Unless otherwise provided in the articles of incorporation or elder of such religious denomination, sect or church.
bylaws, the board of trustees of incorporated schools, colleges,
or other institutions of learning shall, as soon as organized, so
classify themselves that the term of office of one-fifth (1/5) Discussion: I have had no experience of organizing a
of their number shall expire every year. Trustees corporation sole. Mahirap siguro mag-organize because you
thereafter elected to fill vacancies, occurring before the have to prove na meron kang parang constituents or members
expiration of a particular term shall hold office only for the sa iyong denomination. You have to prove that na sa religion
unexpired period. na sinasabi mo meron kang followers. Otherwise, paano ka
naging religious corporation?
Trustees elected thereafter to fill vacancies caused by
expiration of term shall hold office for five (5) years. A majority Section 109. Articles of Incorporation. - In order to
of the trustees shall constitute a quorum for the transaction of become a corporation sole, the chief archbishop, bishop, priest,
business. The powers and authority of trustees shall be defined minister, rabbi, or presiding elder of any religious
in the bylaws. denomination, sect or church must file with the Commission
articles of incorporation setting forth the following:
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on a. That the applicant chief archbishop, bishop, priest.
stock corporations. Minister, rabbi, or presiding elder represents the religious
denomination, set or church which desires to become a
Discussion: Take note of the rotational, one-fifth shall expire corporation sole;
every year. Naka-rotation yan, one-fifth. Pero magiging one-
fifth ka lang if you are a non-stock corporation because – b. That the rules, regulations and discipline of the religious
denomination, sect or church are consistent with becoming
“For institutions organized as stock corporations, the number a corporation sole and do not forbid it;
and term of directors shall be governed by the provisions on
stock corporations.” c. That such chief archbishop, bishop, priest, minister, rabbi
or presiding elder is charged with the administration of the
A lot of educational corporations naman kasi is non-stock, hindi temporalities and the management of the affairs, estate
lahat pero mostly non-stock because of the taxes. Remember and properties of the religious denomination, sect or
sa taxation, basta non-stock, non-profit ka, you are exempt church within the territorial jurisdiction, so described
from income and real property taxes due to constitutional succinctly in the articles of incorporation;
provisions.
d. The manner by which vacancy occurring in the office of
Meron din namang stock corporations na educational chief archbishop, bishop, priest, rabbi or presiding elder is
institutions, UM is one. required to be filled, according to the rules, regulations or
discipline of the religious denomination, sect or church;
and
RELIGIOUS COPORATIONS e. The place where the principal office of the corporation sole
is to be established and located, which place must be
Section 107. Classes of Religious Corporations. - Religious within the territory of the Philippines.
corporations may be incorporated by one (1) or more persons.
Such corporations may be classified into corporations sole and The articles of incorporation may include any other provisions
religious societies. not contrary to law for the regulation of the affairs of the
corporation.
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Section 110. Submission of the Articles of Incorporation. exercise all the powers and authority of the corporation sole
- The articles of incorporation must be verified, by affidavit during such vacancy.
or affirmation of the chief archbishop, bishop, priest,
minister, rabbi, presiding elder, as the case may be, and Discussion: Here, the successors magde-depend dun sa
accompanied by a copy of the commission, certificate of religious rules niyo regarding succession. Iba-iba kasi yan eh.
election or letter of appointment of such chief archbishop, Ang alam ko sa Catholics, Bishops or Archbishops ang
bishop, priest, minister, rabbi or presiding elder, as the case successors, iba naman sa Evangelicals, sa iba dapat pastor.
may be, and accompanied by a copy of the commission,
certificate of election or letter of appointment of such chief Section 113. Dissolution. - A corporation sole may be
archbishop, bishop, priest, minister, rabbi, or presiding elder, dissolved and its affairs settled voluntarily by submitting to
duly certified to be correct by any notary public. the Commission a verified declaration of dissolution,
setting forth:
From and after filing with the Commission of the said articles
of incorporation, verified by affidavit or affirmation, and a. The name of the corporation;
accompanied by the documents mentioned in the preceding
paragraph, such chief archbishop, bishop, priest, minister, b. The reason of dissolution and winding up;
rabbi, or presiding elder shall become a corporation sole and
all temporalities, estate and properties of the religious c. The authorization for the dissolution of the corporation by
denomination, sect or church theretofore administered or the particular religious denomination, sect or church; and
manage as such chief archbishop, bishop, priest, minister,
rabbi, or presiding elder shall be personally held in trust as a d. The names and addresses of the persons who are to
corporation sole, for the use, purpose, exclusive benefit and on supervise the winding up of the affairs of the corporation.
behalf of the religious denomination, sect or church, including
hospitals, schools, colleges, orphan asylums parsonages, and Upon approval of such declaration of dissolution by the
cemeteries thereof. Commission, the corporation shall cease to carry on its
operations except for the purpose of winding up its affairs.
Section 111. Acquisition and Alienation of Property. - A
corporation sole may purchase and hold real estate and Discussion: When we go to dissolution, medyo iba to, iba yung
personal property for each church, charitable, benevolent, or procedure for dissolution.
educational purposes, and may receive bequests or gifts for
such purposes. Such corporation may sell or mortgage real Sa normal corporation, it could either be a petition for
property held by it by obtaining an order for that purpose from dissolution or application for dissolution, depende kung meron
the Regional Trial Court of the province where the property is kang creditors involved.
situated upon proof that the notice of the application for leave
to sell or mortgage has been made through publication or as In this particular instance, it’s not an application for dissolution,
directed by the Court, and that it is in the interest of the it is more of a petition for dissolution but it is a declaration of
corporation that leave to sell or mortgage be granted. The dissolution. You must be very precise on that.
application for leave to sell or mortgage must be made by
petition, duly verified, by the chief archbishop, bishop, priest,
minister, rabbi, or presiding elder acting as corporation sole, RELIGIOUS SOCIETIES
and may be opposed by any member of the religious
denomination, sect or church represented by the corporation Section 114. Religious Societies. - Unless forbidden by the
sole: Provided, That in cases where the rules, regulations, and competent authority, the Constitution, pertinent rules,
discipline of the religious denomination, set or church, religious regulations, or discipline of the religious denomination, sect or
society, or colder concerned represented by such corporation church of which it is part, any religious society, religious order,
sole regulate the method of acquiring, holding, selling, and diocese, or synod, or district organization of any religious
mortgaging real estate and personal property, such rules, denomination, sect or church, may, upon written consent
regulations and discipline shall govern, and the intervention of and/or by an affirmative vote at a meeting called for the
the courts shall not be necessary. purpose of at least two-thirds (2/3) of its membership,
incorporate for the administration of its temporalities or for the
Section 112. Filling of Vacancies. - The successor in the management of its affairs, properties, and estate by filing the
office of any chief archbishop, bishop, priest, minister, rabbi, management of its affairs, properties, and estate by filing with
or presiding elder in a corporation sole shall become the the Commission, articles of incorporation verified by the
corporation sole on their accession to office and shall be affidavit of the presiding elder, secretary, or clerk or other
permitted to transact business as such upon filing a copy of member of such religious society or religious denomination,
their commission, certificate of election, or letters of sect or church, setting forth the following:
appointment, duly certified by any notary public with the
Commission. (a) That the religious society or religious order, or diocese,
synod, or district organization is a religious organization of
During any vacancy in the office of chief archbishop, bishop, religious denomination, sect or church;
priest, minister, rabbi, or presiding elder of any denomination,
sect or church incorporated as a corporate sole, the person or (b) That at least two-thirds (2/3) of its membership has given
persons authorized by the rules, regulations or discipline of the written consent or has voted to incorporate, at a duly convened
religious denomination, sect or church represented by the meeting of the body;
corporation sole to administer the temporalities and manage
the affairs, estate, and properties of the corporation sole shall (c) That the incorporation of the religious society or religious
order, or diocese, synod, or district organization is not
6
forbidden by competent, authority or by the Constitution, rules,

regulations or discipline of the religious denomination, sect or  The corporation has been held bound, even though it
church of which it forms part; would cause corporate property to be devoted to
personal use of the sole stockholder. For instance, a
(d) That the religious society or religious order, or diocese, corporation was required to pay a note signed in its
synod, or district organization desires to incorporate for the name in payment of a personal debt of the sole
administration of its affairs, properties and estate; stockholder, and on a note signed by the sole
stockholder executed in payment for purchase of the
(e) The place within the Philippines where the principal office outstanding capital stock of the corporation.
of the corporation is to be established and located; and
Discussion: So of course it’s hard to delineate and to consider
(f) The names, nationalities, and residence addresses of the your personal decisions and decisions for corporate purposes
trustees, not less than five (5) no more than fifteen (15), of you are the same person making those decision.
elected by the religious society or religious order, or the
diocese, synod or district organization to serve for the first year EXAMINATION AND ANALYSIS (cont.)
or such other period as may be prescribed by the laws of the
religious society or religious order, or of the diocese, synod, or
district organization.
 The courts which deny the right of a sole stockholder to
bind his corporation are courts which are generally
reluctant to pierce the corporate veil in other cases.
Discussion: Ano ang mga kilala niyong religious societies,
They are courts which extinguish the separate identity
aside from the very common like Catholics etc. Wala kayong only when necessary to prevent fraud and injustice. This
kilala? Bahala kayo, that’s your assignment. Name a religious
is interpreted to mean the attempt by the sole
society. stockholder to use the corporation for an improper
purpose. Evidently these courts do not view this class
of cases as within that interpretation.
ONE PERSON CORPORATION
 The trend of the cases is in the direction of giving the
In our discussion, we will compare or we will try to compare sole stockholder the same authority as is ordinarily
the issues governing one person corporations, of course, in possessed by the board of directors.
other jurisdictions kasi wala pa naman tayong issue ng mga
yan. Discussion: The problem with OPC is that…diba when we talk
about a private corporation, it has a strong separate juridical
Titingnan natin ang issues ng one person corporation in the US, personality. That’s why it’s very rare for you to apply the
what are the prevalent issues, and is it addressed or do our piercing doctrine because the piercing doctrine would make the
provisions in the Revised Corporation Code sufficiently and corporation an unattractive medium of business. Kasi kaya ka
succinctly addressed those issues? Kasi those are valid issues, nga nag-corporation kasi nase-separate mo yung personal
case-based issues. Are we well-protected when they drafted properties mo. Hindi ka nag-partnership, kasi kung partnership,
the revisions for the Corporation Code? When they allowed the you are personally liable albeit subsidiarily.
creation of one person corporations, did they consider the
issues of one person corporation in other jurisdictions? We will In OPC, it somehow erodes those principles. There is more
look at that in our discussion. opportunity to do fraud or to use the properties of the
corporation for personal use. So the line between the separate
EXAMINATION AND ANALYSIS juridical personality of the corporation and the personality of
Authority of Sole Stockholder to Bind His Company the owner becomes blurry. This is a valid concern. Let’s see
how the provisions of the Corporation Code address this
 Since in most instances the sole stockholder assumes concern.
the management of the business, the question arises
whether he has the legal authority to bind the
EXAMINATION AND ANALYSIS (cont.)
corporation when he purports to act in its behalf for
admittedly proper corporate purposes.
Use of Corporate Property for Personal Benefit of Sole
Stockholder
 In Union National Bank v. State National Bank, the sole
stockholder executed a mortgage in the name of the
corporation, in a suit between the mortgagee and
 If the corporation is insolvent, and the claims of other
creditors exist, the right of the trustee to recover from
another creditor, the court found the mortgage invalid.
the recipient disbursements for non-corporate purposes
made prior to insolvency will depend upon the financial
Discussion: What would prevent you from creating a one-
status of the corporation at the time the payment was
person corporation, may building kasi may negosyo, pero
made.
kailangan mo ng cash personally kasi pambayad mo dun sa
mga hindi for corporate purposes. Gusto mo mag-travel, wala  If the corporation has a surplus at the time of payment,
kang pera, nangutang ka sa bangko, ang pinansala mo is recovery is denied. If the corporation was insolvent at
property ng corporation. What would prevent you to do that if the time payment was made, recovery is clearly
you are the same BOD? You can just authorize to mortgage it indicated.
for personal purposes. That will become a problem. If it is a  If the corporation was solvent, but the capital impaired,
normal corporation, the BOD will not approve if it is not for the result cannot be accurately forecast. Some courts
corporate purpose. But if it is OPC, what would prevent you require a restoration.
from doing that?
7
 This result stems from an application of the trust fund lang, that is the minimum. Kasi if you create an ordinary
doctrine, which conceives of capital stock as a reserve corporation, there is a chance na talagang your separate
pool for the benefit of the creditors. On the other hand, juridical personality is viewed strongly. Kapag one person
some courts disregard that doctrine and validate any corporation ka, there’s erosion of it and baka, most likely you
payment even for a non-corporate purpose, made while would be personally liable. So that’s what I am reminding them,
the corporation was solvent. unless they really want to have a one person corporation.
 The problem here is analogous to the right of the

2. Inadequate Capitalization
creditors to recover dividends paid improperly out of
capital, inasmuch as the use of corporate property for Personal liability may be imposed upon a sole stockholder
when he has established a corporation with inadequate
personal purposes is, in effect, the declaration of a
dividend. capital.
The courts have refused to permit a person to obtain

Discussion: Bumili ka ng sasakyan in the name of the
benefits of limited liability unless that person has honestly
corporation, pero ginagamit mo naman fpr personal use. Pwede
risked an adequate amount of money. A sole stockholder
ba yun normally? No.
must be willing to endure the hazards of business and should
not be permitted to shift the burden to his creditors.
On first bullet point: So you see, financial status is important.
Kaya mo ba ginawa yung OPC to manipulate or evade liability?
At the same time, it is granted that he may be permitted to
Or is it for legitimate purposes? Financial capacity may be a
risk only a part of his own personal fortune, for otherwise
consideration, kasi pag nagbigay ng pera dun sa OPC that you
the aspect of limited liability will be meaningless, in other
created, there is really that intention to separate those asset
words there is an attainable happy medium. Most of the
investments from your personal property. Pero kung nag-
problems in this filed have arisen from parent subsidiary
create ka lang na P10.00 or P100.00 lang yung capital, there
relationships, but those cases there are quite helpful in
is a presumption na you might be in it just to use the separate
solving the same problems in the one man corporation
the juridical personality of the OPC.
situation.
FACTORS LEADING TO PERSONAL LIABILITY
3. Express Assumption of Liability or Guarantee
1. Manner of Operation of Business by the Sole Stockholder
 Mere failure to comply with statutory formalities, such If the sole stockholder personally agreed in writing to pay a
as holding directors’ meetings, will not subject a corporate obligation, then no problem exists. There is no
shareholder to liability. Nevertheless, in many reason why a sole stockholder cannot contract for his
situations the manner in which he conducts his business company with the company in the position of a co-obligor.
will be important in determining personal liability. When Unfortunately statements made are generally oral and of an
the sole stockholder has represented himself to the equivocal nature, and it is difficult to interpret the intention
creditors “as the business”, or told creditors that “the of sole stockholder.
corporation is a mere name, but I really operate the
store” or other similar phrases, the sole stockholder is
personally held liable for the debts of the corporation. Claims of a Sole Stockholder Against His Own
Corporation
 When the disregard of corporate formalities extends
beyond the mere failure to hold meetings, elect A sole stockholder who has sold his stock to other interests
directors, etc., and instead leads to financial now claims that the corporation is indebted to him, or the
commingling of the assets of the corporation with those corporation becomes insolvent and the sole stockholder
of the sole stockholder, the corporate separateness has seeks to share in the distribution of the remaining assets.
been destroyed by the stockholder himself.
When the corporation has been sold to other interests, and
Discussion: First bullet point: Kung nag-issue ka ng board a claim is made, the former sole stockholder will recover
resolution, hindi ka daw nag-meeting, so i-invalidate? where the claim was properly present on the books at the
Naman…kailangan mo pa ba sabihin sa self mo “uy self, let’s time of the sale. If the parties had agreed that the sole
have a meeting, we will issue a board resolution…this is the stockholder was not to recover any debts from the
notice…etc.” Oh diba magmi-minutes ka, tapos ikaw din yung corporation, then recovery will be denied. If the books failed
corporate secretary, ikaw din mag-pirma. to indicate any corporate obligations to sole stockholder,
recovery will also be denied.
So, kung tingnan mo yung issue sa mga cases nila, they do not
look at the OPC as strictly a corporation which has its own
separate juridical personality. Ang tinitingnan nila is all the Discussion: So you see, a part from the financial capacity of
circumstances surrounding it. So there is some erosion of the the OPC, it becomes now important to documents or records.
doctrine of separate juridical personality. There has to be a record to all transaction.
Sir Ong: That is also my personal opinion if may pupunta sa The problems created by insolvency are more complex. The
akin and say “gagawa kami ng OPC.” Lagi ko talagang sinasabi cases can be divided into two classification:
sa kanila “Wait, isipin nyo muna. Gagawin mo yan, oo nga,
kasi… Please take note na wala nang limitation na five
incorporators so pwede ka nang mag incorporate kahit dalawa
8
1. Where the sole stockholder adequately capitalized authority to act on behalf of the trust or estate
the corporation and kept financial records, he will must be submitted at the time of incorporation.
be allowed to share in the proceeds; Note that the “trust” here is different from the trust entity we
2. If the financial identities of the two parties were referred to in Banking.
merged so that it is impossible to determine
accurately if the sole stockholder is really a TERM OF EXISTENCE
creditor, then his claim will be denied. It is obvious
that there is a real danger of simulated claims. If  Term of Existence of the OPC The term of existence
the corporation was inadequately capitalized, of the OPC shall be perpetual. However, in the case
recovery will probably be denied. It will be of a trust or estate being a shareholder of an OPC,
necessary to determine whether the capitalization its term of existence shall be co-terminous with the
was sufficient. existence of the trust or estate.
 The OPC under the name of an estate may be
Summary: The cases have shown that a one-man dissolved upon proof of Partition such as an Order
corporation, is valid provided that in its inception and of Partition issued by the Court in case of Judicial
operation proper, safeguards are maintained and fair Settlement, or a Deed of Extrajudicial Settlement
dealing with third parties exists. in case of a summary settlement of an estate.
 The OPC under the name of a trustee may be
dissolved upon providing proof of termination of the
APPLICABILITY OF PROVISIONS TO ONE PERSON trust
CORPORATIONS
CORPORATE NAME
Section 115. Applicability of Provisions to One Person The suffix “OPC” should be indicated by the one person
Corporations. – The provisions of this Title shall primarily corporation either below or at the end of its corporate name.
apply to One Person Corporations. Other provisions of this
Code apply suppletorily, except as otherwise provided in this MINIMUM CAPITAL STOCK NOT REQUIRED FOR OPC
Title.
 A One Person Corporation shall not be required to
DEFINITION have a minimum authorized capital stock except as
otherwise provided by special law.
Section 116. One Person Corporation. – A One Person  Further, unless otherwise required by applicable
Corporation is a corporation with a single stockholder: laws or regulations, no portion of the authorized
Provided, That only a natural person, trust, or an estate capital is required to be paid-up at the time of
may form a One Person Corporation. incorporation.
Banks and quasi-banks, preneed, trust, insurance, public

and publicly-listed companies, and non-chartered
ARTICLES OF INCORPORATION
government-owned and controlled corporations may not
incorporate as One Person Corporations: Provided, further,
That a natural person who is licensed to exercise a  A One Person Corporation shall file articles of
profession may not organize as a One Person Corporation incorporation (AI) in accordance with the
for the purpose of exercising such profession except as requirements under Section 14 of this Code.
otherwise provided under special laws.  The AI must set forth its primary purpose, principal
Discussion: (shares about a trick in avoiding tax) office address, term of existence, names and
details of the single stockholder, the nominee and
Scenario: Your Tita (deceased) owned properties which are alternate nominee and the authorized, subscribed
generating income. So for tax purposes the estate shall be and paid-up capital and such other matters
liable for the payment of taxes. So imagine if wala kang gawin, consistent with law and which may be deemed
it is taxed the same as individual. So pano mo matitipid yon? necessary and convenient.
Gumawa ka ng corporation, kahit one person corporation lang,
si estate pwede naman nating ilagay don and it will be taxed BY-LAWS
on corporate rate. So from 30%, now under the CREATE Law,
it will now taxed as 25% Section 119. Bylaws. -The One Person Corporation is not
required to submit and file corporate bylaws.
INCORPORATOR Discussion: Take note that OPC is not required to submit and
file corporate By-laws because the By-Laws pertain to an
 The incorporator of an OPC being a natural person internal rules and regulations governing the conduct and affairs
must be of legal age. of the Board of Directors. Paano yon mag internal rules ka sa
 As an incorporator, the “trust” as used by the law sarili mo?
does not refer to a trust entity, but the subject
being managed by a truste.
DISPLAY OF CORPORATE NAME
 If the single stockholder is a trustee, administrator,
SEC. 120. Display of Corporate Name. – A One Person
executor, guardian, conservator, custodian, or
Corporation shall indicate the letters “OPC” either below or
other person exercising fiduciary duties, proof of
at the end of its corporate name.
9
Is it required that you post a bond? Yes if you are the treasurer.
SINGLE STOCKHOLDER AS DIRECTOR, PRESIDENT But if you appoint another person as treasurer, there is no need
to post a bond.
SEC. 121. Single Stockholder as Director, President. –
The single stockholder shall be the sole director and
President of the One Person Corporation. SPECIAL FUNCTIONS OF THE CORPORATE SECRETARY
TREASURER, CORPORATE SECRETARY AND OTHER Section 123. Special Functions of the Corporate Secretary.
OFFICERS - In addition to the functions designated by the One Person
Corporation, the corporate secretary shall:
Within fifteen (15) days from the issuance of its certificate of a. Be responsible for maintaining the minutes book
incorporation, the One Person Corporation shall appoint a and/or records of the corporation;
treasurer, corporate secretary, and other officers as it may b. Notify the nominee or alternate nominee of the
deem necessary, and notify the Commission thereof within five death or incapacity of the single stockholder, which notice
(5) days from appointment. shall be given no later than five (5) days from such
The single stockholder shall not be appointed as the corporate occurrence;
secretary but may assume the role of a Treasurer. c. Notify the Commission of the death of the single
stockholder within five (5) days from such occurrence and
The One Person Corporation shall appoint a corporate secretary stating in such notice he names, residence addresses, and
who does not have a stockholding in the OPC. The reason contact details of all known legal heirs; and
behind this requirement is to prevent the sole stockholder from d. Call the nominee or alternate nominee and the
manipulating the records. known legal heir to meeting and advise the legal heirs with
regard to, among others, the election of a new director,
2019 TSN Discussion amendment of the articles of incorporation, and other
Therefore, a Corporate Secretary, Treasurer and other officers ancillary and/or consequential matters.
need not own a stock. So if you encounter a true or false
question- must a corporate secretary own atleast one share of NOMINEE AND ALTERNATE NOMINEE
stock? Of course no, kasi when it comes to OPC hindi niya
kailangan mag own ng stock. The single stockholder shall designate a nominee and an
alternate nominee who shall, in the event of the single
stockholder's death or incapacity, take the place of the
BOND REQUIREMENT FOR THE SELF-APPOINTED single stockholder as director and shall manage the
TREASURER corporation's affairs.
The single stockholder who assumes the position of the The articles of incorporation shall state the names, residence
Treasurer shall post a surety bond to be computed based on addresses and contact details of the nominee and alternate
the authorized capital stock (ACS) of the OPC as shown in the nominee, as well as the extent and limitations of their
table below: authority in managing the affairs of the One Person
Corporation.
ACS SURETY BOND COVERAGE
The written consent of the nominee and alternate nominee
1.00 to 1,000,000.00 1,000,000.00
shall be attached to the application for incorporation. Such
1,000,000.00 to 2,000,000.00 consent may be withdrawn in writing any time before the
2,000,000.00 death or incapacity of the single stockholder.
2,000,000.00 to 3,000,000.00 The purpose of the nominee is that in case of incapacity or

3,000,000.00 death, merong mag continue ng business. Also take note that
the written consent of the nominee and alternate nominee shall
3,000,000.00 to 4,000,000.00 be attached to the application for incorporation.
4,000,000.00
TERM OF NOMINEE AND ALTERNATE NOMINEE
4,000,000.00 to 5,000,000.00  When the incapacity of the single stockholder is
5,000,000.00 temporary the nominee shall sit as director and manage
the affairs of the one person Corporation until the stock
P5,000,001.00 and above = Amount of surety bond Holder by self-determination has the capacity to
coverage shall be equal to the OPC’s ACS. assume such duties
*Subject to renewal every two (2) years or as may be required  In case of death or permanent incapacity of the single
upon review of the annual submission of the Audited Financial stockholder the nominee shall sit as director an
Statements/Financial Statements certified under oath by the managed affairs of them one person Corporation until
company’s President and Treasurer. the legal heirs of the single stockholder has been
**The bond is a continuing requirement for so long as the lawfully determined and the heirs have designated one
single stockholder is the self-appointed Treasurer of the OPC. of them or have agreed that they we shall be the single
***The bond may be cancelled upon proof of appointment of stockholder of the one person Corporation
another person as the Treasurer and Filing of Amended Form  the alternate nominee shall sit as director and manage
of Appointment of Officers. the affairs of the one person Corporation in case of the
nominees inability incapacity death or refusal to
discharge the functions as director and manage the
10
operation and only for the same term and under the
same conditions applicable As to letter C – this is a mechanism to protect against conflict
of interest.
CHANGE OF NOMINEE OR ALTERATE NOMINEE LIABILITY OF SINGLE STOCKHOLDER

 The single stockholder may at anytime changes so  A sole shareholder claiming limited liability as the
many an alternate nominee by submitting to the burden of affirmatively showing that the Corporation
Commission the names of the new nominees and was adequately financed.
their corresponding written consent. for the  where the single stockholder cannot prove that the
purpose the articles of incorporation need not be property of the one-person Corporation is independent
amended of the stockholders personal property, the stockholder
shall be jointly and severally liable for the debts and
Can you change the nominee or alternate nominee? other liabilities of the one person Corporation.
Yes, pwede naman, that is the alternative of the single
 the principles of piercing the corporate veil applies with
stockholder at any time. Please take no, no need to ahave an
equal force to one person corporations as with other
amendment of the AOI. Therefore, it’s considered as a
corporations.
historical fact.
Discussion: This is the one na sinasabi ko hindi din
MINUTES BOOK
magandang tool for business because if you want to claim
A one person Corporation shall maintain a minutes book
limited liability, you still have the burden to show that the corp
which shall contain all actions, decisions, have end
was adequately financed. So the presumption of a separate
resolutions taken by the one person Corporation.
juridical personality becomes weak. Kasi pag regular corp, the
burden of proving is on the party that challenges its separate
RECORDS ON LIEU OF MEETINGS personality. This one, it’s the other way around. Parang wala
When action is needed on any matter, it shall be sufficient din syang pinagkaiba sa sole proprietorship. Kasi yun you have
to prepare a written resolution, signed and dated by the to prove ano, mas Malala, it’s tedious. Create ka nalang ng
single stockholder, and recorded in the minutes book of the regular corp ano, less tedious.
one person Corporation. the date of recording in the minutes
book shall be deemed to be the date of the meeting for all
purposes under this code. CONVERSION FROM AN ORDINARY CORPORATION TO
A ONE PERSON CORPORATION
REPORTORIAL REQUIREMENTS
The one person Corporation shall submit the following within
 When a single stockholder acquires all the stocks of an
such. As the Commission may prescribe:
ordinary Corporation, the latter may apply for
conversion into a one-person Corporation, subject to
1. annual financial statements audited by an
the submission of such documents as the Commission
independent certified public accountant: provided,
may require.
that if the total assets or total liabilities of the
Corporation are less than 600,000 pesos the  if the application for conversion is approved, the
financial statements shall be certified under oath by Commission shall issue a certificate of filing of amended
the corporation’s treasurer and president; articles of incorporation reflecting the conversion. the
2. a report containing explanations or comments by one-person Corporation converted from an ordinary
the president on every qualification, reservation, stock Corporation shall succeed the latter and be legally
or adverse remark or disclaimer made by the responsible for all the latter's outstanding liabilities as
auditor in the latter's report. of the date of conversion.
3. a disclosure of all self-dealings and related party
transactions entered into between the one-person Discussion: The One Person Corporation converted from an
Corporation and the single stockholder; and ordinary stock corporation shall succeed the latter and be
4. other reports as the Commission may require. legally responsible for all the latter's outstanding liabilities as
of the date of conversion.
For purposes of this provision, the fiscal year of a one-
person Corporation shall be set forth in its articles of
incorporation or in the absence thereof, the calendar 2019 TSN Discussion
year. Can I convert an OPC?
the Commission may place the Corporation under delinquent

status should the Corporation fail to submit the report Oriel Example: Lima kami stockholders. Pumunta ng Wuhan yung
requirements three (3) times, consecutively or apat. Nagkavirus lahat, namatay. So is ana lang naiwan.
intermittently, within a period of five years. Pwede bang i-convert ko na lang to OPC? Let’s say, 4 ang
namatay tapos walang tagapagmana o yung isang naiwan
yung tagapagmana.
Discussion: There are different kinds of audit. You have a
Note: application lang, hindi petition.
qualified audit and an unqualified audit. Merong iba na may
qualification, like hindi sya nagcocomply. If there is a
qualification, there is a requirement for the single stockholder Can you do the reverse? Can you convert from a One Person
to comment or explain kung bakit meron. Pag halimbawa sinabi Corporation to an Ordinary Stock Corporation?
ng auditor hindi sya in line with the financial reporting
standards then the single stockholder should explain.
11
amended articles of incorporation reflecting the

Section 132 of RCC conversion.
CONVERSION FROM A ONE PERSON CORPORATION TO
AN ORDINARY STOCK CORPORATION Now, in case of death, what will happen? This will now be the
opportunity for the nominee or the alternate nominee to step
 A One Person Corporation may be converted into an in.
ordinary stock corporation after due notice to the
Commission of such fact and of the circumstances In case of death of the single stockholder, the
leading to the conversion, and after compliance with nominee or alternate nominee shall transfer the
all other requirements for stock corporations under shares to the duly designated legal heir or estate
this Code and applicable rules. Such notice shall be within seven (7) days
filed with the Commission within sixty (60) days from
the occurrence of the circumstances leading to the Therefore, the functions of a nominee is similar to an
conversion into an ordinary stock corporation. If all administrator. Mag-adminster lang sila. Temporarily administer
requirements have been complied with, the until it is transferred to them.
Commission shall issue a certificate of filing of
amended articles of incorporation reflecting the from receipt of either an affidavit of heirship or self-
conversion. adjudication executed by a sole heir, or any other
legal document declaring the legal heirs of the single
 In case of death of the single stockholder, the nominee
stockholder and notify the Commission of the
or alternate nominee shall transfer the shares to the
transfer. Within sixty (60) days from the transfer of
duly designated legal heir or estate within seven (7)
the shares, the legal heirs shall notify the
days from receipt of either an affidavit of heirship or
Commission of their decision to either wind up and
self-adjudication executed by a sole heir, or any other
dissolve the One Person Corporation or convert it
legal document declaring the legal heirs of the single
into an ordinary stock corporation.
stockholder and notify the Commission of the transfer.
Within sixty (60) days from the transfer of the shares,
the legal heirs shall notify the Commission of their
The ordinary stock corporation converted from a
decision to either wind up and dissolve the One Person
One Person Corporation shall succeed the latter and
Corporation or convert it into an ordinary stock
be legally responsible for all the latter's outstanding
corporation.
liabilities as of the date of conversion.
 The ordinary stock corporation converted from a One
Person Corporation shall succeed the latter and be
legally responsible for all the latter's outstanding So these are the instances which will lead to the conversion.
liabilities as of the date of conversion.
Discussion: It “may be converted into an ordinary stock INVESTIGATIONS, OFFENSES, and PENALTIES
corporation after due notice to the Commission of such
fact and of the circumstances leading to the conversion,
and after compliance with all other requirements for So, this is not part of One Person Corporation but this is also
stock corporations under this Code and applicable rules. one of the changes made by the revision of the Corporation
Such notice shall be filed with the Commission within Code. That is to make the SEC – the provision of the
sixty (60) days from the occurrence of the Corporation Code would make it more heavy or to ensure
circumstances leading to the conversion” – take note of compliance by the corporations of the RPC, tinaasan yung mga
that. Kindly highlight po ang mga codal natin. penatlies. And it gives the opportunity for the SEC to
investigate. Nagkaroon ng konting power upgrade ang SEC.
occurrence of the circumstances leading to the
conversion Section 154 of RCC
SECTION 154. Investigation and Prosecution of Offenses.
An example of this is that binenta ng isang single stockholder  The Commission may investigate an alleged violation
ang kanyang shares to different types of stockholders. So that of this Code, or of a rule, regulation, or order of the
is an example of a circumstance leading to a conversion Commission.
because in that case, it will no longer be a single stockholder;  The Commission may publish its findings, orders,
you would have transferees which would be different opinions, advisories, or information concerning any
stockholders. Hindi na siya isa. So if that happens, what will such violation, as may be relevant to the general
you do? Do you apply for conversion? No. You just provide public or to the parties concerned, subject to the
notice and of course submit ka ng other docuemnts. But you provisions of Republic Act No. 10173, otherwise
have to notify. known as the "Data Privacy Act of 2012," and other
pertinent laws.
Such notice shall be filed with the Commission
within sixty (60) days from the occurrence of the
 The Commission shall give reasonable notice to and
coordinate with the appropriate regulatory agency
circumstances leading to the conversion into an
prior to any such publication involving companies
ordinary stock corporation.
under their regulatory jurisdiction.
And then after you notify, you submit all the requirements.
If all requirements have been complied with, the

Commission shall issue a certificate of filing of
12
The Commission may publish its findings, orders, without prejudice to the order being made permanent
opinions, advisories, or information concerning any after due notice and hearing.
such violation  Thereafter, the Commission may proceed
administratively against such person in accordance
with Section 158 of this Code, and/or transmit
Remember when they post something that this XXX Company evidence to the Department of Justice for preliminary
is not allowed to solicit investments, etc. So that is part of their investigation or criminal prosecution and/or initiate
investigating power. criminal prosecution for any violation of this Code,
rule, or regulation.
Discussion: I think KAPA was issued a cease and desist order.
The Commission shall give reasonable notice to and
I’m not certain.
coordinate with the appropriate regulatory agency
prior to any such publication involving companies
So, it gives a power update to the SEC.
under their regulatory jurisdiction.
2019 TSN Discussion

For example, in the cases of banks or any other regulated
So, ex parte- ano meaning ng exparte? Meaning di na
corporations, they have to of course coordinate and seek the
kailangan ng submit ng other party.
approval of the regulatory body.
This is what happened with KAPA. Hindi na hiningtay ang

2019 TSN Discussion
position KAPA. So kaya nga pag issue ng cease and desist
Just like what happened to KAPA. Nag issue sya ng Cease
order, there are giving opportunity to KAPA to reply to that
and Desist order.
cease and desist order.
Pwede din mag issue ng subpoena. When you read this,

thereafter, the Commission may proceed administratively
think KAPA.
against such person in accordance with Section 158 of this
Code, and/or transmit evidence to the Department of Justice
for preliminary investigation or criminal prosecution and/or
Section 155 of RCC
initiate criminal prosecution for any violation of this Code,
ADMINISTRATION OF OATHS, SUBPOENA OF
rule, or regulation.
WITNESSES AND DOCUMENTS
 The Commission, through its designated officer, may
administer oaths and affirmations, issue subpoena Section 157 of RCC
and subpoena duces tecum, take testimony in any Contempt
inquiry or investigation, and may perform other acts
necessary to the proceedings or to the investigation.
 Any person who, without justifiable cause, fails or
refuses to comply with any lawful order, decision,
or subpoena issued by the Commission shall, after
due notice and hearing, be held in contempt and fined
The Commission, through its designated officer, may
in an amount not exceeding Thirty thousand pesos
administer oaths and affirmations, issue subpoena
(P30,000.00).When the refusal amounts to clear and
and subpoena duces tecum
open defiance of the Commission's order, decision,
or subpoena, the Commission may impose a daily fine
For example, may nag-file (diba we went through the rights of
of one thousand pesos (P1,000.00) until the order,
a stockholder na?) – may stockholder na hindi finurnishan ng
decision, or subpoena is complied with.
corporate records. He can complain with the SEC and the SEC
can issue a subpoena or summons and subpoena to that Discussion: It can also cite in contempt.
particular corporation.
When the refusal amounts to clear and open
Can it issue cease and desist orders? Yes, of course. defiance of the Commission's order, decision,
or subpoena, the Commission may impose a daily
fine of one thousand pesos (P1,000.00)
Section 156 of RCC
Cease and Desist Orders
I have attended a seminar about this, one of commentaries
said malaki masyado ang penalty. So they are trying to
 Whenever the Commission has reasonable basis to (inaudible).
believe that a person has violated, or is about to
violate this Code, a rule, regulation, or order of the And in Admin. Sanctions, naglaki daw masyado ang penalty.
Commission, it may direct such person to desist from Actually, based experience, when you try to apply for clearance,
committing the act constituting the violation. ang laki ng penalty kung may mali ka lang ng submission.
 The Commission may issue a cease and desist Php5,000 na. So ginawa na din nilang money-making. Same
order ex parte to enjoin an act or practice which is with BIR. Hindi kasi dapat – I don’t know. Sa BIR, any failure
fraudulent or can be reasonably expected to cause to file return, Php1,000 agad. Hindi kasi dapat collection
significant, imminent, and irreparable danger or injury avenue ang penalties, hindi mo dapat ginagawang collection
to public safety or welfare. The ex parte order shall be revenue purpose ang penalties. The penalties are for
valid for a maximum period of twenty (20) days, compliance purposes, not for revenue purposes. But these
agencies, even LGU diba? Collect lang ng collect. Kung ano na
13
mga penalties. This is for compliance. You cannot use that for
revenue purposes. 4. Willful certification of incomplete, inaccurate, false; or
misleading statements or reports;
Section 158 of RCC
Administrative Sanctions 5. Independent Auditor Collusion;
 If, after due notice and hearing, the Commission finds
that any provision of this Code, rules or regulations, 6. Obtaining Corporate Registration through Fraud;
or any of the Commission's orders has been violated,
the Commission may impose any or all of the following 7. Fraudulent Conduct of Business;
sanctions, taking into consideration the extent of
participation, nature, effects, frequency and 8. Acting as intermediaries for Graft and Corrupt Practices;
seriousness of the violation:
9. Engaging intermediaries for Graft and Corrupt Practices;
 (a) Imposition of a fine ranging from Five thousand
pesos (P5,000.00) to Two million pesos
10. Tolerating Graft and Corrupt Practices
(P2,000,000.00),and not more than One thousand
pesos (P1,000.00) for each day of continuing violation
but in no case to exceed Two million pesos Discussion: These are the other punishable violations:
(P2,000,000.00);
1. Unauthorized Use of Corporate Name
 (b) Issuance of a permanent cease and desist order; 2. Violation of Disqualification Provision
 (c) Suspension or revocation of the certificate of 3. Violation of Duty to Maintain Records
incorporation; and 4. Willful certification of incomplete, inaccurate, false; or
 (d) Dissolution of the corporation and forfeiture of its misleading statements
assets under the conditions in Title XIV of this Code. 5. Independent Auditor Collusion;
6. Obtaining Corporate Registration through Fraud;
7. Fraudulent Conduct of Business;
2019 TSN Discussion 8. Acting as intermediaries
Meron ding mga admin sactions. Again, it has increased the 9. Engaging intermediaries
sanctions. Mind you, kung magpapa-amend yan sila ng 10. Tolerating Graft and Corrupt Practices
artcles, iche-check ang compliance kung nag submit ka ba
ng GIS, etc. ngayon, 5,000 na. Other Violations of the Code;
Separate Liability
It has become a revenue measure. Hindi naman dapat. This Violations of any of the other provisions of this Code or its
should be properly addressed. amendments not otherwise specifically penalized therein
shall be punished b y a fine of not less than 10,000 but not
more than 1M.
(d) Dissolution of the corporation and forfeiture of
its assets under the conditions in Title XIV of this If the violations is committed by a corporation, the same
Code. may, after notice and hearing, be dissolved in appropriate
proceedings before the Commission: Provided, That such
dissolution shall not preclude thein situation of appropriate
Take note: this is one example of involuntary dissolution. action against the director, trustee, or officer of the
Kasi ang commission mismo ang magsasabing dissolved ka corporation responsible for said violation: Provided, further,
na. That nothing in this section shall be construed to repeal the
other causes for dissolution of a corporation provided in this
Discussion: In Admin Sanction, malaki daw masyado yung Code.
penalty. Actually, based on experience, when you try to apply
for clearance and monitoring clearance, ang laki ng penalty. Liability for any of the foregoing offenses shall be separate
May maliit ka lang na submission, 5,000 na. Ginawa na rin from any other administrative, civil, or criminal liability
nilang money-making, same with BIR. Hindi kasi dapat ganito. under this Code and other laws.
Sa BIR, any failure to file a return, 1,000 agad eh. Hindi kasi
dapat collection avenue ang penalties. Hindi mo dapat Discussion: Violations of any of the provisions shall be subject
ginagawang collection revenue purpose yung penalties. The to a fine of not less than 10K but not more than 1M.
penalties are for compliance purposes, not for revenue
purposes. But, these agencies, even LTO, collect lang ng collect If the violation is committed by a corporation, the same may,
kung ano lang yung mga penalties na pinapatong. This is for after due notice and hearing, be dissolved in an appropriate
compliance. You cannot use that for revenue purposes eh. proceeding.
Other punishable violations Liability for any of the foregoing offenses shall be separate from
any other administrative, civil, or criminal liability under this
1. Unauthorized Use of Corporate Name Code and other laws.
2. Violation of Disqualification Provision Liability of Directors, Trustees, Officers, or other

Employees
3. Violation of Duty to Maintain Records, to Allow their
inspection or reproduction
14
If the offender is a corporation, the penalty may, at the

discretion of the court, be imposed upon such corporation 1. AFS – Audited Financial Statements. Again, if less than
and/or upon its directors, trustees, stockholders, members, 600k, need not be certified by a Certified Public
officers, or employees responsible for the violation or Accountant but pwede na the Treasurer or the CFO.
indispensable to its commission. 2. GIS – General Information Sheet. You have to file that
30 days after your yearly stockholders’ meetings.
Discussion: Again, the penalty may, at the discretion of the
court, be imposed upon such corporation and/or upon its What does that contain? It contains current
directors, trustees, stockholders, members, officers, or stockholdings or current status, i.e. Sino yung mga
employees responsible for the violation or indispensable to its stockholders, how much yung hinohold, how much
commission. yung percentage, their citizenship, what is the address,
ano yung address ng corporation, ano yung
Liability of Aiders and Abettors and other secondary authorized, ano yung subscribed, ano yung paid-up
liability and ano yung beneficial interest owners of such shares,
and if there is movement sa shares, dun ilalagay sa
Anyone who shall aid, abet, counsel, command, induce or GIS or General Information Sheet.
cause any violation of this Code, or any rule, regulation, or
order of the Commission shall be punished with a fine Corporations vested with Public interest must also submit the
not exceeding that imposed on the principal offenders, at following:
the discretion of the court, after taking into account their 1. A director or trustee compensation report; and
participation in the offense. 2. A director or trustee appraisal or performance report and the
standards or criteria used to assess each director or trustee.
Discussion: aiders and abettors and other secondary liability—
yes, they are also liable. Those who aid, abet, counsel, 3. And any other reportorial requirements
command, induce or cause any violation.
Non-Compliance with Reportorial Requirements
Reportorial Requirements of Corporations Again, you may be put in delinquent status if you fail to submit
the reportorial requirements 3 times, consecutively or
(a) Annual financial statements audited by an independent intermittently, within a period of 5 years.
certified public accountant: Provided, That if the total assets
or total liabilities of the corporation are less than 600,000, Visitorial Power and Confidential Nature of
the financial statements shall be certified under oath by the Examination Results
corporation’s treasurer or chief financial officer; and
The Commission shall have the power and authority to:
(b) a general information sheet;
(a) Exercise supervision and jurisdiction over all
Corporations vested with Public interest must also submit corporations and persons acting on their behalf, except as
the following: otherwise provided under this Code;
1. A director or trustee compensation report; and
(b) Pursuant to PD 902-A, retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final
2. A director or trustee appraisal or performance resolution. The Commission shall retain jurisdiction over
report and the standards or criteria used to assess each pending suspension of payment/rehabilitation cases filed as
director or trustee. of 30 June 2000 until finally disposed;
The reportorial requirements shall be submitted annually (c) Impose sanctions for the violations of this Code, its
and within such period as may be prescribed by the implementing rules and orders of the Commission;
Commission.
(d) Promote corporate governance and the protection of
The Commission may place the corporation under delinquent minority investors, through, among others, the issuance of
status in case of failure to submit the reportorial rules and regulations consistent with international best
requirements 3 times, consecutively or intermittently, within practices;
a period of 5 years. The Commission shall give reasonable
notice to and coordinate with the appropriate regulatory (e) Issue opinions to clarify the application of laws, rules and
agency prior to placing on delinquent status companies regulations
under their special regulatory jurisdiction.
(f) Issue cease and desist orders ex parte to prevent
Any person required to file a report with the Commission imminent fraud or injury to the public;
may redact confidential information from such required
report: Provided, That such confidential information shall be (g) Hold corporations in direct and indirect contempt;
filed in a supplemental report prominently labelled
“confidential”, together with a request for confidential (h) Issue subpoena duces tecum and summon witnesses to
treatment of the report and the specific grounds for the appear in proceedings before the Commission;
grant thereof.
(i) in appropriate cases, order the examination, search and
Discussion: What are your reportorial requirements? You seizure of documents, papers, files and records, and books
have your: of accounts of any entity or person under investigation as
15
may be necessary for the proper disposition of cases, Arbitration for Corporations
subject to the provisions of existing laws;
An arbitration agreement may be provided in the articles of
(j) Suspend or revoke the certificate of incorporation after incorporation or bylaws of a corporation. When such an
proper notice and hearing; agreement is in place, disputes between the corporations,
its stockholders or members, which arise from the
(k) Dissolve or impose sanctions on corporations, upon final implementation of the articles of incorporation or
court order, for committing, aiding in the commission of, or bylaws, or from intra-corporate relations, shall be referred
in any manner furthering securities violations, smuggling, to arbitration. A dispute shall be nonarbitrable when it
tax evasion, money laundering, graft and corrupt practices, involves criminal offenses and interests of third parties.
or other fraudulent or illegal acts;
The arbitration agreement shall be binding on the
(l) issue writs of execution and attachment to enforce corporation, its directors, trustees, officers and executives
payment of fees, administrative fines, and other dues or managers.
collectible under this Code;
To be enforceable, the arbitration agreement should indicate
(m) prescribe the number of independent directors and the the number of arbitrators and the procedure for their
minimum criteria in determining the independence of a appointment. The power to appoint the arbitrators forming
director; the arbitral tribunal shall be granted to a designated
independent third party. Should the third party fail to
(n) impose or recommend new modes by which a appoint the arbitrators in the manner and within the period
stockholder, member, director, or trustee may attend specified in the arbitration agreement, the parties may
meetings or cast their votes, as technology may allow, request the Commission to appoint the arbitrators. In any
taking into account the company’s scale, number of case arbitrators must be accredited or must belong to
shareholders or members, structure and other factors organizations accredited for the purpose of arbitration.
consistent with the basic right of corporate suffrage;
The arbitral tribunal shall have the power to rule on its own
(o) Formulate and enforce standards, guidelines, policies, jurisdiction and on questions relating to the validity of the
rules and regulations to carry out the provisions of this Code, arbitration agreement. When an intra-corporate dispute is
and filed with a Regional Trial Court, the court shall dismiss the
case before the termination of the pretrial conference, if it
(p) Exercise such other powers provided by law or those determines that an arbitration agreement is written in the
which may be necessary or incidental to carrying out the corporation’s articles of incorporation, bylaws, or in a
powers expressly granted to the Commission. separate agreement.
In imposing penalties and additional monitoring and The arbitral tribunal shall have the power to grant interim
supervision requirements, the Commission shall take into measures necessary to ensure enforcement of the award,
consideration the sizer, nature of the business, and capacity prevent a miscarriage of justice, or otherwise protect the
of the corporation. rights of the parties.
No Court below the Court of Appeals shall have jurisdiction A final arbitral award under this section shall be executory
to issue a restraining order, preliminary injunction, or after the lapse of 15 days from receipt thereof by the parties
preliminary mandatory injunction in any case, dispute or and shall be stayed only by the filing of a bond or the
controversy that directly or indirectly interferes with the issuance by the appellate court of an injunctive writ.
exercise of the powers, duties and responsibilities of the
Commission that falls exclusively within its jurisdiction. The Commission shall formulate the rules and regulations,
which shall govern arbitration under this section, subject
Discussion: to existing laws on arbitration.
(l) issue writs of execution and attachment to enforce payment Discussion: Remember when we talked about AOI, that the
of fees, administrative fines, and other dues collectible under parties can provide an arbitration clause in the Articles of
this Code. The writ of execution is only in relation to the fees Incorporation? So ito na yun.
and fines and admin fines. It cannot issue writs of execution on
particular disputes kasi you need the aid of the court for that. An arbitration agreement may be provided in the articles of
incorporation or bylaws. When such an agreement is in place,
(p) Exercise such other powers provided by law or those which disputes between the corporations, shall be referred to
may be necessary or incidental to carrying out the powers arbitration.
expressly granted to the Commission.
Q. What are the non-arbitrable disputes?
No Court below the CA shall have jurisdiction to issue a These are the criminal offenses and interests of third parties.
restraining order, preliminary injunction, or preliminary Take note of that. This will help. Hindi lang naman ease of doing
mandatory injunction in any case, dispute or controversy that business yung provisions. It’s also to provide for remedies in
directly or indirectly interferes with the exercise of the powers, cases of disputes which prevents the corporation from being a
duties and responsibilities of the Commission that falls going concern.
exclusively within its jurisdiction. Of course, after ng SEC, you
have the Court of Appeals. For example, dahil sa deadlock, ayaw mag meeting. There’s a
remedy for the SEC to intervene. Like ito, in case of filing cases
16
in court, pwede mo iarbitrate. So these are mechanisms to The good thing about it [FRIA] on the debtor is kapag ma push
ensure that the purpose for the creation of the corporation is through at madeclare talaga sya as insolvent, wala ng right ang
really a priority which is the conduct of business. creditors to go after his personal property kasi solved na yung
claim nya dun eh. Of course, they can go after the personal
Jurisdiction over Party-List Organizations property but for some other grounds like for example BP 22,
but for corporate debts, wala na yun, patay na yun. So FRIA is
The powers, authorities, and responsibilities of the really a remedy for debtors, to breathe, to start anew.
Commission involving party-list organizations are
transferred to the Commission on Elections (COMELEC). For now, let’s go first to the provisions on DISSOLUTION in the
Revised Corporation Code.
Discussion: Does the Corporation [Commission] have
jurisdiction over party-list organizations? It used to have but
they are now transferred to the COMELEC. Kasi nga diba TYPES AND MODES OF DISSOLUTION
nagkakaroon ng anomaly pag gumagawa ka ng organization,
tapos sa SEC yung jurisdiction kasi sila naman yung entrusted TYPES AND MODES
to give juridical personality sa mga organizations, mga ganun
ganun. So nagkaroon ng problema that’s why it’s transferred 1. Voluntarily
to the COMELEC.
 Creditors are affected
That’s the end of our discussion on OPC. Let’s go to dissolution.  Creditors are not affected
CORPORATE DEATH 2. Involuntarily

Corporate Dissolution and the Integration of Financial
Rehabilitation and Insolvency Act (FRIA) Discussion: For voluntary dissolution, iba yung procedure
when you talk about those where creditors are affected and
We already talked about the creation of a Corporation, the those where creditors are not affected. Pag sinabing “creditors
principle behind a Corporation, the purpose of a Corporation, are not affected”, it yung mga Corporations na walang creditors,
how it is incorporated. We talked about the nuances, when it or walang issues ang creditors. Pag sinabing “creditors are not
elects, how it conducts meetings, how it conducts its business, affected”, ito yung may maraming creditors, di pa nababayaran.
the managers, the owners of it, what are the rights and Si different yung modes of dissolution.
obligations of the owners and the directors as managers. We
also talked about what happens when it is merged with another And of course we have, as I told you, its not written here.
corporation, what are the laws that must be considered. We There’s a shortcut of how to dissolve a corporation, without
also talked about the different types of Corporations, the going through the motions of filing a petition or filing an
normal corporation, one person corporation, etc. application. I-amend niyo yung life. Amend niyo yung life,
shorten niyo. Kung nag decide na kayo na I want to end my life
Now we are talking about the death. What happens if the next year, Jan. 1, 2022, mag file lang ako ng amendment.
corporation does not want to exist? What happens if tapos na Amendment of corporate life, hanggang December 31 na lang
yung business, or for some reason losing na sya, so what siya ng 2021. So when that time comes, no need for me to
happens? apply because it automatically dissolves on the day after its
life. Remember the provision on terms of corporation. So yun
Despite the perpetual life that the Revised Corporation Code yung trick of the trade.
gives to the corporation, it may decide to die. So this what
corporate death is. And also, in relation to that, we will discuss Just the trick of the trade. Kasi napansin yan ng SEC, alam
FRIA or Financial Rehabilitation and Insolvency Act. naman nila na ginagawa yan. Kaya nag issue sila ng regulation,
kaya wala siya sa revised corporation code, pero internally
The FRIA is actually a remedy for debtors. It is not only hindi nila tinatanggap ang application for change of corporate
applicable to Corporations, but also to individual debtors. And term kapag within 1 year, kasi daw masyadong obvious. Ang
it is a good remedy for debtors and not a good remedy for tinatanggap lang nila, is more than 1 year. That’s the shortest
creditors. Ang ginagawa kasi ng FRIA, once you file that and and that’s the quickest way in dissolving a corporation. You
once there is sufficient basis, mag iissue yan ng don’t have to go through the process of filing a petition and
commencement order. And part ng commencement order is the application which you will know in this particular discussion.
suspension. So meaning, sasabihin ng court “Okay we’re on the
process of insolvency. We are going to figure out if it can be Voluntary Dissolution Where NO Creditors Are
rehabilitated. In the meantime, hindi munang pwede maningil Affected
ang creditors. The debtor will have the right to stop payment
and it will not incur interest. So that is a good thing for debtors  The dissolution may be effected by majority of the
kasi makahinga, but it’s a bad thing for creditors kasi di ka board of directors or trustees, and by a resolution
mababayaran. Then if it is granted, you have to follow the rules adopted by the affirmative vote of the stockholders
on preference and concurrence of credits. Remember in your owning at least majority of the outstanding stock
CredTrans? Yung sa last topic. Wag natin yun pabayaan kasi or majority of the members
mag aaply yun dito. What do you apply first, what’s the  At least twenty (20) days prior to the meeting,
preferred credits, what’s the concurred credits, etc. Sino notice shall be given to each shareholder or
magdedetermine nyan? It’s the receiver. *chika on Atty. Ong’s member of record personally, by registered mail, or
experience on being sought to be appointed as receiver* by any means authorized under its bylaws, whether
or not entitled to vote at the meeting.
17
 Notice of the time, place, and object of the meeting Good question: Can the commission refuse to issue a certificate
shall be published once prior to the date of the of dissolution? Can you file a petition for mandamus? Is it
meeting in a newspaper published in the place ministerial to issue a certificate of dissolution or do they have
where the principal office of said corporation is to decide on the merits of the dissolution? Pag nag submit sila,
located, or if no newspaper is published in such pwede ba yan ideny ng commission? Can they refuse to issue
place, in a newspaper of general circulation in the a certificate of incorporation? No.
Philippines.
Dito sa end, can they refuse to issue a certificate of dissolution?
No they cannot once the requirements have been complied
 A verified request for dissolution shall be filed
with. They should issue a certificate of dissolution. Pwede ba
with the Comission stating:
mag file ka ng application for request for dissolution tapos you
a. The reason for the dissolution;
change your mind, you withdrew it. Pwede, kasi you have this
b. The form, manner, and time when the notices were
provision.
given;
c. Names of the stockholders and directors or
Voluntary Dissolution Where NO Creditors Are
members and trustees who approved the dissolution;
Affected (cont.)
d. The date, place, and time of the meeting which the
vote was made; and
e. Details of publication.  The corporation shall submit the following to the
Commission:
Discussion: First, voluntary dissolution where no creditors are a. A copy of the resolution
affected. So what you will do is to file a verified request. Please authorizing the dissolution, certified by a
take note, it’s a request, but its verified. May verification. But majority of the board of directors or
this dissolution should be effected by a majority vote of the trustees and countersigned by the
BOD and a resolution adopted by the affirmative vote of the secretary of the corporation;
stockholders owning at least majority. So you have that b. Proof of publication; and
approval requirement. c. Favorable recommendation from
the appropriate regulatory agency, when
And at least 20 days prior to the meeting, notice shall be given necessary.
to each shareholder or member of record personally or by
registered mail, or by any means allowed by the bylaws. And  Within 15 fifteen days from the receipt of the
notice of the time, place, and object of the meeting shall be verified request for dissolution, and in the absence
published once prior to the date of the meeting in a newspaper of any withdrawal within said period, the
in the place of the principal office of the business. Commission shall approve the request and issue
the certificate of dissolution. The dissolution
Q: So what should the verified request contain? Anong shall take effect only upon the issuance by the
dapat nakalagay doon? Commission of a certificate of dissolution.
a. The reason for the dissolution;  No application for dissolution of banks, banking and
b. The form, manner, and time when the notices were quasi-banking institutions, preneed, insurance and
given; trust companied, NSSLAs, pawnshops, and other
c. Names of the stockholders and directors or members financial intermediaries shall be approved by the
and trustees who approved the dissolution; Commission unless accompanied by a favorable
d. The date, place, and time of the meeting which the recommendation of the appropriate
vote was made; and government agency.
e. Details of publication.
Discussion: Favorable recommendation from the appropriate
These are jurisdictional. Absence of one, hindi kayo ma- regulatory agency, in cases for those corporations who are
approve. regulated.
2019 TSN Discussion Now of course for those regulated entities such as banks,
Remember, pag nag-vovoluntary dissolve ka, ikaw lang yung banking, quasi-banking, kailangan ng favorable
magsasabing wala nang utang. So kelangang i-publish to give recommendation. So this is the procedure if creditors are not
opportunity to your creditors to oppose. affected. Meaning walang utang yung corporation. Kung meron
mang utang, nabayaran na.
Within 15 days from receipt of the verified request for
dissolution, and in the absence of any withdrawal within the Versagas vs. CA
said period, the commission shall approve the request and 371 SCRA 509
issue of the certificate of dissolution. The dissolution shall take
effect only upon the issuance by the commission of a certificate We note that to substantiate their claim of dissolution,
of dissolution. petitioners submitted only two relevant documents: the
Minutes of the First Board Meeting held on January 5, 1997,
Take note: There are industries which require a and the board resolution issued on April 14, 1997 which
recommendation from a regulatory agency. For example, declared to continue to consider the club as a non-registered
banks. or non-corporate entity and just a social association of
respectable and respecting individual members who have
2018 TSN Discussion associated themselves, since the 1970s, for the purpose of
18
playing the sports of tennis x x x. Obviously, these two VOLUNTARY DISSOLUTION WHERE CREDITORS ARE
documents will not suffice. The requirements mandated by AFFECTED
the Corporation Code should have been strictly complied
with by the members of the club. The records reveal that no
proof was offered by the petitioners with regard to the notice Section 135. Voluntary Dissolution Where Creditors
and publication requirements. Similarly wanting is the proof are Affected; Procedure and Contents of Petition.
of the board members certification. Lastly, and most
important of all, the SEC Order of Dissolution was never A verified petition for dissolution shall be filed with the
submitted as evidence. Commission. The petition shall be:
 Signed by a majority of the corporation’s board of
Vesagas and Asis vs. CA, Spouses Raniel GR 142924 directors or trustees,
Dec 5 2001  Verified by its president or secretary or one of its
First Division directors or trustees, and
 That its dissolution was resolved upon by the
Facts: Spouses Raniel were members in good standing of
affirmative vote of the stockholders representing at
the Luz Village Tennis Club (club). Vesagas, the President,
least two-thirds (2/3) of the outstanding capital
and Asis, the VP, [collectively “respondents”] of the club
stock or at least two-thirds (2/3) of the members
allegedly summarily stripped them of their lawful
at a meeting of its stockholders or members called
membership from the club without due process of law.
for that purpose.
Spouses Raniel filed a complaint before the SEC.
The petition shall likewise state:
a. The reason for the dissolution;
Respondents filed a motion to dismiss arguing that the SEC
b. The form, manner, and time when the notices were
lacks jurisdiction to resolve the case because at the time the
given; and
case was instituted, the club was already dissolved via
c. The date, place, and time of the meeting in which
voluntary dissolution.
the vote was made.
Respondents submitted into evidence the following:
The corporation shall submit to Commission the following:
(1) Minutes of the First Board Meeting, and
1. a copy of the resolution authorizing the dissolution,
(2) Board Resolution which declared:
certified by a majority of the board of directors or
“to continue to consider the club as a non-
trustees and countersigned by the secretary of the
registered or non-corporate entity and just a social
corporation;
association of respectable and respecting individual
2. and a list of all its creditors.
members who have associated themselves xxx”
 (This is added because they will be given
The SEC denied the motion to dismiss. copies and they will be summoned.)
Issue: Whether or not the Corporation (club) was validly

Discussion: So these are those corporations who have existing
dissolved?
or pending liabilities. What you need to submit is not a verified
request but a verified petition. Verified petition for dissolution.
Ruling: No. The Corporation Code establishes the
You need to petition, that means, may mga respondent, pwede
procedures and other formal requirements a corporation
mag interview ng mga creditors. It shall be filed with the
needs to follow in case it elects to dissolve and terminate its
Commission.
structure voluntarily and where no rights of creditors may
possibly be prejudiced. This is referred to in Sec. 118, Corpo
2019 TSN Discussion
Code (Now Sec. 134, RCC).
If the petition is sufficient in form and substance, the
commission shall by an order reciting the purpose of the
In the case at bar, the Minutes of the First Board Meeting
petition,
and the Board Resolution will not suffice.
•fix a deadline for filing objections to the petition which date
The requirements under the Corpo Code should have been
shall not be less than 30 days nor more than 60 days after the
strictly complied with by the members of the club.
entry of the order before such date, a copy of the order shall
be published at least once a week for 3 consecutive weeks in a
It was shown that no proof was offered with regard to:
newspaper of general circulation published in the municipality
1. Notice and
or city where the principal office of the corporation is situated,
2. Publication requirements
or if there be no such newspaper, then in a newspaper of
3. Board Members Certification
general circulation in the Philippines, and a similar copy shall
4. SEC Order of Dissolution
be posted for 3 consecutive weeks in 3 public places in such
municipality or city.
Hence, the Corporation (club) was not validly dissolved.
Upon 5 days notice, given after the date on which the right to
Discussion: Jurisdictional and requirements for a verified
file objections as fixed in the order has expired, the
request for dissolution.
Commission shall proceed to hear the petition and try any issue
raised in the objections filed; and if no such objection is
sufficient and the material allegations of the petition are true,
it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires, and
19
may appoint a receiver to collect such assets and pay the debts
of the corporation. A withdrawal of the request for dissolution shall be
 made in writing,
Discussion: This is really problematic because gumawa ng
 duly verified by any incorporator, director, trustee,
Corporation. Dun nakappangalan ang property. Non operating
shareholder, or member and
na, ngayon ang property is still under the name of the
corporation. Siddolved na. paano na nila mabenta> ano ang  signed by the same number of incorporators,
kanilang gagawin? That’s a good question. What will you directors, trustees, shareholders, or members
prepare? What is your remedy? Kayo na bahala dyan. necessary to request for dissolution as set forth in
the foregoing sections.
The dissolution shall take effect only upon the issuance by the
commission of certificate of dissolution.
The withdrawal shall be submitted no later than fifteen (15)
days from receipt by the Commission of the request for
Given that this is a petition, there has to be a hearing. Unlike
dissolution.
a request, then no need for hearing.
Upon receipt of a withdrawal of request for dissolution, the
Sec. 135 (cont.) Commission shall withhold action on the request for
If the petition is sufficient in form and substance, the dissolution and shall, after investigation:
Commission shall, by an order reciting the purpose of the a. make a pronouncement that the request for
petition, dissolution is deemed withdrawn;
b. direct a joint meeting of the board of directors or
 fix a deadline for filing objections to the trustees and the stockholders or members for the purpose
petition which date shall not be less than of ascertaining whether to proceed with dissolution; or
thirty (30) days nor more than sixty (60)
c. issue such other orders as it may deem
days after the entry of the order. appropriate.
WITHDRAWAL OF PETITION FOR DISSOLUTION

PUBLICATION REQUIREMENT
A withdrawal of the petition for dissolution shall be in the
Before such date, a copy of the order shall be published at
least once a week for three (3) consecutive weeks in a form of a motion and similar in substance to a withdrawal of
request for dissolution but shall be verified and filed
newspaper of general circulation published in the
municipality or city where the principal office of the prior to publication of the order setting the deadline
corporation is situated, or if there be no such newspaper, for filing objections to the petition.
then in a newspaper of general circulation in the Philippines,
If it is a verified request it’s just like request for withdrawal,
POSTING REQUIREMENT
but if it’s a petition it shall be in a form of a motion and shall
and a similar copy shall be posted for three (3) consecutive
be verified and filed prior to publication.
weeks in three (3) public places in such municipality or city.
Withdrawal of Request for Withdrawal of Petition
HEARING AND JUDGMENT Dissolution for Dissolution
Upon five (5) days’ notice, given after the date on which the A written withdrawal Must be in the form of a
right to file objections as fixed in the order has expired, the motion
Commission shall proceed to hear the petition and try
Duly verified Duly verified
any issue raised in the objections filed; and if no such
Signed by majority of board Signed by majority of
objection is sufficient, and the material allegations of the
and majority of the board and 2/3 of the
petition are true, it shall render judgment
stockholders/members stockholders or
1. dissolving the corporation and
members
2. directing such disposition of its assets as justice
Must be filed within 15 days Must be filed prior to the
requires, and
upon receipt by SEC of the publication of order
3. may appoint a receiver to collect such assets and
request setting deadline for filing
pay the debts of the corporation.
objection to the petition
The dissolution shall take effect only upon the issuance by
the Commission of a Certificate of Dissolution. SPECIAL MODE OF DISSOLUTION: BY SHORTENING
CORPORATE TERM
This is one of the problems if you are a receiver, you will be
tasked to collect. Maybe that’s why no one is accepting such Section 136. Dissolution by Shortening Corporate
role. Term. –
A voluntary dissolution may be effected by amending the
Can the corporation withdraw the request for articles of incorporation to shorten the corporate term
dissolution? pursuant to the provisions of this Code. A copy of the
amended articles of incorporation shall be submitted to the
WITHDRAWAL OF REQUEST OR PETITION FOR Commission in accordance with this Code.
DISSOLUTION
Upon the expiration of the shortened term, as stated in
the approved amended articles of incorporation, the
Section 137. Withdrawal of Request and Petition for
corporation shall be deemed dissolved without any
Dissolution. –
20
further proceedings, subject to the provisions of this (2) Committed or aided in the commission of
Code on liquidation. securities violations, smuggling, tax evasion,
money laundering, or graft and corrupt practices,
In the case of expiration of corporate term, dissolution shall and its stockholders knew of the same; and
automatically take effect on the day following the last
day of the corporate term stated in the articles of (3) Repeatedly and knowingly tolerated the
incorporation, commission of graft and corrupt practices or other
✓ without the need for the issuance by the fraudulent or illegal acts by its directors, trustees,
Commission of a certificate of dissolution. officers, or employees.
FORFEITURE OF ASSETS
ALHAMBRA CIGAR AND CIGARETTE v. SEC If the corporation is ordered dissolved by final judgment
24 SCRAR 269 (1968) pursuant to the grounds set forth in subparagraph (e)
hereof, its assets, after payment of its liabilities, shall,
ISSUE: WON a corporation under liquidation can still amend upon petition of the Commission with the appropriate court,
its AOI to extend its lifespan. NO be forfeited in favor of the national government. Such
forfeiture shall be without prejudice to the rights of
RULING: A corporation cannot extend its life by amendment innocent stockholders and employees for services
of its articles of incorporation to be effect during the three- rendered, and to the application of other penalty or
year statutory period for liquidation when its original term sanction under this Code or other laws.
has already expired. The three-year statutory period for
corporate liquidation is not for the purpose of continuing the The Commission shall give reasonable notice to, and
business for which it was established but strictly limited to coordinate with, the appropriate regulatory agency prior to
liquidation. This is because extension of corporate term is the involuntary dissolution of companies under their special
deemed to constitute new business and cannot be validly regulatory jurisdiction.
pursued in liquidation stage.
Fletcher has written: "Since the privilege of extension is

purely statutory, all of the statutory conditions precedent CORPORATE LIQUIDATION
must be complied with in order that the extension may be
effectuated. And, generally these conditions must be Once it is dissolved, what is the next step? To liquidate.
complied with, and the steps necessary to effect the
extension must be taken, during the life of the corporation, How Made?
and before the expiration of the term of existence as original
fixed by its charter or the general law, since, as a rule, the
Except for banks which will follow the provisions on the New
corporation is ipso facto dissolved as soon as that time
Central Bank Act or PDIC, every corporation whose charter
expires.
expires pursuant to its articles of incorporation, is annulled by
forfeiture, or whose corporate existence is terminated in any
INVOLUNTARY DISSOLUTION other manner, shall nevertheless remain as a body corporate
for three years after effective date of dissolution, for the
purpose of prosecuting and defending suits by or against it and
Section 138. Involuntary Dissolution. –
enabling it to settle and close its affairs, dispose of and convey
its property, and distribute its assets but not for the purpose of
A corporation may be dissolved by the Commission
continuing the business for which it was established.
1. motu proprio or
2. upon filing of a verified complaint by any
interested party.
At any time during said three years, the corporation is
authorized and empowered to convey all of its property to
GROUNDS trustees for the benefit of stockholders, members, creditors
The following may be grounds for dissolution of the and other persons in interest.
corporation:
a. Non-use of corporate charter as provided under After any such conveyance by the corporation of its property in
Section 21 of this Code; trust for the benefit of its stockholders, members, creditors and
b. Continuous inoperation of a corporation as others in interest, all interest.
provided under Section 21 of this Code;
c. Upon receipt of a lawful court order dissolving the Except as otherwise provided for in Sections 93 and 94 of this
corporation; Code, upon the winding up of corporate affairs, any asset
d. Upon finding by final judgment that the corporation distributable to any creditor or stockholder or member
procured its incorporation through fraud; who is unknown or cannot be found shall be escheated
e. Upon finding by final judgment that the in favor of the national government.
corporation:
(1) Was created for the purpose of committing, Except by decrease of capital stock and as otherwise allowed
concealing or aiding the commission of securities by this Code, no corporation shall distribute any of its
violations, smuggling, tax evasion, money assets or property except upon lawful dissolution and
laundering, or graft and corrupt practices; after payment of all its debts and liabilities.
21
How do you pay for credits? You follow the preferential the venue for a petition for voluntary insolvency proceeding
concurrence of credits. So that is the importance of those under the insolvency law is the court of first instance of the
topics. province or city where the insolvent debtor resides. a
Corporation is considered a resident of the place where its
Let’s discuss the Financial Rehabilitation and Insolvency Act principal office is located as stated in its articles of
(FRIA) of 2010 (RA 20142) incorporation. however when it is uncontroverted that
insolvent Corporation abandoned the old principle office the
The 2019 Bar Exam was really I think 15% involving FRIA. I Corporation is considered a resident of the city where its
think all those who took from AdDU were able to answer it. As actual principal office is currently found.
you can see mas mataas yung kanilang commercial law results
in the Bar exam because they were able to answer those GOLDEN CANE FURNITURE MANUFACTURING CORP. v.
questions. I told some students na bumagsak na kayo sa ibang STEELPRO PHILIPPINES, INC. G.R. No. 198222
subjects, wag lang sa commercial law. I hope when you take [APRIL 4, 2016]
the bar, you would also study commercial law kasi malaki rin A corporate rehabilitation case is a special proceeding in REM
siya. wherein the petitioner seeks to establish the status of a
party or a particular fact, i.e., the inability of the corporate
debts when they fall due. it is summary and non-adversarial
FINANCIAL REHABILITATION AND INSOLVENCY in nature. its end goal is to secure the approval of a
ACT (FRIA) OF 2010 (RA 20142) rehabilitation plan to facilitate the successful recovery of the
corporate debtor. it does not seek relief from an injury
Prior to this, we only had the insolvency act which was actually caused by another party.
inadequate to protect the debtor. In fact if you try to read the
provisions, they are actually in favor of the debtor. Note that jurisdiction over corporate rehabilitation cases originally fell
within the jurisdiction of the Securities and Exchange
FRIA is not applicable to banks because we follow the
provisions of the New Central Bank Act and banking laws. Commission (SEC) which had absolute jurisdiction control
and supervision over all Philippine corporations. with the
enactment of the securities regulation code in 2000, this
PILIPINAS SHELL PETROLEUM CORP. v. ROYAL
jurisdiction was transferred to the regional trial courts.
FERRY SERVICES, Inc., G.R. No. 188146 [FEBRUARY
1, 2017]
Consequently, this Court enacted A.M. No. 00-8-10-SC Are
The first insolvency law, Republic Act No. 1956, was entitled
the interim rules of procedure or corporate rehabilitation
“an act providing for the suspension of payments, have the
(interim rules) which took effect on December 15, 2000.
relief of insolvent debtors, the protection of creditors, and
under the interim rules, emotion for reconsideration was a
the punishment of fraudulent debtors (insolvency law)”. it
prohibited pleading. orders issued by the rehabilitation court
was derived from the Insolvency Act of California 1895,
were also immediately executory unless restrained by the
review provisions taken from the United states bankruptcy
appellate court.
act of 1898. with enactment of RA 10142, otherwise known
Discussion: So, the jurisdiction of the courts, because of the
as the financial rehabilitation and Insolvency Act of 2010
enactment of the Securities Regulation Code – before, the SEC
(FRIA), the insolvency law was expressly repealed on July
could take cognizance of these particular cases, the SRC
18, 2010. The FRIA is currently the special law that governs
specifically transferred jurisdiction to the RTC and for good
insolvency. however because the relevant proceedings in
reason. Kaya nagkaroon ng mga Commercial Courts. Pero the
this case took place before the enactment of the FRIA, the
problem with that is – siguro doon sa mga Metropolitan okay
case needs to be resolved under the provisions of the
lang but may mga experiences ang mga courts na siguro sa
insolvency law.
panahono ng mga judge, under SEC pa. So if you file a case
there, “sa amin ba ito?”. Hindi sila aware kung paano, you
insolvency proceedings are defined as the statutory
know the Corporation Law is a technical subject. So that is why
procedures by which a debtor obtains financial relief and
most of the judges, magkuha ng adviser or consultant when it
undergoes judicially supervised reorganization or liquidation
comes to these particular cases.
of its assets for the benefit of its creditors.
We will discuss the particulars of FRIA. There is one case right
respondent argues that the regional trial court of Manila
now. I was appointed as a receiver by the debtor, syempre nag-
obtained jurisdiction because in its petition for voluntary
decline ako. Kasi when I looked at the list of creditors, 82 na.
insolvency, respondent allege that its principal office was
Imagine mag-receeiver ka na 82 ang creditors. Syempre
then found in Manila. On the other hand, petitioner argues
pauunahan yan. As a receiver, ikaw mag-dedetermine ano
that filing the petition before the regional trial court of Manila
yung priority. Remember your Preference and Concurrence of
was a patent jurisdictional defect as the regional final court
Credits. Kasi hindi naman yan kung kelan nag-file ng petition.
of Manila did not have territorial jurisdiction over
Because the assets are not enough to pay for the liabilities so
respondent's residence.
you are going to apportion it based on law. Problema niyan,
syempre may mga abogado din itong creditors na ito, syempre
Section 14 of the insolvency law specifies that the proper
mag-bubully yan, mag-haharass. Ba’t ko pahirapan sarili ko?
venue for a petition for voluntary insolvency is the regional
Okay lang kung 2 or 3 creditors. Peri kung ganun kadami. So I
trial court of the province or city where the insolvent debtor
declined. SO what happened was creditor ang nagpili. Eh, wala
has resided in for six months before the filing of the petition.
silnang mapili. Inis na inas na yung judge kasi parang 2 years
in this case the issue of which court is the proper venue for
na. Tapos ayun, bumalik sa debtor.
respondents petition for voluntary insolvency comes from
the confusion on an insolvent corporation's residence.
Nakakatawa lang because that is how complicated this is. Sino
ang winner when it comes to petition for financial rehabilitation?
22
Ang debtor. Because remember for that duration na Facts: On October 4, 2005, Viva Shipping Lines, Inc. (Viva
nagkakagulo kayo, meron silang Commencement Order so they Shipping Lines) filed a Petition for Corporate Rehabilitation
can stop payment. Lahat ng mga collection suit, lahat ng mga before the Regional Trial Court of Lucena City. According to
ases filed against them – magpepending. So yun lang yung Viva Shipping Lines, the devaluation of the Philippine peso,
good thing about the FRIA pertaining to the debtor. increased competition, and mismanagement of its
businesses made it difficult to pay its debts as they became
*digest taken from 2019 tsn due. It also stated that "almost all [its] vessels were
VIVA SHIPPING LINES vs KEPPEL PHILIPPINES rendered unserviceable either because of age and
February 17, 2016 deterioration that [it] can no longer compete with modern
G.R. No. 177382 made vessels owned by other operators.
 Corporate rehabilitation is a remedy for corporations,
partnerships, and associations "who [foresee] the RTC granted the petition, stayed the enforcement of all
impossibility of meeting [their] debts when they monetary and judicial claims against Viva Shipping Lines,
respectively fall due." A corporation under rehabilitation and prohibited Viva Shipping Lines from selling,
continues with its corporate life and activities to achieve encumbering, transferring, or disposing of any of its
solvency, or a position where the corporation is able to properties except in the ordinary course of business.
pay its obligations as they fall due in the ordinary course
of business. Solvency is a state where the businesses’ Respondents opposed on the ground of petitioner's failure to
liabilities are less than its assets. provide material facts with sufficient particularity in its
Amended Petition for Corporate Rehabilitation, that it failed
 Corporate rehabilitation is a type of proceeding available
to describe with specificity the cause of its inability to pay
to a business that is insolvent. In general, insolvency
its debts. It also failed to clarify which vessels were still
proceedings provide for predictability that commercial
under its ownership, and which vessels had maritime liens.
obligations will be met despite business downturns.
Stability in the economy results when there is assurance
Issue: Whether rehabilitation is the proper remedy. – NO.
to the investing public that obligations will be reasonably
paid.
Held: Corporate rehabilitation is a remedy for corporations,
 The rationale in corporate rehabilitation is to resuscitate partnerships, and associations "who [foresee] the
businesses in financial distress because "assets . . . are impossibility of meeting [their] debts when they respectively
often more valuable when so maintained than they fall due."
would be when liquidated." Rehabilitation assumes that
assets are still serviceable to meet the purposes of the A corporation under rehabilitation continues with its
business. The corporation receives assistance from the corporate life and activities to achieve solvency, or a position
court and a disinterested rehabilitation receiver to where the corporation is able to pay its obligations as they
balance the interest to recover and continue ordinary fall due in the ordinary course of business. Solvency is a
business, all the while attending to the interest of its state where the businesses' liabilities are less than its
creditors to be paid equitably. These interests are also assets.
referred to as the rehabilitative and
the equitable purposes of corporate rehabilitation. Corporate rehabilitation is a type of proceeding available to
 The nature of corporate rehabilitation was thoroughly a business that is insolvent. In general, insolvency
discussed in Pryce Corporation v. China Banking proceedings provide for predictability that commercial
Corporation: obligations will be met despite business downturns. Stability
Corporate rehabilitation is one of many statutorily in the economy results when there is assurance to the
provided remedies for businesses that experience a investing public that obligations will be reasonably paid.
downturn. Rather than leave the various creditors
unprotected, legislation now provides for an orderly The rationale in corporate rehabilitation is to resuscitate
procedure of equitably and fairly addressing their businesses in financial distress because "assets . . . are often
concerns. Corporate rehabilitation allows a court- more valuable when so maintained than they would be when
supervised process to rejuvenate a corporation. . . . liquidated.” Rehabilitation assumes that assets are still
It provides a corporation’s owners a sound chance to serviceable to meet the purposes of the business. The
re-engage the market, hopefully with more vigor and corporation receives assistance from the court and a
enlightened services, having learned from a painful disinterested rehabilitation receiver to balance the interest
experience. to recover and continue ordinary business, all the while
attending to the interest of its creditors to be paid equitably.
Necessarily, a business in the red and about to incur These interests are also referred to as the rehabilitative and
tremendous losses may not be able to pay all its the equitable purposes of corporate rehabilitation.
creditors. Rather than leave it to the strongest or
most resourceful amongst all of them, the state steps The nature of corporate rehabilitation was thoroughly
in to equitably distribute the corporation’s limited discussed in Pryce Corporation v. China Banking
resources. Corporation:
Corporate rehabilitation is one of many statutorily provided
Rather than let struggling corporations slip and remedies for businesses that experience a downturn. Rather
vanish, the better option is to allow commercial courts than leave the various creditors unprotected, legislation now
to come in and apply the process for corporate provides for an orderly procedure of equitably and fairly
rehabilitation addressing their concerns. Corporate rehabilitation allows a
court- supervised process to rejuvenate a corporation.... It
provides a corporation's owners a sound chance to reengage
23
the market, hopefully with more vigor and enlightened a quarter, this would push economies into recession, and
services, having learned from a painful experience. ultimately depression because there’s a
lot of industries affected, e.g. retail and service industries.
Necessarily, a business in the red and about to incur We know why
tremendous losses may not be able to pay all its creditors. affected sila, because of the apparent effect of this Covid
Rather than leave it to the strongest or most resourceful outbreak.
amongst all of them, the state steps in to equitably distribute
the corporation's limited resources. Rather than let “It is the policy of the State to encourage debtors, both
struggling corporations slip and vanish, the better option juridical and natural persons,”
is to allow commercial courts to come in and apply the Please take note that FRIA also applies to natural persons,
process for corporate rehabilitation. not only juridical.
When rehabilitation will not result in a better present value For example, ang dami mong utang pero meron ka naman
recovery for the creditors, the more appropriate remedy is talagang pumapasok na pera. It’s just that mas marami
liquidation. It does not make sense to hold, suspend, or yung kailangang pambayad sa amortization kesa sa
continue to devalue outstanding credits of a business that incoming na pera. So, you need to just rehabilitate the
has no chance of recovery. In such cases, the optimum timing of whatever for you to be able to be rehabilitated.
economic welfare will be achieved if the corporation is
allowed to wind up its affairs in an orderly manner. “recognize creditor rights and respect priority of claims, and
Liquidation allows the corporation to wind up its affairs and ensure equitable treatment of creditors who are similarly
equitably distribute its assets among its creditor. situated.”
So, what you have learned in concurrence and preference of
Discussion: This case distinguished rehabilitation. credits will apply once there is rehabilitation procedure.
2019 tinanong ito because the then-Chairperson was Justice Nature of Proceedings
Bernabe. He is a Commercial Law lawyer.
The proceedings under this Act shall be in rem. Jurisdiction
What is the policy of FRIA? over all persons affected by the proceedings shall be
considered as acquired upon publication of the notice of the
RA 10142 commencement of the proceedings in any newspaper of
SEC. 2. Declaration of Policy. — It is the policy of the State general circulation in the Philippines in the manner
to encourage debtors, both juridical and natural persons, prescribed by the rules of procedure to be promulgated by
and their creditors to collectively and realistically the Supreme Court.
resolve and adjust competing claims and property
rights. In furtherance thereof, the State shall ensure a The proceedings shall be conducted in a summary and non-
timely, fair, transparent, effective and efficient rehabilitation adversarial manner consistent with the declared policies of
or liquidation of debtors. The rehabilitation or liquidation this Act and in accordance with the rules of procedure that
shall be made with a view to ensure or maintain certainty the Supreme Court may promulgate.
and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, The proceedings under this Act shall be in rem. Jurisdiction over
recognize creditor rights and respect priority of all persons affected by the proceedings shall be considered as
claims, and ensure equitable treatment of creditors acquired upon publication of the notice of the commencement
who are similarly situated. When rehabilitation is not of the proceedings in any newspaper of general circulation in
feasible, it is in the interest of the State to facilitate a speedy the Philippines.
and orderly liquidation of these debtors’ assets and the
settlement of their obligations. The proceedings shall be conducted in a summary and non-
Discussion: “It is the policy of the State to encourage debtors, adversarial manner consistent with the declared policies of this
both juridical and natural persons” – please take note. Act.
Disabuse yourselves from the thought that ang FRIA is only
applicable for juridical entities. Pwede din po yung natural Pero kala mo summary. 3 years nga yan. Pipili pa lang ng
persons. receiver pwedeng summary. Eh non-adversarial, pero nag
aaway na sila. So, that’s the policy.
Technically, we still have to follow the concurrence and
preference of credits. Hindi lahat talaga mabibigyan or Who is a debtor?
mababayaran ng 100%.
Debtor shall refer to, unless specifically excluded by a
When rehabilitation is not feasible, it is in the interest of the provision of this Act, a sole proprietorship duly registered
State to facilitate a speedy and orderly liquidation of these with the Department of Trade and Industry (DTI), a
debtors’ assets and settlement of their obligations. partnership duly registered with the Securities and
Exchange Commission (SEC), a corporation duly organized
and existing under Philippine laws, or an individual debtor
2019 TSN Discussion who has become insolvent as defined herein.
Why was this law enacted?
Q. Who is a debtor?
I am foreseeing a lot of companies going through corporate Under the FRIA, a debtor is, unless specifically excluded by
rehabilitation in the outbreak of Covid. If this would stay for a provision of this Act:
 a sole proprietorship duly registered with the (DTI),
24
 a partnership duly registered with the (SEC). This means

di po dito pwede mag apply yung non-registered (b) the debtor and the related enterprise have common
partnerships. creditors and it will be more convenient to treat them
 a corporation duly organized and existing under Philippine together rather than separately;
laws, or
(c) the related enterprise voluntarily accedes to join the
 an individual debtor who has become insolvent as defined
debtor as party petitioner and to commingle its assets and
herein.
liabilities with the debtor’s; and
Exclusions (d) the consolidation of assets and liabilities of the debtor
and the related enterprise is beneficial to all concerned
The term debtor does not include banks, insurance and promotes the objectives of rehabilitation.
companies, pre-need companies, and national and local
government agencies or units. Provided, finally, that nothing in this section shall prevent
the court from joining other entities affiliated with the debtor
For purposes of this section: as parties pursuant to the rules of procedure as may be
(a) Bank shall refer to any duly licensed bank or quasi-bank promulgated by the Supreme Court.
that is potentially or actually subject to conservatorship,
receivership or liquidation proceedings under the New
Each juridical entity shall be considered as a separate entity
Central Bank Act (RA 7653) or successor legislation;
under the proceedings in this Act.
(b) Insurance company shall refer to those companies that
The assets and liabilities of a debtor may not be commingled
are potentially or actually subject to insolvency proceedings
or aggregated with those of another, unless the latter is a
under the Insurance Code (PD 1460) or successor
related enterprise that is owned or controlled directly or
legislation; and
indirectly by the same interests; So, this is the exception.
(c) Pre-need company shall refer to any corporation
Provided, however, that the commingling or aggregation of
authorized / licensed to sell or offer to sell pre-need plans.
assets and liabilities of the debtor with those of a related
enterprise may only be allowed where, please take note of
Provided, that government financial institutions other than
this:
banks and government-owned or -controlled corporations
shall be covered by this Act, unless their specific charter
(a) there was commingling in fact of assets and liabilities and
provides otherwise.
you cannot segregate it, and the related enterprise prior to
the commencement of proceedings;
Q. Exclusions—so who are not subject or covered by
this law? (b) the debtor and the related enterprise have common
creditors and it will be more convenient to be treated as
1. Banks because they are covered by the New Central Bank one rather than a separately;
Act on the provisions on conservatorship, receivership, or
liquidation. (c) the related enterprise voluntarily accedes to join the
debtor as party petitioner;
2. Insurance company kasi meron din naman ganun na similar
provisions under the Insurance Code. (d) the consolidation of assets and liabilities of the debtor and
the related enterprise is beneficial to all concerned and
3. Pre-need—we’ve discussed that already in Banking. promotes the objectives of rehabilitation.
Provided, that government financial institutions other than In other words, the general rule is do not commingle. Do not
banks and government-owned or -controlled corporations shall aggregate related enterprises.
be covered by this Act, unless their specific charter provides
otherwise. Except if meron siyang benefits dun sa process which is letters
(a) – (d).
Substantive and Procedural Consolidation
Provided, finally, that nothing in this section shall prevent the
Each juridical entity shall be considered as a separate entity court from joining other entities affiliated with the debtor as
under the proceedings in this Act. Under these proceedings, parties pursuant to the rules of procedure.
the assets and liabilities of a debtor may not be
commingled or aggregated with those of another, unless Who is an insolvent debtor?
the latter is a related enterprise that is owned or
controlled directly or indirectly by Insolvent shall refer to the financial condition of a debtor
the same interests; Provided, however, that the that is generally unable to pay its or his liabilities as they
commingling or aggregation of assets and liabilities of the fall due in the ordinary course of business or has liabilities
debtor with those of a related enterprise may only be that are greater than its or his assets.
allowed where:
Liabilities shall refer to monetary claims against the debtor,
(a) there was commingling in fact of assets and liabilities of including stockholder’s advances that have been recorded in
the debtor and the related enterprise prior to the the debtor’s audited financial statements as advances for
commencement of proceedings; future subscriptions.
25
creditors be at an advantaged position? Mas makakakuha ba

Ordinary course of business shall refer to transactions in the sila or mas makaka recover ba sila kapag icocontinue natin
pursuit of the individual debtor’s or debtor’s business yung entity? Or as compared to liquidating it right now.
operations prior to rehabilitation or insolvency proceedings
and on ordinary business terms. So pag plano, which is your projected Rehabilitation plan, you
must prove that it is better for the creditors. So, the creditors
Discussion: Insolvent shall refer to the financial condition of a can recover more if you will continue the business of the debtor
debtor that is generally unable to pay its or his liabilities as rather than close it and liquidate whatever assets remaining.
they fall due in the ordinary course of business or has liabilities That’s why there is a term there that says “present value of
that are greater than its or his assets. Please take note of the payments projected in the plan”.
word “or”. It doesn’t necessarily mean na kapag yung assets
mo is greater than the liabilities, you are not insolvent. Kasi Say may utang siya sa creditor na 1M, babayaran niya in tagpi
pwede ka mag qualify dun sa or—dun sa first definition. tagpi. 10 years 100k. Tapos, icocompute mo yung present
value. Kasi of course sabihin ng creditor, iba yung value ng
Liabilities xxx as advances for future stock pera kung binayaran mo ako ngayon kesa sa value nung tagpi
subscriptions. – Remember the nature of advances for future tagpi mo akong babayaran in 10 years. So, the present value
stock subscriptions—these are actually advance payment for of that will be compared to the value of what you may get if
additional subscription. Si stockholder nagplano to increase the you want to liquidate the property of the debtor. So, if you
capital authorized stock, but they havent really started with the compare that, if the present value of those projected payments
documentary number. So what they did is bigay ko muna yung are still greater than the present value, the current value of the
pera yung aking pang subscribe dun sa corporation. Si remaining assets if liquidated, then it might be better to
corporation, effectively, may utang kay stockholder kaya siya continue the debtor as a going concern or as a continuing entity,
advances. This is also subject to liabilities kasi pwede namang rather than liquidating it.
gawin na like kung nag rehabilitate, pwede iargue ng ibang
creditors na ‘bakit ka may utang—bakit yung corporation may
utang sa sarili niyang stockholder, isn’t that
fraudulent? Inutangan mo yung sarili mong stockholder. But TYPES OF REHABILITATION PROCEEDINGS
this, by definition of the FRIA, is considered also as liabilities.
TYPES OF REHABILITATION PROCEEDINGS
Ordinary course of business – Dun sa case na sinasabi ko,
ganun din yun eh. Yung may ari, may pautang sila sa 1. Court-supervised
corporation. Edi pag file ng claim, inis na inis yung creditors.
Kokonti na nga yung assets mo, sasabihan mo pa na may utang  Voluntary Proceedings (si debtor yung
sayo yung sarili mong corporation. So meron ka pang share sa nagfile)
corporation. So, galit na galit yung creditors.
 Involuntary Proceedings (it’s the creditors
Authorization to exchange debt for equity who filed)
Notwithstanding applicable banking legislation to the 2. Pre-negotiated (meron na tayong agreement but
contrary, any bank, whether universal or not, may we just want the “basbas” or approval of the court.)
acquire and hold an equity interest or investment in a debtor 3. Out-of-Court or Informal (similar to that [pre-
or its subsidiaries when conveyed to such bank in negotiated] but it’s entirely out of court. May konting
satisfaction of debts pursuant to a Rehabilitation or participation lng ng court.)
Liquidation Plan approved by the court: Provided, that such
ownership shall be subject to the ownership limits applicable
to the universal banks for equity investments and: Provided,
COURT-SUPERVISED REHABILITATION
further, That any equity investment or interest acquired or
held pursuant to this section shall be disposed by the bank
INITITATION PROCEEDINGS:
within a period of five (5) years or as may be prescribed by
the Monetary Board.
(1) Voluntary Proceedings
Discussion: Take note on the restriction on ownership. Yung
SEC. 12. Petition to Initiate Voluntary Proceedings by
mga percentage restrictions on debt equity as you have learned
Debtor –
in your Banking.
Rehabilitation  When approved by the owner in case of a sole

proprietorship, or
Refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its  By a majority of the partners in case of a
continuance of operation is economically feasible and partnership, or
its creditors can recover by way of the present value
of payments projected in the plan, more if the debtor  In case of a corporation, by a majority vote of the
continue as a going concern than if it is immediately board of directors or trustees and authorized by a
liquidated. vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or in
Discussion: In other words, your litmus test to consider if this case of nonstock corporation, by the vote of atleast
company can still be rehabilitated—is it more or will the
26
two-thirds (2/3) of the members, in a stockholder’s and/or the participation of the other members of the
or member’s meeting duly called for that purpose, group is essential under the terms and conditions of
the proposed Rehabilitation Plan.
 An insolvent debtor may initiate voluntary
proceedings under this Act by filing a petition for Now, that's why in some contracts there is provision for
rehabilitation with the court. The petition shall example you have a loan agreement usually pinapalagay nga
be verified to establish the insolvency of the debtor creditor na if a debtor will file a rehabilitation proceedings with
and the viability of its rehabilitation, and include, the court, the entire obligation becomes due and demandable.
whether as an attachment or as part of the body of Lage yan. Kasi kapag di nakalagay tapos nag-file ng insolvency
the petition, as a minimum, the following: then the court may issue a commencement order which
includes a stay order to stay all payments to be made by the
Please take note that when you file a petition for rehabilitation, company. [2020 TSN]
you are telling the court that “hey, I am an insolvent, but the
parties concerned will be better off if I will be rehabilitated
rather than be liquidated. (2) Involuntary Proceedings (it is not the debtor who is
filing but the creditor)
What should be alleged in the petition as a minimum?
SEC. 13. Circumstances Necessary to Initiate
a. Identification of the debtor, its principal activities Involuntary Proceedings. — Any creditor or group of
and its addresses; creditors with a claim of, or the aggregate of whose claims
is, at least One million pesos (Php1,000,000.00) or at
b. Statement of the fact of and the cause of the debtor's least twenty-five percent (25%) of the subscribed
insolvency or inability to pay its obligations as they capital stock or partners’ contributions, whichever is
become due; higher, may initiate involuntary proceedings against the
debtor by filing a petition for rehabilitation with the court
[For example, pandemic. That is public if:
knowledge that it can really cause you
insolvency.] Please take note of the threshold. So ikaw naman nagpautang
ka pero 10 pesos lang pinautang mo or 100 tapos lakas ng loob
c. The specific relief sought pursuant to this Act; mo magfile ng insolvency proceedings. Hindi yun. You should
have a material interest for it to be considered by the court.
[Which is to stay or order the creditor to stop [2020 TSN]
pursuing or stop collecting his claims.]
(a) there is no genuine issue of fact or law on the
d. (d) The grounds upon which the petition is based; claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made
e. Other information that may be required under this Act for at least sixty (60) days or that the debtor has
depending on the form of relief requested; failed generally to meet its liabilities as they fall due;
or
f. Schedule of the debtor's debts and liabilities including a So talagang creditor ka. Walang issue na creditor ka. Kasi kung
list of creditors with their addresses, amounts of claims may issue na creditor ka, isettle mo muna yan kasi wala kang
and collaterals, or securities, if any; right to file involuntary proceedings kung hindi ka naman
talaga creditor.
g. An inventory of all its assets including receivables and
claims against third parties; (b) a creditor, other than the petitioner/s, has initiated
foreclosure proceedings against the debtor that will
h. A Rehabilitation Plan; prevent the debtor from paying its debts as they
become due or will render it insolvent.
[In other words, you cannot file a petition for
rehabilitation when you do not have a So marami kayong creditors pero may pabor nag initiate ng
rehabilitation plan.] foreclosure. So paano ka makaka collect kung ang entire
property nya dun lang finoreclose dun sa preferred? File kaagad
i. The names of at least three (3) nominees to the position ng involuntary petition. So this is your remedy
of rehabilitation receiver; and
SEC. 14. Petition to Initiate Involuntary Proceedings.
[Eto yung the nominee of the debtor.] — The creditor/s’ petition for rehabilitation shall be verified
to establish the substantial likelihood that the debtor may
j. Other documents required to be filed with the petition be rehabilitated, and include:
pursuant to this Act and the rules of procedure as may
be promulgated by the Supreme Court. (a) identification of the debtor, its principal activities and its
address;
A group of debtors may jointly file a petition for
rehabilitation under this Act when one or more of its (b) the circumstances sufficient to support a petition to
members foresee the impossibility of meeting debts when initiate involuntary rehabilitation proceedings under Section
they respectively fall due, and the financial distress 13 of this Act;
would likely adversely affect the financial condition
and/or operations of the other members of the group (c) the specific relief sought under this Act;
27
(d) state the legal effects of the Commencement Order,

(d) a Rehabilitation Plan; including those mentioned in Section 17 hereof;
(e) the names of at least three (3) nominees to the position (e) declare that the debtor is under rehabilitation;
of rehabilitation receiver;
(f) direct the publication of the Commencement Order
(f) other information that may be required under this Act in a newspaper of general circulation in the Philippines
depending on the form of relief requested; and once a week for at least two (2) consecutive weeks,
with the first publication to be made within seven
(g) other documents required to be filed with the petition (7) days from the time of its issuance;
pursuant to this Act and the rules of procedure as may be
promulgated by the Supreme Court.
Commencement Order (cont.)
After filing, what will the court do?
(g) if the petitioner is the debtor, direct the service by
SEC. 15. Action on the Petition. — If the court finds the personal delivery of a copy of the petition on each creditor
petition for rehabilitation to be sufficient in form and holding at least (10%) of the total liabilities of the
substance, it shall: debtor as determined from the schedule attached to the
petition within five (5) days; if the petitioner/s is/are
 within five (5) working days from the filing of the creditor/s, direct the service by personal delivery of a copy
petition, issue a Commencement Order. of the petition on the debtor within five (5) days;
Kapag nag issue na ng Commencement Order, it’s as if nanalo (h) appoint a rehabilitation receiver who may or may not
na ang debtor. Why? Because that will signify na makakahinga be from among the nominees of the petitioner/s, and who
na yung debtor in the mean time. shall exercise such powers and duties defined in this Act as
well as the procedural rules that the Supreme Court will
… If, within the same period, the court finds the petition promulgate;
deficient in form or substance, the court may, in its
discretion, give the petitioner/s: (i) summarize the requirements and deadlines for creditors
to establish their claims against the debtor and direct all
creditors to file their claims with the court at least five (5)
 a reasonable period of time within which to amend or
days before the initial hearing;
supplement the petition, or
(j) direct the Bureau of Internal Revenue (BIR) to file and
 to submit such documents as may be necessary or serve on the debtor its comment on or opposition to the
proper to put the petition in proper order. In such case, petition or its cliam/s against the debtor under such
the five (5) working days provided above for the procedures as the Supreme Court may hereafter provide;
issuance of the Commencement Order shall be
reckoned from the date of the filing of the amended or Discussion:
supplemental petition or the submission of such Direct the BIR to file and serve on the debtor it comment on or
documents. opposition, of course because under the preference of credit,
taxes are the lifeblood of the government. Bahala na kayong
The court is very liberal because by nature this is summary and creditor, but taxes we must ensure that there is payment of
nonadversarial. [2020 TSN] taxes. Baka sa taxes pa lang ubos na yung property nung
debtor.
2019 TSN Discussion

COMMENCEMENT ORDER
Remember in your petition, nakalagay dun yun tatlong
nominees pwede pong iba yung iaappoint ng court. It might be
[This was asked in the 2019 Bar, “What is a commencement
within the 3 nominees or pwede ding iba.
order?” So kung di ka nagbasa ng FRIA, wala kang alam.]
Commencement Order (cont.)

SEC. 16. Commencement of Proceedings and Issuance
of a Commencement Order. — The Rehabilitation
(k) prohibit the debtor’s suppliers of goods or services from
proceedings shall commence upon the issuance of the
withholding the supply of goods and services in the ordinary
Commencement Order, which shall:
course of business for as long as the debtor makes payments
for the services or goods supplied after the issuance of the
(a) identify the debtor, its principal business or
Commencement Order;
activity/ies and its principal place of business;
(l) authorize the payment of administrative expenses as
(b) summarize the ground/s for initiating the
they become due;
proceedings;
(m) set the case for initial hearing, which shall not be more
(c) state the relief sought under this Act and any
than forty (40) days from the date of filing of the petition for
requirement or procedure particular to the relief
the purpose of determining whether there is substantial
sought;
likelihood for the debtor to be rehabilitated;
28
(n) make available copies of the petition and rehabilitation binabayaran na amortization kaysa sa dun sa pumapasok na
plan for examination and copying by any interested party; pera gusto mo lang makahinga, this is your remedy.
(o) indicate the location or locations at which documents Pag iissuehan ka ng commencement order, may suspension na
regarding the debtor and the proceedings under this Act may yun. Bawal mag collect even if its already in the court, even if
be reviewed and copied; if may judgment/attachment na that will no longer be enforced.
(p) state that any creditor or debtor, who is not the Effects of the Commencement Order
petitioner, may submit the name or nominate any other
qualified person to the position of rehabilitation receiver at  Unless otherwise provided for in this Act, the
least five (5) days before the initial hearing; court’s issuance of the Commencement Order shall,
in addition to the effects of a Stay or
Discussion: Suspension Order described in Section 16 hereof:
So ito yun, you have the nominee upon filing of the petition. (a) Vest the rehabilitation receiver with all the powers
Then pwede din mag nominate yung other creditors. and functions provided for in this Act, such as the right to
review and obtain all records to which the debtor’s
From 2019 TSN: management and directors have access, including bank
This is very important. A commencement order also includes a accounts of whatever nature of the debtor, subject to the
stay or suspension order. So pag mag issue ng commencement approval by the court of the performance bond filed by the
order meron na yung stay or suspension order. And if you are rehabilitation receiver;
a debtor, that is very important because once nag issue ng (b) prohibit, or otherwise serve as the legal basis for
commencement order, may stay or suspension na yan. rendering null and void the results of any extrajudicial
Suspended lahat ng may claim sayo. activity or process to seize property, sell encumbered
property, or otherwise attempt to collect on or enforce a
Commencement Order claim against the debtor after the commencement date
unless otherwise allowed in this Act, subject to the
(q) include a Stay or Suspension Order which shall: provisions of Section 50 hereof;
1. Suspend all actions or proceedings, in court or a. Serve as the legal basis for
otherwise, for the enforcement of claims against rendering null and void any set-off
the debtor; after the commencement date of any
debt owed to the debtor by any of the
2. Suspend all actions to enforce any judgment, debtor’s creditors;
attachment or other provisional remedies against the b. Serve as the legal basis for
debtor; rendering null and void the perfection
of any lien against the debtor’s
3. Prohibit the debtor from selling, property after the commencement
encumbering, transferring or disposing in any manner date; and
any of its properties except in the ordinary course of c. Consolidate the resolution of all
business; and legal proceedings by and against the
debtor to the court: Provided,
however, That the court may allow the
4. Prohibit the debtor from making any payment continuation of cases in other courts
of its liabilities outstanding as of the commencement where the debtor has initiated the suit.
date except as may be provided herein.
 Attempts to seek legal or other recourse
Discussion: against the debtor outside these proceedings
This is actually part of the Commencement Order. Ito yung shall be sufficient to support a finding of
sinsabi kong beneficial sa creditor, kasi may Stay or indirect contempt of court.
Suspension Order. Part to siya ng Commencement Order.
Discussion:
(referring to item 1) (referring to item b)
Ito, Suspend all actions or proceedings. Kaya sabi ko panalo na So may mga deed of sale ng mga property ng debtor, that will
si debtor. So maka hinga siya. Kung finile-an siya ng mga be null and void.
collection cases, makahinga siya kasi suspended yun e.
(referring to item c, set-off)
(referring to item 2) So meron kang preferred creditors, or akin na lang yung lupa
Attachement, nanalo na yung ano mo creditor, pero you can mo quits na tayo. Hindi yun pwede.
suspend the enforcement or other provisional remedies.
Please take note of the comprehensive power of the
So diba, hindi mo siya mafoforce. Hindi siya kailangan Commencement Order. It actually just puts everything in this
magbayad, intact yung kanyang pera. That’s the beauty. Again, particular court. Lahat ng assets, lahat ng actions against the
ang policy talaga nito is to allow the debtor to breathe. assets of the debtor ma-stop, ilalagay ditto sa court for
hearing. And that would help the debtor in recovering payment
From 2019 TSN: for its liabilities.
So again, this is the remedy of the debtor. For example, meron
ka naman talagan na-e-earn its just that marami ka lang
29
2019 TSN Discussion suspension order. The creditor is not precluded from going after
So kung ang creditor alam nyang may suspension order tapos the surety. So you have a situation wherein si surety pa yung
hindi sya nagfile ng claim dun sa court he may be considered dehado because the creditor cannot go after the principal
in indirect contempt of court. So you see the power of this FRIA, debtor so dun nalang sya sa surety. Kasi sureties are excluded.
it actually gives the debtors to be rehabilitated.
Exceptions to the Stay or Suspension Order (cont.)
Exceptions to the Stay or Suspension Order d. to any form of action of customers or clients of a
securities market participant to recover or
The Stay or Suspension Order shall not apply: otherwise claim moneys and securities entrusted to
a. To cases already pending appeal in the Supreme the latter in the ordinary course of the latter’s
Court as of commencement date: Provided, That any final business as well as any action of such securities
and executor judgment arising from such appeal shall market participant or the appropriate regulatory
be reffered to the court for appropriate action; agency or self-regulatory organization to pay or
settle such claims or liabilities;
b. Subject to the discretion of the court, to cases

pending or filed at a specialized court or quasi- e. To the actions of a licensed broker or dealer to sell
judicial agency which, upon determination by the pledged securities of a debtor pursuant to a
court, is capable of resolving the claim more securities pledge or margin agreement for the
quickly, fairly and efficiently than the court: settlement of securities transactions in accordance
Provided. That any final and executor with the provisions of the Securities Regulation
judgment of such court or agency shall be Code and its implementing rules and
referred to the court and shall be treated as a regulations;
non-disputed claim;
f. The clearing and settlement of financial

c. To the enforcement of claims against sureties transactions through the facilities of a clearing
and other persons solidarily liable with the agency or similar entities duly authorized,
debtor, and third party or accommodation registered and/or recognized by the appropriate
mortgagors as well as issuers of letters of regulatory agency like the Bangko Sentral ng
credit, unless the property subject of the third Pilipinas (BSP) and the SEC as well as any form of
party or accommodation mortgage is necessary actions of such agencies or entities to reimburse
for the rehabilitation of the debtor as themselves for any transactions settled for the
determined by the court upon recommendation by debtor; and
the rehabilitation receiver;
g. Any criminal action against the individual debtor
Discussion: or owner, partner, director or officer of a debtor
Please take note of the exception, because this might be asked, shall not be affected by any proceeding
wee don’t know, if it is subject to a stay or suspension order. commenced under this Act.
(referring to item a) WAIVER OF TAXES AND FEED DUE TO THE NATIONAL

Ireremand yan dun sa court na yun. GOVERNMENT AND TO LOCAL GOVERNMENT UNITS (LGUS)
(referring to item b)  Upon issuance of the Commencement Order by the

So macoconsolidate lahat. court, and until the approval of the Rehabilitation
Plan or dismissal of the petition, whichever is
(referring to item c) earlier, the imposition of all taxes and fees,
This was asked sa 2019 bar. So kung hindi ka naging careful, including penalties, interests and charges thereof,
you might forget it. It does not apply to claims against sureties due to the national government or to LGUs shall be
and other persons solidarily liable with the debtor and third considered waived, in furtherance of the objectives
party or accommodation mortgagors as well as issuers of of rehabilitation.
letters of credit.
Discussion:
Please take note, kung meron kang co-debtor. Meron kang See panalong-panalo ka.
surety dun, tapos si primary debtor nag-file ng petition for
rehabilitation. Lagot si surety, kasi hindi yun ma-stay order. 2019 TSN Discussion
The creditors can go after all the sureties and any other person So lahat ng mga taxes nyo, it is considered waived. Hindi
solidarily liable. I think tinanog to, 2019 bar. Ang tanong dun pwedeng icollect ng taxes. This is a very good remedy.
is, does the stay or suspension order applicable to the surety?
Parang ganun yung tanong. EFFECTIVITY AND DURATION OF COMMENCEMENT
ORDER
2019 TSN Discussion
What does this mean? Co-relate this with your CredTrans, for
example if the principal debtor meron syang surety, the
 Unless lifted by the court, the Commencement
Order shall be effective for the duration of the
principal debtor filed for a petition for rehabilitation and indeed
rehabilitation proceedings for as long as there
it was issued a commencement order which includes a
is substantial likelihood that the debtor will
30
be successfully rehabilitated. In determining

whether there is substantial likelihood for the (referring to item d)
debtor to be successfully rehabilitated, the court Please take note, eto pa yung trabaho ng receiver.
shall ensure that the following minimum
requirements are met: 2019 TSN Discussion
a. The proposed Rehabilitation Plan submitted Very important yung Rehabilitation Plan.
complies with the minimum contents prescribed by this Act;
Anong end goal ng petition for rehabilitation? Ang end goal
nyan is for the court to confirm the rehabilitation plan and
b. There is sufficient monitoring by the rehabilitation execute it. Of course may mga hearing, but mind you in reality
receiver of the debtor’s business for the protection of sobrang tagal nga mga hearing matapos. Why? Sugot ba diay
creditors; nang mga creditors? Dili man na musugot mu.oppose man jud
na sila. Okay ra kung isa ra imung creditor unya kung naa kay
c. The debtor has met with its creditors to the extent 100 creditors?
reasonably possible in attempts to reach a consensus
on the proposed Rehabilitation Plan. Now this is actually sakit sa ulo sa mga lawyers. For one, sinong
magbabayad sayo eh insolvent na nga sya. And you also have
d. The rehabilitation receiver submits a report, based on to consider all the creditors kasi mag ooppose talaga yan. It's
preliminary evaluation, stating that the underlying not an adviseable engagement for a lawyer.
assumptions and the financial goals stated in the
petitioner’s Rehabilitation Plan are realistic, feasible ACTION AT THE INITIAL HEARING
and reasonable; or, if not, there is, in any case, a
substantial likelihood for the debtor to be successfully  At the initial hearing, the court shall:
rehabilitated because, among others; a. Determine the creditors who have made timely and
1. There are sufficient assets with which to proper filing of their notice of claims;
rehabilitate the debtor;
2. There is sufficient cash flow to maintain the b. Hear and determine any objection to the qualifications
operations of the debtor; or the appointment of the rehabilitation receiver and, if
3. The debtor’s owner/s, partners, necessary, appoint a new one in accordance with this
stockholders, directors and officers have Act;
been acting in good faith and with due
diligence. c. Direct the creditors to comment on the petition and the
4. The petition is not a sham filing intended Rehabilitation Plan, and to submit the same to the court
only to delay the enforcement of the rights and to the rehabilitation receiver within a period of not
of the creditor/s or of any group of more than twenty (20) days; and
creditors; and d. Direct the rehabilitation receiver to evaluate the
5. The debtor would likely be able to pursue a financial condition of the debtor and to prepare and submit
viable Rehabilitation Plan; to the court within forty (40) days from the initial hearing
the report provided in Section 24 hereof.
e. The petition, the Rehabilitation Plan and the Discussion: Now, during the initial hearing, the court will
attachments thereto do not contain any materially false determine of course the creditor’s claim. Kasi siba nagpa
or misleading statement; publish ka, then at a certain point magfi-file yan ng claim yung
creditor. So any creditor na hindi nagfile ng claim, it is
considered as waived yung claim nila against the debtor.
f. If the petitioner is the debtor, that the debtor has met
with its creditor/s representing at least three-fourths (referring to item b)
(3/4) of its total obligations to the extent reasonably Hear and determine… Eto yung nangyari. Kasi yung sa petition
possible and made a good faith effort to reach a ng debtor, diba nag appoint na siya ng nominee. Then of course
consensus on the proposed Rehabilitation Plan; if the nag object yung creditor, sabi hindi kasi biased yan. They can
petitioner/s is/are a creditor or group of creditors, that do that.
the petitioner/s has/have met with the debtor and made
a good faith effort to reach a consensus on the proposed So see, 40 days lang yung time mo mag preliminary evaluation.
Rehabilitation Plan; and Kung talagang there is a substantial likelihood na this debtor
will be rehabilitated.
g. The debtor has not committed acts of misrepresentation
or in fraud of its creditor/s or a group of creditors
EFFECT OF FAILURE TO FILE NOTICE OF CLAIM
Discussion: Section 23. Effect of Failure to File Notice of Claim. –
Q: What’s the duration of the Commencement Order? A creditor whose claim is not listed in the schedule of debts
and liabilities and who fails to file a notice of claim in
A: the Commencement Order shall be effective for the duration accordance with the Commencement Order but
of the rehabilitation proceedings for as long as there is subsequently files a belated claim shall not be entitled to
substantial likelihood that the debtor will be successfully participate in the rehabilitation proceedings but shall
rehabilitated. be entitled to receiver distribution arising therefrom.
*Minimum requirements for substantial likelihood, see above.
31
REPORT OF THE REHABILITATION RECEIVER 2. The petition is a sham filing intended to delay the
Section 24. Report of the Rehabilitation Receiver. – enforcement of the rights of the creditor/s or of
Within 40 days from the initial hearing and with or without any group of creditors.
the comments of the creditors or any of them, the 3. The petition, the Rehabilitation Plan and the
rehabilitation shall submit a report to the court stating his attachments thereto contain any materially false
preliminary findings and recommendations on whether: or misleading statements; or
4. The debtor has committed acts of
a. Debtor is insolvent and if so, the causes thereof and misrepresentation or in fraud of its creditor/s or a
any unlawful or irregular act or acts committed by the group of creditors. [See Sec. 27]
owner/s of a sole proprietorship, partners of a partnership,
or directors or officers of a corporation, in contemplation of
the insolvency of the debtor or which may have contributed c. Convert the Proceedings into one for the liquidation
to the insolvency of the debtor; of the debtor upon finding that:
b. The underlying assumptions, the financial goals 1. The debtor is insolvent; and
and the procedures to accomplish such goals as stated in the 2. There is no substantial likelihood for the debtor
petitioner’s rehabilitation plan are realistic, feasible and to be successfully rehabilitated as determined in
reasonable; accordance with rules to be promulgated by the
c. There is a substantial likelihood2 for the debtor to Supreme Court.
be successfully rehabilitated;
d. Petition should be dismissed; and
e. Debtor should be dissolved or liquidated. IN THE EVENT PETITION IS GIVEN DUE COURSE
Section 26. Petition Given Due Course. – If the petition
For example, you are the creditor and you filed a petition for is given due course, the court shall direct the rehabilitation
rehabilitation of course you will attach a rehabilitation plan as receiver to review, revise and/or recommend action on
part of the minimum requirements. And you will state there the Rehabilitation Plan and submit the same or a new one
that it can still be rehabilitated. The receiver will then check to the court within a period of not more than 90 days.
that, if your assumption is realistic, feasible, and reasonable.
The court may refer any dispute relating to the
If for example, you placed there that “on year two (2) the Rehabilitation Plan or the rehabilitation proceedings before
debtor will win the lottery and on year three (3) he will retrieve it to arbitration or other modes of dispute resolution, as
gold from his property.” If these are the facts, the receiver will provided under RA 9285, or the ADR Act of 2004, should it
of course state that these conditions are not realistic nor is it determine that such mode will resolve the dispute more
feasible. quickly, fairly and efficiently than the court.
You also look at the report and you will also give your When you say due course, it means your petition is granted.
comments and recommendation if there is substantial
likelihood that the debtor can be successfully rehabilitated. And
it’s not just likelihood, it must be substantial. There is a DISMISSAL OF PETITION
difference between saying there is a likelihood that you will be Section 27. Dismissal of Petition. – If the petition is
rehabilitated as against there is a substantial likelihood that dismissed pursuant to paragraph (b) of Section 25 hereof,
you will be rehabilitated. then the court may, in its discretion, order the petitioner to
pay damages to any creditor or to the debtor, as the case
Underlying assumptions refer to considerations to determine may be, who may been injured by the filing of the petition,
whether rehabilitation plan is feasible or even reasonable. For to the extent of any such injury.
example, the economic situation and business factor wherein
the business would not suffer untimely business reverses. An example is when there is a sham filing of a petition for
rehabilitation by the debtor in order to prevent or delay the
The quantum of proof required “substantial likelihood” of collections of the creditor, the court may order damages.
having sufficient assets, cash flows, good faith and due
diligence which the rehabilitation can succeed.
REHABILITATION RECEIVER, MANAGEMENT
COMMITTEE, AND CREDITORS’ COMMITTEE
ACTION BY THE COURT ON THE REPORT
Section 25. Giving Due Course to or Dismissal of
a. The Rehabilitation Receiver
Petition, or Conversion of Proceedings. –
Initial Appointment of the Rehabilitation Receiver
Within 10 days from receipt of the report of the
The court shall initially appoint the rehabilitation receiver,
rehabilitation receiver the court may:
who may or may not be from among the nominees of the
a. Give Due Course to the Petition upon a finding
petitioner: HOWEVER: at the initial hearing, creditors and
that:
the debtor who are not petitioners may nominate other
1. The debtor is insolvent; and
persons to the position. The court may retain the
2. There is a substantial likelihood for the
rehabilitation receiver initially appointed or appoint another
debtor to be successfully rehabilitated.
who may or may not be from among those nominated
[See Sec. 26]
(Section 30).
Q. Who is your Rehabilitation Receiver?

b. Dismiss the Petition upon a finding that:
1. Debtor is not insolvent;
32
Rehabilitation Receiver
Section 28. Who May Serve as a Rehabilitation In case the debtor is a securities market participant, the
Receiver- Any qualified natural or juridical person may court shall give priority to the nominee of the appropriate
serve as a rehabilitaion receiver: Provided, that if the securities or investor protection fund.
rehabilitation receiver is a juridical entity, it must designate
a natural person/s who possess/es all the qualifications and If a qualified natural person or entity is nominated by more
none of the disqualifications as its representative, it being than fifty percent (50%) of the secured creditors and the
understood that the juridical entity and the representative/s general unsecured creditors, and satisfactory evidence is
are solidarily liable for all obligations and responsibilites of submitted, the court shall appoint the creditors' nominee as
the rehabilitation receiver. rehabilitation receiver.
Discussion: The court shall initially appoint the rehabilitation

Section 29. Qualifications of a Rehabilitation Receiver. receiver, who mayor may not be from among the
- The rehabilitation receiver shall have the following nominees of the petitioner.
minimum qualifications:
Remember, if magpafile ka ng petition, mag aappoint ka ng
(a)A citizen of the Philippines or a resident of the Philippines tatlong nominee, so pwedeng dun kunin or di dun kunin, or dun
in the six (6) months immediately preceding his nomination; sa ninominate ng creditors. Remember, at the initial hearing of
the petition, the creditors and the debtor who are not
(b)Of good moral character and with acknowledged petitioners may nominate other persons to the position. The
integrity, impartiality and independence; court may retain the rehabilitation receiver initially appointed
(c)Has the requisite knowledge of insolvency and other or appoint another who mayor may not be from among those
relevant commercial laws, rules and procedures, as well as nominated.
the relevant training and/or experience that may be
necessary to enable him to properly discharge the duties and If a qualified natural person or entity is nominated by more
obligations of a rehabilitation receiver; and than fifty percent (50%) of the secured creditors and the
general unsecured creditors, and satisfactory evidence is
(d)Has no conflict of interest: Provided, That such submitted, the court shall appoint the creditors' nominee as
conflict of interest may be waived, expressly or rehabilitation receiver.
impliedly, by a party who may be prejudiced thereby.
If makuha mo ang 50%, pero in practice, masyadong mahirap
Other qualifications and disqualifications of the rehabilitation kunin.
receiver shall be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and Q. What are the Powers, Duties and Responsibilities of the
the need to protect the interest of all stakeholders Rehabilitation Receiver?
concerned.
Section 31. Powers, Duties and Responsibilities of the
(d)Has no conflict of interest: Provided, That such conflict of Rehabilitation Receiver. - The rehabilitation receiver
interest may be waived, expressly or impliedly, by a party who shall be deemed an officer of the court with the principal
may be prejudiced thereby. duty of preserving and maximizing the value of the assets
of the debtor during the rehabilitation proceedings,
This is a very material provision. This conflict of interest can be determining the viability of the rehabilitation of the debtor,
waived, kung talagang wala na akyong makitang receiver, preparing and recommending a Rehabilitation Plan to the
either expressly or impliedly by a party who may be prejudiced court, and implementing the approved
thereby. Rehabilitation Plan, To this end, and without limiting the
generality of the foregoing, the rehabilitation receiver shall
2019 TSN Discussion have the following powers, duties and responsibilities:
Lage talagang issue itong conflict of interest. Why? Kasi nga
once magfile, the appointment of a rehabilitation receiver is (a)To verify the accuracy of the factual allegations in the
very very long. Pwede namang si debtor mag appoint ng petition and its annexes;
receiver. Pero papayag pa si creditor nyan? Hindi. Papayag ba
ibang creditors? Hindi din. Ito pa lang stage sobrang tagal na. (b)To verify and correct, if necessary, the inventory of all of
And oif you are a debtor you are in the best position kasi during the assets of the debtor, and their valuation;
the duration of the rehabilitation hearings suspended yung
payments so imagine if this will last for a long time di ka (c)To verify and correct, if necessary, the schedule of debts
pwedeng magbayad. So kung may pera ka, magagamit mo pa and liabilities of the debtor;
yon.
(d)To evaluate the validity, genuineness and true amount of
Section 30.Initial Appointment of the Rehabilitation all the claims against the debtor;
Receiver. - The court shall initially appoint the rehabilitation
receiver, who mayor may not be from among the (e)To take possession, custody and control, and to preserve
nominees of the petitioner. However, at the initial the value of all the property of the debtor;
hearing of the petition, the creditors and the debtor who are
not petitioners may nominate other persons to the position. (f)To sue and recover, with the approval of the court, all
The court may retain the rehabilitation receiver initially amounts owed to, and all properties pertaining to the
appointed or appoint another who mayor may not be from debtor;
among those nominated.
33
(g)To have access to all information necessary, proper or So whats the compensation? Of course diba may matatanggap
relevant to the operations and business of the debtor and ka.
for its rehabilitation;
Section 33. Compensation and Terms of Service. The
(h) To sue and recover, with the. approval of the court, all rehabilitation receiver and his direct employees or independent
property or money of the debtor paid, transferred or contractors shall be entitled to compensation for reasonable
disbursed in fraud of the debtor or its creditors, or which fees and expenses from the debtor according to the terms
constitute undue preference of creditor/s; approved by the court after notice and hearing. Prior to such
hearing, the rehabilitation receiver and his direct employees
(i) To monitor the operations and the business of the debtor shall be entitled to reasonable compensation based on
to ensure that no payments or transfers of property are quantum meruit. Such costs shall be considered administrative
made other than in the ordinary course of business; expenses.
(j) With the court's approval, to engage the services of or to
employ persons or entities to assist him in the discharge of
Section 34. Oath and Bond of the Rehabilitation
his functions;
Receiver. Prior to entering upon his powers, duties and
responsibilities, the rehabilitation receiver shall take an oath
(k) To determine the manner by which the debtor may be
and file a bond, in such amount to be fixed by the court,
best rehabilitated, to review) revise and/or recommend
conditioned upon the faithful and proper discharge of his
action on the Rehabilitation Plan and submit the same or a
powers, duties and responsibilities.
new one to the court for approval;
(l) To implement the Rehabilitation Plan as approved by the Section 35. Vacancy. - Incase the position of rehabilitation
court, if 80 provided under the Rehabilitation Plan; receiver is vacated for any reason whatsoever. the court shall
direct the debtor and the creditors to submit the name/s of
(m) To assume and exercise the powers of management of their nominee/s to the position. The court may appoint any of
the debtor, if directed by the court pursuant to Section 36 the qualified nominees or any other person qualified for the
hereof; position.
(n) To exercise such other powers as may, from time to Section 36. Displacement of Existing Management by the
time, be conferred upon him by the court; and Receiver or Management Committee. Upon motion of any
interested party, the court may appoint and direct the
To submit a status report on the rehabilitation proceedings rehabilitation receiver to assume the powers of management
every quarter or as may be required by the court motu of the debtor, or appoint a management committee that will
proprio or upon motion of any creditor or as may be undertake the management of the debtor. upon clear and
provided, in the Rehabilitation Plan. convincing evidence of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or
Unless appointed by the court, pursuant to Section 36 destruction of the debtor’s assets or other properties;
hereof, the rehabilitation receiver shall not take over the (b) Paralyzation of the business operations of the debtor; or
management and control of the debtor but may recommend (c) Gross mismanagement of the debtor. or fraud or other
the appointment of a management committee over the wrongful conduct on the part of, or gross or willful violation of
debtor in the cases provided by this Act. this Act by. existing management of the debtor Or the owner,
partner, director, officer or representative/s in management of
Discussion: So kung hindi siya inappoint ng court, di siya the debtor.
pwede magtake over pero pwede siya mag recommend ng
mancomm to take the debtor. In case the court appoints the rehabilitation receiver to assume
the powers of management of the debtor. the court may:
Section 32. Removal of the Rehabilitation Receiver. – The (1) require the rehabilitation receiver to post an additional
rehabilitation receiver may be removed at any time by the bond;
court either motu proprio or upon motion by any (2) authorize him to engage the services or to employ persona
creditor/s holding more than fifty percent (50%) of the or entities to assist him in the discharge of his managerial
total obligations of the debtor, on such grounds as the rules functions; and
of procedure may provide which shall include, but are not (3) authorize a commensurate increase in his compensation.
limited to, the following:
(a) Incompetence, gross negligence, failure to perform or Discussion: Upon motion of any interested party, the court
failure to exercise the proper degree of care in the performance may appoint and direct the rehabilitation receiver to assume
of his duties and powers; the powers of management, sila yung magiging board, of the
(b) Lack of a particular or specialized competency required by debtor, or appoint, pwede mag appoint ng iba, which is the
the specific case; management committee or ManCom, that will undertake the
(c) Illegal acts or conduct in the performance of his duties and management of the debtor upon clear and convincing evidence
powers; of any of the following circumstances:
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and These are the grounds for there to be ManCom na ipapa-
(f) Manifest lack of independence that is detrimental to the appoint ng receiver. (Reads the provi)
general
body of the stakeholders. So if there is an appointed ManCom, what is the rule? The
management committee shall take the place of the
management and the governing body of the debtor.
34
An individual shall be deemed to have a conflict of interest

Section 37. Role of the Management Committee. – When if he is so situated as to be materially influenced in the
appointed pursuant to the foregoing section, the management exercise of his judgment for or against any party to the
committee shall take the place of the management and the proceedings: an individual shall be deemed to have a
governing body of the debtor and assume their rights and conflict of interest if:
responsibilities. The specific powers and duties of the
management committee, whose members shall be considered a. he is a creditor, owner, partner or stockholder of the
as officers of the court, shall be prescribed by the procedural debtor;
rules. b. he is engaged in a line of business which competes with
that of the debtor;
What is a creditors committee? c. he is, or was, within five (5) years from the filing of the
petition, a director, officer, owner, partner or employee of
Section 42.Creditors' Committee. - After the creditors' the debtor or any of the creditors, or the auditor or
meeting called pursuant to Section 63 hereof, the creditors accountant of the debtor;
belonging to a class may formally organize a committee among d. he is, or was, within two (2) years from the filing of the
themselves. In addition, the creditors may, as a body, agree to petition, an underwriter of the outstanding securities of the
form a creditors' committee composed of a representative from debtor;
each class of creditors, such as the following: e. he is related by consanguinity or affinity within the
(a) Secured creditors; fourth civil degree to any individual creditor, owners of a
(b) Unsecured creditors; sale proprietorship-debtor, partners of a partnership- debtor
(c) Trade creditors and suppliers; and or to any stockholder, director, officer, employee or
(d) Employees of the debtor. underwriter of a corporation-debtor; or
In the election of the creditors' representatives, the f. he has any other direct or indirect material interest in the
rehabilitation receiver or his representative shall attend such debtor or any of the creditors.
meeting and extend the appropriate assistance as may be
defined in the procedural rules. Any rehabilitation receiver, member of the management
committee or persons employed or contracted by them
possessing any conflict of interest shall make the
Discussion: After the creditors' meeting called pursuant to
Section 63 hereof, the creditors belonging to a class may appropriate disclosure either to the court or to the
creditors in case of out-of-court rehabilitation proceedings.
formally organize, magkakaroon sila ng committee, because
imagine if you have thousands of creditors, hindi lahat yan Any party to the proceeding adversely affected by the
appointment of any person with a conflict of interest to any
pwedeng nandoon lagi sa meeting, so they would appoint a
of the positions enumerated above may however waive
committee, and they would represent from each class, the:
his right to object to such appointment and, if the waiver
(a) Secured creditors;
is unreasonably withheld, the court may disregard the
(b) Unsecured creditors;
conflict of interest, taking into account the general interest
(c) Trade creditors and suppliers; and pag sinabi mong trade,
of the stakeholders.
eto yung mga regular, yung mga necessary sa ordinary course
of business
(d) Employees of the debtor. Ofcourse, kasi sa salary.
Immunity
The rehabilitation receiver or the members of the
Section 43. Role of Creditors' Committee. - The creditors' management committee, and all persons employed by
committee when constituted pursuant to Section 42 of this Act him/them, shall not be subject to any action, claim or
shall assist the rehabilitation receiver in communicating with demand in connection with any act done or omitted to be
the creditors and shall be the primary liaison between the done by them in good faith in connection with the exercise
rehabilitation receiver and the creditors. The creditors' of their powers and functions under FRIA or other actions
committee cannot exercise or waive any right or give any duly approved by the court.
consent on behalf of any creditor unless specifically authorized
in writing by such creditor. The creditors' committee may be
Appeal
authorized by the court or by the rehabilitation receiver to
Any decision of the rehabilitation receiver regarding a claim
perform such other tasks and functions as may be defined by
may be appealed to the court.
the procedural rules in order to facilitate the rehabilitation
process.
Management
Unless otherwise provided, the management of the juridical
The creditors' committee when constituted pursuant to Section debtor shall remain with the existing management subject
42 of this Act shall assist the rehabilitation receiver in
to the applicable law/s and agreement/s, if any, on the
communicating with the creditors eto nayun kung may mga election or appointment of directors, managers or managing
meetings si rehabilitation receiver, eto na yung imemeet niya,
partner. However, all disbursements, payments or Sale,
ang creditors committee, unlike meeting all of the thousands disposal, assignment, transfer or encumbrance of property,
and hundreds of creditors, eto nalang yung kanyang imemeet.
or any other act affecting title or interest in property, shall
be subject to approval of the rehabilitation receiver and/or
the court.
Section 40. Conflict of Interest
No person may be appointed as rehabilitation receiver, Rescission or Nullity of Sale, Payment, Transfer,
member of a management committed, or be employed by Conveyance of Assets
the rehabilitation receiver or the management committee if The court may rescind or declare as null and void any sale,
he has a conflict of interest. payment, transfer or conveyance of the debtor’s
35
unencumbered property or any encumbering thereof by

debtor or its agents or representatives after the (d) the means for the execution of the rehabilitation plan, which
commencement date PROVIDED: Unencumbered property may include debt to equity conversion, restructuring of the
may be sold, encumbered or otherwise disposed upon curt debts, dacion en pago or sale exchange or any disposition of
order after notice and hearing: assets or of the interest of shareholders, partners or members;
1. If in the interest of administering the debtor and
facilitating and implementation of the Rehabilitation plan; Discussion: So, paano mo ba mare-re-habilitate? It may
2. In order to provide a substitute lien, mortgage or pledge include debt-to-equity, for example papayag ba yung creditor
of property under FRIA; na instead of being a creditor magiging stockholder siya, i-
3. For payment made to: invest niyo na lang ang utang niyo.
a. Meet administrative expenses as they
fall due; (e) a liquidation analysis setting out for each creditor that
b. Victims of quasi-delicts on showing that the claim is the present value of payments it would receive under the plan
valid, and debtor has insurance to reimbursement for is more than that which it would receive if the assets of the
payments made; debtor were sold by a liquidator within a six-month period from
c. Repurchase debtor’s property that is auctioned off in the estimated date of filing of the petition; and
a judicial or extrajudicial sale under FRIA;
d. Reclaim debtor’s property held under a possessory
Discussion: So, magkakaroon ng liquidation analysis, this is
lien. very important. Sa each creditor, dapat you have to prove that
to creditors A, B, and C, magkano ang mababayaran mo sa
isang creditor in the next five years kung i-continue mo yung
Post-Commencement Interest company, magkano ang present value nun. It must be more
The rate and term of interest, if any, on secured and than sa mare-receive ng creditor if ili-liquidate mo na within six
unsecured claims shall be determined and provided for in months. That is what we call liquidation analysis. It’s more of
the approved rehabilitation plan. financial management, parang ganun.
With the approval of the court upon recommendation of the
rehabilitation receiver, the debtor, in order to enhance its
(f) such other relevant information to enable a reasonable
rehabilitation may:
investor to make an informed decision on the feasibility of the
(1) Enter into credit arrangement alone, or coupled with
rehabilitation plan.
mortgages of its unencumbered property or secondary
mortgages of encumbered property with the approval of the
senior secured parties with regard to the encumbered Can you consult with the debtor and creditors? Of course.
property; or Sec. 63. Consultation with Debtor and Creditors. –
(2) Incur other obligations as may be essential for its
rehabilitation. If the court gives due course to the petition, the rehabilitation
The payment of the foregoing obligation shall be receiver shall confer with the debtor and all the classes of
considered administrative expense under this Act. creditors, and may consider their views and proposals in the
review, revision or preparation of a new Rehabilitation Plan.
Sec. 64. Creditor Approval of Rehabilitation Plan. –

REHABILITATION PLAN
The rehabilitation receiver shall notify the creditors and
Rehabilitation Plan stakeholders that the Plan is ready for their examination.
As a minimum, dapat nakalagay doon Within twenty (20) days from the said notification, the
rehabilitation receiver shall convene the creditors, either as a
(a) the desired business target or goals and the duration and whole or per class, for purposes of voting on the approval of
coverage of the rehabilitation the Plan. The Plan shall be deemed rejected unless by all
classes of creditors whose rights are adversely modified or
Yung mga assumptions affected by the Plan.
(b) the terms and conditions of such rehabilitation which shall For purposes of this section, the Plan is deemed to have been
include the manner of its implementation, giving due regard to approved by a class of creditors if members of the said class
the interests of secured creditors such as, but not limited to, holding more than fifty percent (50%) of the total claims of the
the non-impairment of their security liens or interests; said class vote in favor of the Plan. The votes of the creditors
shall be based solely on the amount of their respective claims
Ito yung mga assumptions which should be realistic. based on the registry of claims submitted by the rehabilitation
receiver pursuant to Section 44 hereof.
(c) the material financial commitments to support the
rehabilitation plan; Notwithstanding the rejection of the Rehabilitation Plan, the
court may confirm the Rehabilitation Plan if all of the following
Discussion: Take note, material financial commitments, circumstances are present:
there’s a case about this. So, kailangan may commitment ang
may-ari o any other stakeholder. Hindi pwede na hayaan niya (a)The Rehabilitation Plan complies with the requirements
specified in this Act.
lang o umasa lang siya sa circumstances na makaka-recover.
For example, mag-commit yung stockholder ng corporation na
(b) The rehabilitation receiver recommends the confirmation of
mag-infuse ng additional capital, or provide funds. So, dapat
may material financial commitment. the Rehabilitation Plan;
36
(c) The shareholders, owners or partners of the juridical debtor Sec. 69. Effect of Confirmation of the Rehabilitation Plan.
lose at least their controlling interest as a result of the –
Rehabilitation Plan; and
The confirmation of the Rehabilitation Plan by the court shall
(d) The Rehabilitation Plan would likely provide the objecting result in the following:
class of creditors with compensation which has a net present
value greater than that which they would have received if the (a) The Rehabilitation Plan and its provisions shall be binding
debtor were under liquidation. upon the debtor and all persons who may be affected by it,
including the creditors, whether or not such persons have
*Note: Sections 65-67 are not included in Sir Ong’s discussion. participated in the proceedings or opposed the Rehabilitation
Sec. 65. Submission of Rehabilitation Plan to the Court. Plan or whether or not their claims have been scheduled;
– If the Rehabilitation Plan is approved, the rehabilitation
receiver shall submit the same to the court for confirmation. (b) The debtor shall comply with the provisions of the
Within five (5) days from receipt of the Rehabilitation Plan, the Rehabilitation Plan and shall take all actions necessary to carry
court shall notify the creditors that the Rehabilitation Plan has out the Plan;
been submitted for confirmation, that any creditor may obtain
copies of the Rehabilitation Plan and that any creditor may file (c) Payments shall be made to the creditors in accordance with
an objection thereto. the provisions of the Rehabilitation Plan;
Sec. 66. Filing of Objections to Rehabilitation Plan. – A (d) Contracts and other arrangements between the debtor and
creditor may file an objection to the Rehabilitation Plan within its creditors shall be interpreted as continuing to apply to the
twenty (20) days from receipt of notice from the court that the extent that they do not conflict with the provisions of the
Rehabilitation Plan has been submitted for confirmation. Rehabilitation Plan;
Objections to a Rehabilitation Plan shall be limited to the
following: (e) Any compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on creditors regardless
(a) The creditors' support was induced by fraud; of whether or not the Plan is successfully implemented; and
(b)The documents or data relied upon in the Rehabilitation Plan (f) Claims arising after approval of the Plan that are otherwise
are materially false or misleading; or not treated by the Plan are not subject to any Suspension
Order.
(c)The Rehabilitation Plan is in fact not supported by the voting
creditors. The Order confirming the Plan shall comply with Rules 36 of the
Rules of Court: Provided, however, That the court may
Sec. 67. Hearing on the Objections. – If objections have maintain jurisdiction over the case in order to resolve claims
been submitted during the relevant period, the court shall issue against the debtor that remain contested and allegations that
an order setting the time and date for the hearing or hearings the debtor has breached the Plan.
on the objections.
Sec. 70. Liability of General Partners of a Partnership for
If the court finds merit in the objection, it shall order the Unpaid Balances Under an Approved Plan. –
rehabilitation receiver or other party to cure the defect,
whenever feasible. If the court determines that the debtor The approval of the Plan shall not affect the rights of creditors
acted in bad faith, or that it is not feasible to cure the defect, to pursue actions against the general partners of a partnership
the court shall convert the proceedings into one for the to the extent they are liable under relevant legislation for the
liquidation of the debtor under Chapter V of this Act. debts thereof.
Sec. 68. Confirmation of the Rehabilitation Plan. – Remember the personal liability of the partners.
If no objections are filed within the relevant period or, if PERIOD FOR CONFIRMATION OF THE
objections are filed, the court finds them lacking in merit, or REHABILITATION PLAN
determines that the basis for the objection has been cured, or  The court shall have a maximum period of one (1) year
determines that the debtor has complied with an order to cure from the date of the filing of the petition to confirm a
the objection, the court shall issue an order confirming the Rehabilitation Plan.
Rehabilitation Plan.
 If no Rehabilitation Plan is confirmed within the said
period, the proceedings may, upon motion or motu
The court may confirm the Rehabilitation Plan notwithstanding
proprio, be converted into one for the liquidation of the
unresolved disputes over claims if the Rehabilitation Plan has
debtor.
made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the

contrary notwithstanding, the court shall have the power to
approve or implement the Rehabilitation Plan despite the lack TERMINATION OF PROCEEDINGS
of approval, or objection from the owners, partners or
stockholders of the insolvent debtor: Provided, That the  The rehabilitation proceedings shall, upon motion by
terms thereof are necessary to restore the financial well- any stakeholder or the rehabilitation receiver, be
being and viability of the insolvent debtor. terminated by order of the court either declaring a
37
successful implementation of the Rehabilitation Plan PHIL. BANK OF COMMUNICATIONS v. BASIC

or a failure of rehabilitation. POLYPRINTERS AND PACKAGING CORP.
G.R. No. 187581, Oct. 20, 2014
 There is failure of rehabilitation in the following cases:
The petitioner contends that the sole issue in corporate
(a) Dismissal of the petition by the court; rehabilitation is one of liquidity; hence, the petitioning
corporation should have sufficient assets to cover all its
(b) The debtor fails to submit a Rehabilitation Plan; indebtedness because it only foresees the impossibility of
paying the indebtedness falling due. It claims that
(c) Under the Rehabilitation Plan submitted by the rehabilitation became inappropriate because Basic
debtor, there is no substantial likelihood that the debtor Polyprinters was insolvent due to its assets being inadequate
can be rehabilitated within a reasonable period; to cover the outstanding obligations.
(d) The Rehabilitation Plan or its amendment is Held: We disagree with the contention of the petitioner.
approved by the court but in the implementation
thereof, the debtor fails to perform its obligations Under the Interim Rules, rehabilitation is the process of
thereunder, or there is a failure to realize the objectives, restoring “the debtor to a position of successful operation
targets or goals set forth therein, including the timelines and solvency, if it is shown that its continuance of operation
and conditions for the settlement of the obligations due is economically feasible and its creditors can recover by way
to the creditors and other claimants; of the present value of payments projected in the plan more
if the corporation continues as a going concern than if it is
(e) The commission of fraud in securing the approval of immediately liquidated.”
the rehabilitation Plan or its amendment; and It contemplates a continuance of corporate life and activities
in an effort to restore and reinstate the corporation to its
(f) Other analogous circumstances as may be defined former position of successful operation and solvency.
by the rules of procedure.
Consequently, the basic issues in rehabilitation proceedings
Upon a breach of, or upon failure of the Rehabilitation Plan, concern the viability and desirability of continuing the
the court, upon motion by an affected party, may: business operations of the petitioning corporation. The
determination of such issues was to be carried out by the
(1) issue an order directing that the breach be cured within court-appointed rehabilitation receiver.
a specified period of time, failing which the proceedings may
be converted to a liquidation; Moreover, R.A. No. 10142 (FRIA), a law that is applicable
(2) issue an order directing that the breach be cured within hereto, has defined a corporate debtor as a corporation duly
a specified period of time, failing which the proceedings may organized and existing under Philippine law that has become
be converted to a liquidation; insolvent. The term insolvent is defined in R.A. No. 10142
as “the financial condition of a debtor that is generally
(3) allow the debtor or rehabilitation receiver to submit unable to pay its or his liabilities as they fall due in the
amendments to the Rehabilitation Plan, the approval of ordinary course of business or has liabilities that are greater
which shall be governed by the same requirements for the than its or his assets.”
approval of a Rehabilitation Plan under this subchapter;
As such, the contention that rehabilitation becomes
(4) issue any other order to remedy the breach consistent inappropriate because of the perceived insolvency of Basic
with the present regulation, other applicable law and the Polyprinters was incorrect.
best interests of the creditors; or
 A material financial commitment is significant in a
(5) enforce the applicable provisions of the Rehabilitation rehabilitation plan.
Plan through a writ of execution.
The petitioner next argues that Basic Polyprinters did not
present any material financial commitment in the
EFFECTS OF TERMINATION rehabilitation plan, thereby violating Sec. 5, Rule 4 of the
Interim Rules, the rule applicable at the time of the filing of
Termination of the proceedings shall result in the following: the petition for rehabilitation. In that regard, Basic
Polyprinters made no commitment in relation to the infusion
(a) The discharge of the rehabilitation receiver, subject to of fresh capital by its stakeholders and presented only a
his submission of a final accounting; and “lopsided” protracted repayment schedule that included the
dacion en pago involving an asset mortgaged to the
(b) The lifting of the Stay Order and any other court order petitioner itself in favor of another creditor.
holding in abeyance any action for the enforcement of a
claim against the debtor A material financial commitment becomes significant in
gauging the resolve, determination, earnestness and good
Provided, however, that if the termination of proceedings is faith of the distressed corporation in financing the proposed
due to failure of rehabilitation or dismissal of the petition for rehabilitation plan. This commitment may include the
reasons other than technical grounds, the proceedings shall voluntary undertakings of the stockholders or the would-be
be immediately converted to liquidation. investors of the debtor-corporation indicating their
readiness, willingness and ability to contribute funds or
38
property to guarantee the continued successful operation of received if it would have been liquidated within 6 months
the debtor corporation during the period of rehabilitation. from the filing.
----------------
Discussion: Kailangan may commitment (material financial
commitment). Otherwise, hindi naman mare-rehabilitate yan.  Effect of Non-Compliance
PHILIPPINE ASSET GROWTH TWO, INC. v. FASTECH The failure of the rehabilitation Plan to state any material
SYNERGY PHILIPPINES financial commitment to support rehabilitation, as well as to
G.R. No. 206528, June 28, 2016 include a liquidation analysis, renders the CA;s
considerations for approving the same, i.e., that: (a)
The test in evaluating the economic feasibility of the plan respondents would be able to meet their obligations to their
was laid down in Bank of the Philippine Islands v. Sarabia creditors within their operating cash profits and other assets
Manor Hotel Corporation, to wit: without disrupting their business operations; (b) the
Rehabilitation Receiver’s opinion carries great weight; and
In order to determine the feasibility of a proposed (c) rehabilitation will be beneficial for respondents’ creditors,
rehabilitation plan, it is imperative that a thorough employees, stockholders, and the economy, as actually
examination and analysis of the distressed corporation’s unsubstantiated, and hence, insufficient to decree the
financial data must be conducted. If the results of such feasibility of respondents’ rehabilitation. It is well to
examination and analysis show that there is a real emphasize that the remedy of rehabilitation should be
opportunity to rehabilitate the corporation in view denied to corporations that do not qualify under the Rules.
of the assumptions made and financial goals Neither should it be allowed to corporations whose sole
stated in the proposed rehabilitation plan, then it purpose is to delay the enforcement of any of the rights of
may be said that a rehabilitation is feasible. In this the creditors.
accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going Even if the court were to set aside the failure of the
concern, albeit under the terms and conditions stated in Rehabilitation Plan to comply with the fundamental
the approved rehabilitation plan. On the other hand, if requisites of material financial commitment to support the
the results of the financial examination and analysis rehabilitation and an accompanying liquidation analysis, a
clearly indicate that there lies no reasonable probability review of the financial documents presented by respondents
that the distressed corporation could be revived and fails to convince the Court of the feasibility of the proposed
that liquidation would, in fact, better subserve the plan.
interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the In view of all the foregoing, the Court is therefore
rehabilitation court may convert the proceedings constrained to grant the instant petition, notwithstanding
into one for liquidation. the preliminary technical error as above-discussed. A
distressed corporation should not be rehabilitated when the
 Lack of Material Financial Commitment to Support results of the financial examination and analysis clearly
the Rehabilitation Plan indicate that there lies no reasonable probability that it may
be revived, to the detriment of its numerous stakeholders
A material financial commitment becomes significant in which include not only the corporation’s creditors but also
gauging the resolve, determination, earnestness and good the public at large. In Bank of the Philippine Islands:
faith of the distressed corporation in financing the proposed
rehabilitation plan. This commitment may include the Recognizing the volatile nature of every business, the rules
voluntary undertakings of the stockholders or the would- on corporate rehabilitation have been crafted in order to give
be investors of the debtor-corporation indicating their companies sufficient leeway to deal with debilitating
readiness, willingness and ability to contribute funds or financial predicaments in the hope of restoring or reachjng
property to guarantee the continued successful a sustainable operating form if only to best accommodate
operation of the debtor corporation during the period the various interests of all its stakeholders, may it be the
of rehabilitation. corporation’s stockholders, its creditors, and even the
general public.
 Lack of Liquidation Analysis
Thus the higher interest of substantial justice will be better
Respondents likewise failed to include any liquidation subserved by the reversal of the CA Decision. Since the
analysis in their Rehabilitation Plan. The total liquidation rehabilitation petition should noth gave been granted in the
assets and the estimated liquidation return to the creditors, first place, it is of no moment that the Rehabilitation Plan is
as well as the fair market value vis-à-vis the forced currently under implementation. While payments in
liquidation value of the fixed assets were not shown. As accordance with the Rehabilitation Plan were already made,
such, the Court could not ascertain if the petitioning debtor’s the same were only possible because of the financial
creditors can recover by way of the present value of reprieves and protracted payment schedule accorded to
payments projected in the plan, more I the debtor continues respondents, which, as above-intimated, only works at the
as a going concern than if it is immediately liquidated. This expense of the creditors and ultimately, do not meet the true
is a crucial factor in a corporate rehabilitation case, which purpose of rehabilitation.
the CA, unfortunately, failed to address.
---------------- PRE-NEGOTIATED REHABILITATION
Discussion: Remember that the present value of future
payments of each creditor is greater than they would have An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the
39
approval of a pre-negotiated rehabilitation Plan which has (f) state that copies of the petition and the Rehabilitation
been endorsed or approved by creditors holding at least two- Plan are available for examination and copying by any
thirds (2?3) of the total liabilities of the debtor, including interested party;
secured creditors holding more than fifty percent (50%) of
the total secured claims of the debtor and unsecured (g) state that creditors and other interested parties opposing
creditors holding more than fifty percent (50%) of the total the petition or Rehabilitation Plan may file their objections
unsecured claims of the debtor. The petition shall include, or comments thereto within a period of not later than twenty
as a minimum: (20) days from the second publication of the Order;
(a) a schedule of the debtor’s debts and liabilities; (h) appoint a rehabilitation receiver, if provided for in the
Plan; and
(b) an inventory of the debtor’s assets;
(i) include a Suspension or Stay Order as described in this
(c) the pre-negotiated Rehabilitation Plan, including the Act.
names of at least three (3) qualified nominees for
rehabilitation receiver; and
Another type of rehabilitation proceeding is:
(d) a summary of disputed claims against the debtor and a
report on the provisioning of funds to account for OUT-OF-COURT OR INFORMAL RESTRUCTURING
appropriate payments should any such claims be ruled valid AGREEMENTS OR REHABILITATION PLANS
or their amounts adjusted. An out-of-court or informal restructuring agreement or
Discussion: This is another type of rehabilitation proceeding, Rehabilitation Plan that meets the minimum requirements
which is not assisted by the court…well, technically assisted prescribed in this chapter is hereby recognized as consistent
siya, but hindi sya doon sa court-assisted na classification. with the objectives of this Act.
In a pre-negotiated rehabilitation , may usapan na kayo ng

MINIMUM REQUIREMENTS OF OUT-OF-COURT OR
creditor.
INFORMAL RESTRUCTURING AGREEMENTS AND
REHABILITATION PLANS
Verified petition – kaya sabi ko hindi court-assisted, kasi
magfa-file ka rin ng petition with the court
(a) The debtor must agree to the out-of-court or informal
restructuring /workout agreement or Rehabilitation Plan;
Petition for approval – it is just an approval of ano yung napag-
usapan. Hindi na kayo magdi-discuss ng rehabilitation plan kasi
(b) It must be approved by creditors representing at least
meron nang pre-negotiated plan. Approval nalang.
sixty-seven percent (67%) of the secured obligations of the
debtor;
The plan must be endorsed or approved by creditors:
50% of the total secured + 50% of the total unsecured = at
(c) It must be approved by creditors representing at least
least 2/3 of the total liabilities.
seventy-five percent (75%) of the unsecured obligations of
the debtor; and
If the pre-negotiated plan is sufficient in form and substance,
the court will issue an order:
(d) It must be approved by creditors holding at least eighty-
five (85%) of the total liabilities, secured and unsecured, of
ISSUANCE OF ORDER the debtor.
Within 5 working days, ad after determination that the
Discussion: So dito naman:
petition is sufficient in form and substance, the court shall
67% secured + 75% unsecured = at east 85% of total liabilities
issue an Order which shall:
STANDSTILL PERIOD
(a) identify the debtor, its principal business or activity/ies
and its principal place of business;
A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or
(b) declare that the debtor is under rehabilitation;
informal restructuring/workout agreement or Rehabilitation
Plan contemplated herein shall be effective and enforceable
(c) summarize the ground/s for the filing of the petition;
not only against the contracting parties but also against the
other creditors: Provided, That:
(d) direct the publication of the Order in a newspaper of
general circulation in the Philippines once a week for at least
(a) such agreement is approved y creditors representing
two (2) consecutive weeks, with the first publication to be
more than fifty percent (50%) of the total liabilities of the
made within seven (7) days from the time of its issuance;
debtor;
(e) direct the service by personal delivery of a copy of the
(b) notice thereof is published in a newspaper of general
petition on each creditor who is not a petitioner holding at
circulation in the Philippines once a week for two (2)
least ten percent (10%) of the total liabilities of the debtor,
consecutive weeks; and
as determined in the schedule attached to the petition,
within three (3) days;
(c) the standstill period does not exceed one hundred twenty
(120) days from the date of effectivity.
40
The notice must invite creditors to participate in the without regard to the actual cost at the time of enrolment,
negotiation for out-of-court rehabilitation or restructuring the full amount of tuition and other school fees of a
agreement and notify then that said agreement will be designated beneficiary.
binding on all creditors if the required majority votes
prescribed in this Act are met. Petitioner is a holder of two (2) units of respondent’s
PEPTrads.
On April 7, 2005, foreseeing the impossibility of meeting its

Minimum Requirements of out-of-court or informal obligations to the availing planholders as they fall due,
restructuring agreement and rehabilitation plans respondent filed a Petition for Corporate Rehabilitation with
the Regional Trial Court, praying that it be placed under
For an out-of-court or informal restructuring/workout
rehabilitation and suspension of payments. At the time of
agreement or rehabilitation plan to qualify under this
filing of the Petition for Corporate Rehabilitation, respondent
chapter, it must meet the following requirements:
had more or less 34,000 outstanding PEPTrads.
a. The debtor must agree to the out-of-court or
On April 12, 2005, the Rehabilitation Court issued a Stay
informal restructuring/ workout agreement or Rehabilitation
Order, directing the suspension of payments of the
Plan:
obligations of respondent and ordering all creditors and
b. It must be approved by creditors representing at
interested parties to file their comments/oppositions,
least sixty- seven percent (67%) of the secured obligations
respectively, to the Petition for Corporate Rehabilitation. The
of the debtor; and
same Order also appointed respondent Marcelo as the
c. It must be approved by creditors representing at
rehabilitation receiver.
least seventy five percent (75%) of the unsecured obligation
of the debtor; and Pursuant to the prevailing rules on corporate rehabilitation,
d. It must be approved by creditors holding at least respondent submitted to the Rehabilitation Court its
eighty five percent (85%) of the total liabilities. Secured and proposed rehabilitation plan. Under the terms thereof,
unsecured, of the debtor. respondent proposed the implementation of a “Swap,” which
will essentially give the planholder a means to exit from the
PEPTrads at terms and conditions relative to a termination
value that is more advantageous than those provided under
CRAM DOWN EFFECT the educational plan in case of voluntary termination.
The rehabilitation receiver submitted an Alternative

Cram down Effect Rehabilitation Plan and was approved by the Court. However
due to the fact that the value of the Philippine Peso
A restructuring/workout agreement or rehabilitation Plan strengthened and appreciated, the rehabilitation receiver
that is approved pursuant to an informal workout framework submitted a Modified Rehabilitation Plan.
referred to in this chapter shall have the same legal effects
as confirmation of a Plan under Section 69 hereof. The notice Issue: Whether or not the Rehabilitation Court has the
of the Rehabilitation Plan or restructuring agreement or plan authority to sanction a rehabilitation plan, or the
shall be published once (1) a week for at least three (3) modification thereof, even when the essential feature of the
consecutive weeks in a newspaper of general circulation in plan involves forcing creditors to reduce their claims against
the Philippines. The Rehabilitation Plan or Restructuring respondent.
Agreement shall take effect upon the lapse of fifteen days
form the date of the last publication of the notice thereof. Held: YES. The Court upheld the “cram-down” power of the
Rehabilitation Court pursuant to Sec. 23 of FRIA which
states that the court may approve a rehabilitation plan over
Discussion: So this is like the confirmed rehabilitation plan, the opposition of creditors, holding a majority of the total
under court supervised, under out-of-court, or anything that liabilities of the debtor if, in its judgment, the rehabilitation
has been agreed upon and confirmed by court. of the debtor is feasible and the opposition of the creditors
Also known as the ‘cram-down” clause, this provision, which is is manifestly unreasonable.
currently incorporated in the FRIA, is necessary to curb (curb,
meaning, whether you like it or not creditors, meron na kaming Moreover, notwithstanding the rejection of the
rehabilitation plan) the majority creditor’s natural tendency to Rehabilitation Plan by the creditors, the court may confirm
dictate their own terms and conditions to the rehabilitation, the Rehabilitation Plan if all of the following circumstances
absent due regard to the greater long- term benefit of all are present:
stockholders. Otherwise stated, it forces the creditors to accept
1. The Rehabilitation Plan complies with the
the terms and condition of the rehabilitation plan, preferring
requirements specified in this Act;
long- term viability over immediate but incomplete recovery.
2. The rehabilitation receiver recommends the
confirmation of the Rehabilitation Plan;
3. The shareholders, owners or partners of the
Victorio- Aquino v. Pacific Plans GR No. 193108; juridical debtor lose at least their controlling
December 10, 2014 interest as a result of the Rehabilitation Plan; and
Facts: Respondent Pacific Plans, Inc. (now “APEC”) is 4. The Rehabilitation Plan would likely provide the
engaged in the business of selling pre-need plans and objecting class of creditors with compensation
educational plans, including traditional open-ended which has a net present value greater than that
educational plans (PEPTrads). PEPTrads are educational
plans where respondent guarantees to pay the planholder,
41
which they would have received if the debtor were Consequently, petitioners filed with the RTC of Manila,
under liquidation. Branch 51, a Manifestation and Motion to Suspend
Proceedings. Petitioners argued that the stay order issued
Source: http://lawtechworld.com/ by Branch 24 should also apply to the criminal charges
pending in Branch 51. Petitioners, thus, prayed that Branch
51 suspend its proceedings until the petition for
rehabilitation was finally resolved.
 Successful rehabilitation of a distressed corporation will
benefit its debtors, creditors, employees, and the Issue: Whether or not the suspension of “all claims” as an
economy in general. The court may approve a incident to a corporate rehabilitation also contemplate the
rehabilitation plan even over the opposition of creditors suspension of criminal charges filed against the officers of
holding a majority of the total liabilities of the debtor if, the distressed corporation.
in its judgment, the rehabilitation of the debtor is Held: No.
feasible and the opposition of the creditors is manifestly
Consequently, the filing of the case for violation of B.P. Blg.
unreasonable. The rehabilitation plan, once approved,
22 is not a "claim" that can be enjoined within the purview
is binding upon the debtor and all persons who may be
of P.D. No. 902-A. True, although conviction of the accused
affected by it, including the creditors, whether or not
for the alleged crime could result in the restitution,
such persons have participated in the proceedings or
reparation or indemnification of the private offended party
have opposed the plan or whether or not their claims
for the damage or injury he sustained by reason of the
have been scheduled.
felonious act of the accused, nevertheless, prosecution for
 Similarly, the reasoning laid down by the CA for the violation of B.P. Blg. 22 is a criminal action.
application of the cram-down power of the
Rehabilitation Court is enlightening, thus: A criminal action has a dual purpose, namely, the
punishment of the offender and indemnity to the offended
This Court likewise rejects petitioner Aquino’s claims party. The dominant and primordial objective of the criminal
that the Modified Rehabilitation Plan constitutes an action is the punishment of the offender. The civil action is
impairment of contracts. The non-impairment clause merely incidental to and consequent to the conviction of the
under the Constitution applies only to the exercise of accused. The reason for this is that criminal actions are
legislative power. It does not apply to the Rehabilitation primarily intended to vindicate an outrage against the
Court which exercises judicial power over the sovereignty of the state and to impose the appropriate
rehabilitation proceedings. As held by the Supreme penalty for the vindication of the disturbance to the social
Court in Bank of the Philippine Islands vs. Securities and order caused by the offender. On the other hand, the action
Exchange Commission, [G.R. No. 164641, December between the private complainant and the accused is
20, 2007: intended solely to indemnify the former.
“The Court reiterates that the SEC’s approval of the

Rehabilitation Plan did not impair BPI’s right to contract. As
correctly contended by private respondents, the non-
impairment clause is a limit on the exercise of legislative LIQUIDATION
power and not of judicial or quasi-judicial power. The SEC,
through the hearing panel that heard the petition for
Discussion: kung hindi successful ang liquidation, or at the
approval of the Rehabilitation Plan, was acting as a quasi-
onset, wala namang substantial basis that it can be
judicial body and thus, its order approving the plan cannot
rehabilitated, let us proceed to liquidation.
constitute an impairment of the right and the freedom to
contract.” Liquidation of insolvent juridical debtors
An insolvent debtor may apply for liquidation by filing a

Panlilio v. RTC of Manila G.R. No. 173846; February petition for liquidation with the court. The petition shall be
2, 2011 verified, shall establish the insolvency of the debtor and shall
Facts: On October 15, 2004, Jose Marcel Panlilio, Erlinda contain, whether as an attachment or as part of the body of
Panlilio, Nicole Morris and Mario Cristobal (petitioners), as the petition:
corporate officers of Silahis International Hotel, Inc. (SIHI),
filed with the Regional Trial Court (RTC) of Manila, Branch a. Schedule of the debtor’s debts and liabilities
24, a petition for Suspension of Payments and Rehabilitation including a list of creditors with their addresses, amounts of
in SEC Corp. Case No. 04-111180. On October 18, 2004, the claims and collaterals, or securities, if any;
RTC of Manila, Branch 24, issued an Order staying all claims b. An inventory of all its assets including receivables
against SIHI upon finding the petition sufficient in form and and claims against third parties; and
substance. c. Names of at least three nominees to the position of
liquidator
At the time, however, of the filing of the petition for
rehabilitation, there were a number of criminal charges At any time during the pendency of the court-supervised or
pending against petitioners in Branch 51 of the RTC of pre-negotiated proceedings, the debtor may also initiate
Manila. These criminal charges were initiated by respondent liquidation proceedings by filing a motion in the same court
Social Security System (SSS) and involved charges of where the rehabilitation proceedings are pending to convert
violations of Section 28 (h) of Republic Act 8282, or the the rehabilitation proceedings into liquidation proceedings.
Social Security Act of 1997 (SSS law), in relation to Article The motion shall be verified, shall contain or set forth the
315 (1) (b) of the Revised Penal Code, or Estafa. same matters required in the preceding paragraph, and
42
state that the debtor is seeking immediate dissolution and debtor is not feasible. Thereupon, the court shall issue the
termination of its corporate existence. Liquidation Order mentioned in Section 112 hereof.
If the petition, or the motion, as the case may be is sufficient

in form and substance, the court shall issue a Liquidation Individual Debtor
Order mentioned in Section 112 hereof.
An individual debtor who, possessing sufficient property to
cover all his debts but foreseeing the impossibility of
We have Involuntary Liquidations, the initiative is not coming meeting them when they respectively fall due, may file a
from the debtors. verified petition that he be declared in the state of
suspension of payments by the court of the province or the
Involuntary Liquidation city in which he has resided for six (6) months prior to the
filing of his petition. He shall attach to his petition, as a
Three or more creditors, the aggregate if whose claims is at minimum: (a) a schedule of debts and liabilities; (b) an
least either one million pesos (1, 000, 000, 000) or at least inventory of assets; and (c) a propose agreement with his
twenty five percent (25%) of the subscribed capital stock or creditors.
partner’s contribution of the debtor, whichever is higher,
may apply for and seek the liquidation of an insolvent debtor
by filing a petition for liquidation of the debtor with the court. Voluntary Liquidation- Individual Debtor
The petition shall show that:
An individual debtor whose properties are not sufficient to
a. There is no genuine issue of fact or law on the cover his liabilities, and owing debts exceeding five hundred
claim/s of the petitioner/s, and that the due and demandable thousand pesos may apply to be discharged from his debts
payments thereon have not been made for at least one and liabilities by filing a verified petition with the court of the
hundred eighty days or that the debtor has failed generally province or city in which he has resided for six months prior
to meets its liabilities as they fall due; and to the filing of such petition. He shall attach to his petition a
b. There is no substantial likelihood that the debtor schedule and liabilities and an inventory of assets. The filing
may be rehabilitated. of such petition shall be an act of insolvency.
At any time during the pendency of or after a rehabilitation,
court-supervised or pre- negotiated rehabilitation Discussion: So state of suspension of payments. Technically
proceedings, three (3) or more creditors whose claims is at the remedy for the individual debtor is to file a petition for a
least either one million pesos 1, 000, 000, 000) or at least declaration of state of suspension of payments.
twenty five percent (25%) of the subscribed capital stock or
partner’s contribution of the debtor, whichever is higher, Involuntary Liquidation –Individual Debtor
may also initiate liquidation proceedings by filing a motion
in the same court where the rehabilitation proceedings are  Any creditor or group of creditors with a claim of,
pending to convert the rehabilitation proceedings into or with claims aggregating at least Five hundred
liquidation proceedings. The motion shall be verified, shall thousand pesos (Php500,000.00) may file a
contain or set forth the same matters required in the verified petition for liquidation with the court of the
preceding paragraph, and state that the movants are province or city in which the individual debtor
seeking the immediate liquidation of the debtor. resides.
If the petition or motion is sufficient in form and substance,  The following shall be considered acts of
the court shall issue and order: insolvency, and the petition for liquidation shall set
for or allege at least one of such acts:
1. Directing the publication of the petition or motion  That such person is about to depart or has
in a newspaper of general circulation once a week departed from the Republic of the
for two consecutive weeks and; Philippines, with intent to defraud his
2. Directing the debtor and all creditors who are not creditors;
the petitioners to file their comment on the petition  That being absent from the Republic of the
or motion within fifteen (15) days from the date of Philippines, with intent to defraud his
last publication. creditors, he remains absent;
If, after considering the comments files, the court  That he conceals himself to avoid the
service of legal
determines that the petition or motion is meritorious, it shall
issue the liquidation order mentioned in Section 112
hereof. The Liquidation Order- Common to both Juridical and
Individual Debtors
SEC. 112. Liquidation Order. — The Liquidation Order

Conversion by the court into liquidation proceedings
shall:
During the pendency of court supervised or negotiated a. declare the debtor insolvent;
rehabilitation proceedings, the court may order conversion b. order the liquidation of the debtor and, in the case
of rehabilitation proceedings to liquidation proceedings of a juridical debtor, declare it as dissolved;
pursuant to: (a) Section 25 (c) of this Act; or (b) Section 72 c. order the sheriff to take possession and control of
of this Act; or (c) Section 75 of this Act; or (d) Section 90 of all the property of the debtor, except those that may be
this Act; or at any other time upon the recommendation of exempt from execution;
the rehabilitation receiver that the rehabilitation of the
43
d. order the publication of the petition or motion in a SEC. 116. Court-Appointed Liquidator. — The court may
newspaper of general circulation once a week for two (2) appoint the liquidator if:
consecutive weeks; a. on the date set for the election of the liquidator, the
e. direct payments of any claims and conveyance of creditors do not attend;
any property due the debtor to the liquidator; b. the creditors who attend, fail or refuse to elect a
f. prohibit payments by the debtor and the transfer of liquidator;
any property by the debtor; c. after being elected, the liquidator fails to qualify; or
g. direct all creditors to file their claims with the d. a vacancy occurs for any reason whatsoever. In any
liquidator within the period set by the rules of procedure; of the cases provided herein, the court may instead set
h. authorize the payment of administrative expenses another hearing for the election of the liquidator.
as they become due;
i. state that the debtor and creditors who are not
petitioner/s may submit the names of other nominees to the Provided, further, That nothing in this section shall be
position of liquidator; and construed to prevent a rehabilitation receiver, who was
j. set the case for hearing for the election and administering the debtor prior to the commencement of the
appointment of the liquidator, which date shall not be less liquidation, from being appointed as a liquidator.
than thirty (30) days nor more than forty-five (45) days
from the date of the last publication.
THE LIQUIDATION PLAN
SEC. 113. Effects of the Liquidation Order. — Upon the SEC. 129. The Liquidation Plan. — Within three (3)
issuance of the Liquidation Order: months from his assumption into office, the Liquidator shall
a. the juridical debtor shall be deemed dissolved and submit a Liquidation Plan to the court. The Liquidation Plan
its corporate or juridical existence terminated; shall, as a minimum, enumerate all the assets of the debtor,
b. legal title to and control of all the assets of the all the claims against the debtor and a schedule of
debtor, except those that may be exempt from execution, liquidation of the assets and payment of the claims.
shall be deemed vested in the liquidator or, pending his
election or appointment, with the court; SEC. 131. Sale of Assets in Liquidation. — The liquidator
c. all contracts of the debtor shall be deemed may sell the unencumbered assets of the debtor and convert
terminated and/or breached, unless the liquidator, within the same into money. The sale shall be made at public
ninety (90) days from the date of his assumption of office, auction. However, a private sale may be allowed with the
declares otherwise and the contracting party agrees; approval of the court if: (a) the goods to be sold are of a
d. no separate action for the collection of an perishable nature, or are liable to quickly deteriorate in
unsecured claim shall be allowed. Such actions already value, or are disproportionately expensive to keep or
pending will be transferred to the Liquidator for him to maintain; or (b) the private sale is for the best interest of
accept and settle or contest. If the liquidator contests or the debtor and his creditors.
disputes the claim, the court shall allow, hear and resolve
such contest except when the case is already on appeal. In With the approval of the court, unencumbered property of
such a case, the suit may proceed to judgment, and any final the debtor may also be conveyed to a creditor in satisfaction
and executory judgment therein for a claim against the of his claim or part thereof.
debtor shall be filed and allowed in court; and Discussion: That is a plan that will set up how assets will be
e. no foreclosure proceeding shall be allowed for a sold, to who among the creditors may be given, based on the
period of one hundred eighty (180) days. order of concurrence or preference. The Liquidator may sell the
encumbered assets of the debtor and convert such to money
etc
Who is the Liquidator?

CROSS-BORDER INSOLVENCY PROCEEDINGS
SEC. 115. Election of Liquidator. — Only creditors who
have filed their claims within the period set by the court, and SEC. 139. Adoption of Uncitral Model Law on Cross-
whose claims are not barred by the statute of limitations, Border Insolvency. — Subject to the provision of Section
will be allowed to vote in the election of the liquidator. A 136 hereof and the rules of procedure that may be adopted
secured creditor will not be allowed to vote, unless: (a) he by the Supreme Court, the Model Law on Cross-Border
waives his security or lien; or (b) has the value of the Insolvency of the United Nations Center for International
property subject of his security or lien fixed by agreement Trade and Development is hereby adopted as part of this
with the liquidator, and is admitted for the balance of his Act.
claim.
Rather than prescribing a single set of rules for all states to
The creditors entitled to vote will elect the liquidator in open adopt, the Model Law focuses on trying to:
court. The nominee receiving the highest number of votes
cast in terms of amount of claims, and who is qualified  Identify the most relevant jurisdiction in relation to a
pursuant to Section 118 hereof, shall be appointed as the cross-border insolvency (called the “foreign main
liquidator. proceeding”);
 Ensure that insolvency officials from that jurisdiction
are recognized in other states; and
Should there be Court–Appointed Liquidator? Yes.
44
 Ensure that other states provide the necessary By: Atty. Raymund Christian S. Ong Abrantes, CPA
cooperation to facilitate the insolvency process in the
principal jurisdiction. This is just a summary on the SRC Noh. If you try to look at it,
if you really study the SRC, its separate book and if you want
In order to identify the principal jurisdiction, the mode law to go in depth about it, it consists of separate provisions,
utilizes the “center of main interest (COMI) concept. mainly on the regulation of securities.
Center of Main Interest concept—The working assumption is Blue Sky selling – because practically when you are persuading
that in any international business will nonetheless have a people to invest in whatever business that you have, you are
center of Main Interest, where the principal insolvency should selling the blue sky noh, you are making promises. Yun yung
take place. As far as possible, the assets and claims should be tawag nya, just like what happened with Kappa, with Rigen,
channeled back to that main jurisdiction, and all other with all those scams. They are practically selling you the idea
jurisdiction should seek to limit the exercise of their insolvency that you will profit 400% in a month.
regimes to assisting with the liquidation of assets of their
countries, the staying of claims, the redirecting of claims back Why the SRC? It gives you the idea that the SEC registration is
to the principal jurisdiction. not really enough. SEC registration gives you a corporate
personality. The SRC registration allows you to solicit investors
The basis of the model law shall be referred to a Modified from the public. Then you have to register a prospectus para
Universalism. ma check nila if you are really offering real investment. Kasi
pag hindi dadaan dun sa scrutiny nila, then everyone can just
declare that they are going to profit by how many percent ROI.
A.M. No. 15-04-06 SC That is the reason why it has to go through that approval
FINANCIAL LIQUIDATION AND SUSPENSION OF process and mind you it’s not that easy. You have to establish
PAYMENT RULES OF PROCEDURE FOR INSOLVENT that you are not just selling the blue sky. You have your
DEBTOR (2015) operations and you have financial capability and you are not
deceiving the public, that the money that will be given to you
will not just go to the pockets of the owners. That’s the concept
PROHIBITED PLEADINGS of the SRC. You have to regulate because there’s a lot of
investment scams.
Section 3. Nature of Proceedings. xxx The
proceedings shall be summary and non- adversarial in
nature. The following pleadings are prohibited: STATE POLICY
a. Motion to Dismiss;
b. Motion for a Bill of Particulars; DECLARATION OF STATE POLICY
c. Petition for Relief; The state shall
d. Motion for Extension;
 establish a socially conscious, have free market
e. Motion for Postponement and Other Motions of
that regulates itself,
Similar intent;
f. Reply;  encourage the widest participation of ownership in
g. Rejoinder; enterprises,
h. Intervention; and  enhance the democratization of wealth,
i. Any pleading or motion similar to, or of like effect  promote the development of the capital market,
as, any of the foregoing.  protect investors,
For stated and fully supported compelling reasons, the court  ensure full and fair disclosure about securities,
may allow the filing of motions for extension or  minimize if not totally eliminate insider trading and
postponement, provided, the same shall be verified and other fraudulent or manipulative devices and
under oath practices which create distortions in the free
market.
CONVERSION OF REHAABILITATION PROCEEDINGS TO Discussion: If you are registered and you are a legit entity
LIQUIDATION PROCEEDINGS that is getting investment from the public, there’s also that risk
of having insider trading. Meaning if you have connections in
Voluntary Liquidation the company that know sensitive information like example,
mag IPO kami or magexpand kami, so buy the shares now kasi
When there is a pending court-supervised or pre-negotiated eventually tataas and value. SO those are manipulative
rehabilitation proceeding, the debtor may file a motion in the schemes that are only intended to favor the few. So, yun din
same court where the rehabilitation proceedings are pending yung prinoprotect.
to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified and shall contain or INTERNATIONAL ORGANIZATION OF SECURITIES
set forth the same matters mentioned in the preceding section COMMISSIONS (IOSCO)
and the grounds relied upon as provided under the FRIA.  The international organization of securities commissions
(IOSCO) is an Association of organizations that regulate
the world's securities and futures markets. members
SECURITIES REGULATION CODE (RA 8799) are typically primary securities and/or futures
regulators in a national jurisdiction or the main financial
BLUE SKY SELLING: THE NEED TO REGULATE regulator from each country. Its mandate is to:
A LECTURE ON SECURITIES REGULATION CODE {RA 9799}
45
 develop implement and promote high standards of SEC Opinion dated September 11, 2009
regulation to enhance investor protection and There are two general forms of traditional securities,
reduce systemic risk “equity” and “debt” securities. Equity and debt securities
differ in terms of relationship between the issuer and the
 share information with the exchanges and assist
security holder. Equity securities represent ownership right
them with technical and operational issues
in a corporation. On the other hand, debt securities require
 establish standards towards monitoring global the issuer to repay the principal amount of loaned to it by
investment transactions across borders and fixed maturity date.
markets
In this SEC Opinion, there are two general forms of secuties.
You have the “equity” and the “debt”
To summarize: REGULATORY ACTIVITIES UNDER THE SRC
“Equity” meaning shares of stocks or participation of
 Registration process ownership. When you have your “debt” securities, meaning
 reporting requirements utang.
 anti fraud provisions
 regulation on market participants Considered as “Securities”
 sanctions - civil and criminal
 Shares of Stock
 Investment Contract
DEFINITION OF SECURITIES
 An investment contract means a contract,
transaction or scheme (collectively “contract”)
SECURITIES whereby a person invests his money in a common
enterprise and is led to expect profits primarily
Securities are shares, participation or interests in a from the efforts of others.
Corporation or in a commercial enterprise or profit making
venture and evidenced by a certificate, contract, instrument,
 A presumption that a contract is an investment
contract arises whenever a person seeks to use
whether written or electronic in character. it includes:
the money of others on the promise of profits.
a) shares of stocks, bonds, debentures, notes,
evidences of indebtedness, asset backed  When two or more investors “pool” their resources,
securities; there is a common enterprise, even if the
b) investment contracts, certificates of interest or promoter does not do more than receive a
participation in a profit sharing agreement, broker’s commission
certificates of deposit for a future subscription;  Investment Unit Instruments
c) fractional undivided interests in oil gas or other  Asset Backed Securities
mineral rights;  Investment in Real Estate Investment
d) derivatives like option and warrants ;
Trust Funds
e) certificates of assignments, certificates of
participation, trust certificates, voting trust  Derivatives
certificates or similar instruments;  Proprietary or non-proprietary share or
f) proprietary or nonproprietary membership certificate
certificates in corporations; and  Evidence of Indebtedness
g) other instruments as may in the future be  Long Term Commercial Paper
determined by the Commission.
 Short term Commercial Paper
Discussion: We have to define securities because if it’s not  Bill of Exchange
covered by the term securities in the SRC then, it is not covered  Unit Investment Trust Fund
by that law.  Exchange Trade Funds
 Mutual Fund
“and other instruments as may be determined by the
 Certificate of deposit for future
Commission” – So you have the catch-all. Kasi we all know for
subscription
a fact that businesses are dynamic and it would happen with
PRs diba? They are so creative in formulation an instrument.
Example of security of shares of stock, investment contract.
Very, very important. Because if there is an agreement
But very important here is letter b. That is why I highlighted
between the entity and an investor and it falls under the
it.
definition of an investment contract then it is covered by the
SRC. It is contract, transaction, or even scheme (networking
(b) Investment contracts, certificates of interest or
scheme, whatever scheme) whereby a person invests money
participation in a profit sharing agreement,
in a common enterprise and is led (please take note of the
certificates of deposit for a future subscription;
words “is led”) to expect profits primarily from the efforts of
others.
“Investment contracts” – anything that is considered as an
investment contract is covered under the Securities definition
Like Rigen or KAPA. You invest and then there is an expectation
of the SRC.
that you will get profits from it because of that particular
entity.
46
definition of "security." The US Supreme Court,

A presumption that a contract is an investment contract arises recognizing that the term "investment contract" was not
whenever a person seeks to use the money of others on the defined by the Act or illumined by any legislative
promise of profits. report, held that "Congress was using a term whose
meaning had been crystallized" under the state’s "blue
Which is actually what is happening. sky" laws in existence prior to the adoption of the
Securities Act. Thus, it ruled that the use of the catch-
When two or more investors “pool” their resources, there is a all term "investment contract" indicated a congressional
common enterprise, even if the promoter does not do more intent to cover a wide range of investment transactions.
than receive a broker’s commission. Examples of that, you It established a test to determine whether a transaction
have ITF, etc, etc. falls within the scope of an "investment contract."
 Known as the Howey Test, it requires a transaction,
contract, or scheme whereby a person
Considered as “Securities” (cont.) 1. makes an investment of money,
2. in a common enterprise,
 Derivatives with respect to equity shares, means a 3. with the expectation of profits,
financial instrument, including options and warrants, 4. to be derived solely from the efforts of
whose value depends on the interest in or performance others.
of an underlying security, but which does not require Although the proponents must establish all four
any investment of principal in the underlying security. elements, the US Supreme Court stressed that the
Howey Test "embodies a flexible rather than a static
 Options are contracts that give the buyer the right,
principle, one that is capable of adaptation to meet the
but not the obligation, to buy or sell an underlying
countless and variable schemes devised by those who
security at a predetermined price, called the
seek the use of the money of others on the promise of
exercise or strike price, on or before a
profits." Needless to state, any investment contract
predetermined date, called the expiry date, which
covered by the Howey Test must be registered under
can only be extended in accordance with
the Securities Act, regardless of whether its issuer was
Exchange rules.
engaged in fraudulent practices.
 Call options are right to buy and Put options are
rights to sell.
 After Howey came the 1973 US case of SEC v. Glenn W.
Turner Enterprises, Inc. et al. In this case, the 9th Circuit
 Warrants are rights to subscribe or purchase new of the US Court of Appeals ruled that the element that
shares or existing shares in a company, on or profits must come "solely" from the efforts of others
before a predetermined date, called the expiry should not be given a strict interpretation. It held that a
date, which can only be extended in accordance literal reading of the requirement "solely" would lead to
with Exchange rules. Warrants generally have a unrealistic results. It reasoned out that its flexible
longer exercise period. reading is in accord with the statutory policy of affording
broad protection to the public. Our R.A. No. 8799
So, again, Derivatives by definition no. Examples of derivates, appears to follow this flexible concept for it defines an
you have your: investment contract as a contract, transaction or
 options that gives the buyer the right to buy but not scheme (collectively "contract") whereby a person
the obligation. Option lang nga eh. invests his money in a common enterprise and is led to
 Call option – right to buy; Put options naman is the expect profits not solely but primarily from the
right to sell efforts of others. Thus, to be a security subject to
 You have warrants which are rights to subscribe or regulation by the SEC, an investment contract in our
purchase new shares or existing shares in a company, jurisdiction must be proved to be: (1) an investment of
on or before a predetermined date money, (2) in a common enterprise, (3) with
expectation of profits, (4) primarily from efforts of
So those are examples of derivatives. others.
 As an investment contract that is security under R.A.
*digest taken from 2019 tsn No. 8799, it must be registered with public respondent
POWER HOMES UNLIMITED CORPORATION vs SEC SEC, otherwise the SEC cannot protect the investing
G.R. No. 164182 public from fraudulent securities. The strict regulation of
February 26, 2008 securities is founded on the premise that the capital
markets depend on the investing public’s level of
 An investment contract is defined in the Amended
confidence in the system.
Implementing Rules and Regulations of R.A. No. 8799
as a "contract, transaction or scheme (collectively
Facts: Power Homes is a domestic corporation duly
‘contract’) whereby a person invests his money in a
registered with SEC on October 13, 2000.
common enterprise and is led to expect
profits primarily from the efforts of others."
Noel Manero requested SEC to investigate Power Homes’
 It behooves us to trace the history of the concept of an business. He claimed that he attended a seminar conducted
investment contract under R.A. No. 8799. Our definition by Power Homes where the latter claimed to sell properties
of an investment contract traces its roots from the 1946 that were inexistent and without any broker's license.
United States (US) case of SEC v. W.J. Howey Co.
 In this case, the US Supreme Court was confronted with Afterwards, SEC conducted investigation and called a
the issue of whether the Howey transaction constituted conference. It later found that Power Homes to be engaged
an "investment contract" under the Securities Act’s in the sale or offer for sale or distribution of investment
47
contracts, which are considered securities under Sec. 3.1 (b) meaning had been crystallized" under the state’s "blue sky"
and has failed to register them in violation of Sec. 8.1. laws – so this SRC are what you call blue sky laws because it
promises the blue sky to investors. Tinatawag nilang blue sky
Issue: WON Power Homes’ business constitutes an kind of selling.
investment contract which should be registered with SEC
before its sale or offer for sale or distribution to the public. Thus, it ruled that the use of the catch-all term "investment
contract" indicated a congressional intent to cover a wide range
Ruling: Yes of investment transactions. It established a test to determine
whether a transaction falls within the scope of an "investment
What is an investment contract? contract." So this is the Howey Test. You have to consider:
An investment contract is defined in the Amended 1. Does a person make an investment of money?
Implementing Rules and Regulations of RA 8799 as a 2. In a common enterprise
"contract, transaction or scheme (collectively 'contract') 3. with expectation of profits,
whereby a person invests his money in a common enterprise 4. primarily from efforts of others
and is led to expect profits primarily from the efforts of
others.” Although the proponents must establish all four elements, the
US Supreme Court stressed that the Howey Test "embodies a
HOWEY Test (US jurisprudence) flexible rather than a static principle, one that is capable of
It requires a transaction, contract, or scheme whereby a adaptation to meet the countless and variable schemes devised
person: by those who seek the use of the money of others on the
1. makes an investment of money, promise of profits."
2. in a common enterprise,
3. with the expectation of profits, Because mind you, business persons are very very creative.
4. to be derived solely from the efforts of others. Needless to state, any investment contract covered by
the Howey Test must be registered under the Securities Act,
Although the proponents must establish all four elements, regardless of whether its issuer was engaged in fraudulent
the US Supreme Court stressed that the Howey Test practices.
"embodies a flexible rather than a static principle, one that
is capable of adaptation to meet the countless and variable This is similar to us. It must be registered under the SRC.
schemes devised by those who seek the use of the money of
others on the promise of profits. So, again, that is your requisites.
Note that: under succeeding cases, there is a liberalisation.
Wherein, the law does not limit the definition of an CASE: In re Rigen Marketing, SEC CDO Case No. 06-19-
investment contract to those that derive profit from the 051 [June 4, 2019]
efforts of others solely. Rather, such term has been removed  A careful examination by the EIPD of the
to be better aligned with the law. Acknowledgement Receipt issued by RIGEN which was
attached to the Memorandum that was obtained by the
Thus, to be a security subject to regulation by the SEC, an SEC-DEO from one of the clients of RIGEN named Rene
investment contract in our jurisdiction must be proved to be: A. Beduya, would show that the investment scheme of
1. an investment of money, RIGEN involves an investment contract as it
2. in a common enterprise, contained the following statements in the
3. with expectation of profits, acknowledgement receipt:
4. primarily from efforts of others a. The deposit of Ten Thousand (P10,000.00).
Discussion: In this case, the Court defined investment contact b. The statement: “I/We will be entitled to an
as a "contract, transaction or scheme (collectively ‘contract’) incentive not exceeding 400% of my/our payment as soon
whereby a person invests his money in a common enterprise as the company can sell the product herein sold to the
and is led to expect profits primarily from the efforts of first minimum eight (8) consumers per batch.”
others." c. Paragraph I. Purchase Order. Ourchase order may
be held by any person of legal age or any legal entity
It behooves us to trace the history of the concept of an regardless of citizenship or nationality.. If the client is a
investment contract under R.A. No. 8799. Our definition of an corporation, partnership or other legal entity, copies of the
investment contract traces its roots from the 1946 United articles of incorporation and by-laws, certificate of
States (US) case of SEC v. W.J. Howey Co. registration and the resolution of the client’s Board of
Directors authorizing the investment, all duly certified,
This is also called as the Howey Test and this has been asked must be submitted with the application depending on the
in the Bar na. approval of the RIGEN MARKETING.
d. The Terms of Conditions in the
In this case, the US Supreme Court was confronted with the Acknowledgement Receipt contains the following provisions:
issue of whether the Howey transaction constituted an i.“Paragraph II” Right to accept/Reject and
"investment contract" – because it may be termed differently. Scale Down Applications. RIGEN
It may be agreed differently but if it follows the requisites of an MARKETING. Reserves the right to
investment contract then it is considered as an investment accept, reject or reduce the
contract. Investment applied for in any
Application at its sole discretion and in
The US Supreme Court, recognizing that the term "investment such manner that it may deem
contract" was not defined by the Act or illumined by any appropriate. In the event that this
legislative report, held that "Congress was using a term whose Application is not accepted in whole or in
48
part, the company may refund the scheme whereby a person (1) makes an investment of
corresponding investment to the Client money; (2) in a common enterprise, (3) with the
without interest, within secen (7) days expectation of profits; and (4) to be derived solely from
from the submission of the Applicaiont.x x the efforts of others. This definition has been adopted
x” by the Supreme Court of the Philippines which succinctly
ii.Paragraph III. The four hundred percent stated that an investment contract in our jurisdiction, to
(400%) capital growth will be based be a security subject to regulation by the Commission,
on the entry purchase of the RIGEN must be proved to be: (1) an investment of money, (2)
MARKETING’s product as soon as in a common enterprise, (3) with expectation of profits,
he/she can sell the product herein and (4) primarily from efforts of others.
sold to a minimum of either (8)  As aptly elucidated by the EIPD, it was established that
consumers. the investment scheme of respondent RIGEN falls
iii.Paragraph XI. AGREEMENT. This within the ambit of investment contract because of its
Agreement shall continue and remain essential features as follows:
in force until termination of the 1. The investor enters into a contract. There is a
investment in accordance with the placement of money where for a certain sum the
contract or with applicable laws or investors are guaranteed four hundred percent
regulations then existing. (400%) return in just thirty (3) days.
iv.NO INVESTMENT ADVICE. The Client 2. The money invested is placed in a common
hereby acknowledges that RIGEN enterprise and the investor-member expects
MARKETING will not and does not provide to derive profits. As stated under the
investment, legal, tax, or accounting Acknowledgement Receipt provided by SEC-DEO to
advice regarding the suitability or EIPD, the four hundred percent (400%) capital
profitability of a security of investment, growth will be based on the entry purchase of the
that RIGEN MARKTING’s employees are RIGEN MARKETING’s product as soon as he/she can
not authorized to give any such advice and sell the product herein sold to a minimum if eight
that the Client will not solicit or rely upon (8) consumers.
such advice. 3. Finally, the member-investor expects to earn
e. ACKNOWLEDGEMENT. I/We the undersigned client, profits from the entrepreneurial and
warrant that in executing this application, have managerial efforts of others. The investor need
understood and have relied solely upon the not do anything but go to the office of RIGEN and
investment’s prospectus and the terms and receive the guaranteed return to them. The
conditions stated on this form. I also investors just have to invest money. The PAY-OUT
acknowledge that additional investments in the PROCESS, i.e., The payment will be received by
future (if any) shall aso be covered by the said the client after three-to-five day working hours the
prospectus and terms and condition. Xxx stipulated in the Terms and Conditions of the
 In the “Terms and Conditions” portion of the Acknowledgement Receipt proves that the
Acknowledgement Receipt submitted to the EIPD by the investors are made to expect profits from this
SEC-DEO, it was likewise stated that: scheme.
4. On 3 June 2019 certification from the CGFD states
“Processing of Information: The Client authorizes RIGEN that “RIGEN MARKETING is not a registered
Marketing to xxx xxx. The Client likewise authorized issuer of mutual funds, exchange traded funds and
RIGEN Marketing to process, disclose and share his proprietary/non-proprietary shares or membership
personal information to its relevant marketing teams certificates and timeshares pursuant to Sections 8
in relation to the RIGEN MARKETING’s marketing and 12 of the Securities and Regulation Code and
sorts. As used herein “RIGEN MARKETING” shall include therefore not licensed to offer or sell such securities
RIGENMARKETING, its subsidiaries, aliases or to the public.”
related companies and RIGEN MARKETING’s
agents, representatives, outsourced service  On the other hand, the 3 June 2019 Certification from
providers, while “process” and “processing” shall have the MSRD likewise states that “RIGEN MARKETING
the meaning ascribed to them under the Data Privacy has not registered any securities pursuant to Section 8
Act. and 12 of the Securities and Regulation Code (SRC).
Likewise, the Department has not issued Permit to Sell
Securities in favor of RIGEN MARKETING. Further,
 EIPD’s motion, as supported by substantial evidence, said entity has not filed nor has any pending application
shows that RIGEN is engaged in the offer and/or sale of for registration/permit to sell securities.
securities to the public in the form of investment  Having established that the investment scheme of
contracts without the necessary license from the RIGEN is an investment contract, the provisions of
Commission. Section 8.1 of the SRC should be complied with before
 Securities are “shares, participation or interests in a said securities could be offered or sold to the public.
corporation or in a commercial enterprise or profit-  Thus, RIGEN has engaged itself in offering or selling
making venture and evidenced by a certificate, contract, such securities to the general public sans the necessary
instrument, whether written or electronic in character” license or permit as attested by the Market Securities
and includes an “investment contact.” Regulation Department (MSRD) and Corporate
 In a plethora of cases, it has been stated that an Governance and Finance Department (CGFD) of this
“investment contract” is a transaction, contract, or Commission.
49
 Worse, the investment scheme of RIGEN has the

characteristics of a Ponzi scheme as it promises an Registrable or Exempt?
exorbitant rate of return with little to no risk at all to the Discussion:
investors as exemplified in the case of People of the If a security is REGISTRABLE under the SRC then you have to
Philippines vs. Palmy Tibayan and Rico Z. Puerto (GR register it before offering it to the public.
No. 209655-60, January 14, 2015),where the Supreme
Court held that: If it is EXEMPT, because some are exempt for valid reasons,
“To be sure, a Ponzi scheme is a type of investment then you do not need to register it.
fraud that involves the payment of purported returns to
existing investors from funds contributed by new
REGISTRATION OF SECURITIES
investors. Its organizers often solicit new investors
by promising to invest funds in opportunities
claimed to generate high returns with little or no Securities shall not be sold or offered for sale or distribution
risk. In many Ponzi schemes, the perpetrators focus within the Philippines, without a registration statement duly
on attracting new money to make promised filed with and approved by the Commission. Prior to such
payments to earlier-stage investors to create the sale, information on the securities, in such form and with
false appearance that investors are profiting from such substance as the Commission may prescribe, shall be
a legitimate business. It is not an investment made available to each prospective purchaser.
strategy but a gullibility scheme, which works only as
long as there is an ever increasing number of new The Commission may conditionally approve the registration
investors joining the scheme. It is difficult to sustain the statement under such terms as it may deem necessary.
scheme over a long period of time because the operator
needs an ever larger pool of later investors to continue The Commission may specify the terms and conditions under
paying the promised profits to early investors. The idea which any written communication, including any summary
behind this type of swindle is that the "con-man" collects prospectus, shall be deemed not to constitute an offer for
his money from his second or third round of investors sale under this Section.
and then absconds before anyone else shows up to
collect. Necessarily, Ponzi schemes only last weeks, or A record of the registration of securities shall be kept in a
months at the most.” (Underscoring added for Register of Securities in which shall be recorded orders
Emphasis) entered by the securities registered therein shall be open to
public inspection at reasonable hours on business days.
Discussion: In the SEC Admin case of this In Re Rigen
Marketing, SEC CDO. I think this was made fairly recent. You
The Commission may audit the financial statements, assets
know what happened.
and other information of a firm applying for registration of
its securities whenever it deems the same necessary to
Kasi what happened is less like an investment contract, they
insure full disclosure or to protect the interest of the
would put it under the guise of selling a product. Ito yung
investors and the public in general.
binibili ng investor. But those are just a scheme of a front. Then
you can consider it as an investment contract.
Therefore, this is not just mere ministerial act on the part of
In a plethora of cases, etc., etc. So hinimay ng SEC. the SEC.
1. The investor enters into a contract. The Commission may conditionally approve the registration
2. The money invested is placed in a common statement under such terms as it may deem necessary.
enterprise and the investor-member expects to
derive profits. The Commission may specify the terms and conditions under
3. the member-investor expects to earn profits from which any written communication, including any summary
the entrepreneurial and managerial efforts of prospectus.
others. – the PAY OUT PROCESS
A record of the registration of securities shall be kept in a
That is why the Court said that, um – hindi naman niya Register of Securities.
sinasabing hindi pwede gawin ng RIGEN yun. Ang sinasabi lang
nila naging illegal siya because they did not register. Then The Commission may audit the FS, assets and other
what’s the reason? Because some of them are just saying “ipa- information of a firm applying for registration whenever it
register niyo nalang pala? If that is the requirement then deems the same necessary to insure full disclosure or to protect
comply nalang kayo.” But the problem is, when they complied, the interest of the investors and the public in general.
they may not be approved because they will be under the
scrutiny of the SEC and the SEC will venture out kung ano Requirement to
talaga ang source ng income. I mean, from now, there is no File Registration Statement
business in the world that would allow you to gain an income
of 400% monthly. So yan yung hihimaying ng SEC – what is
your business model? Magkaka-earn ka ba talaga nito or just Filing of Registration Statement and Effectivity of Offering
defraud investors? That is the concept of it.
a. No securities, except of a class exempt under Section 9
of the Code or unless sold in any transaction exempt under
KINDS OF SECURITIES Section 10 thereof, shall be sold or distributed by any person
within the Philippines unless such securities shall have been
KINDS OF SECURITIES registered with the Commission on SEC Form 12-1 and the
50
registration statement has been declared effective by the prospectus, which has been filed with the registration
Commission. Moreover, no securities shall be offered unless statement in the form and containing the information herein is
a registration statement has been filed with the widely disseminated and sufficient copies have been made
Commission. available so that all who desire may obtain one.
No securities, except of a class exempt under Section 9. So pag The concept of registration is like prospectus—para siyang fine
hindi ka exempt, dapat ipapa register mo siya. print. This is our business, eto kami na business, ito yung mga
paraan, gagamitin sa industry, etcetera. So, it’s like a notice to
b. If the securities which are the subject of the registration the investors so that the investors would know saan
statement are intended to be listed on an Exchange, a copy mapupunta yung pera. That’s the purpose naman of regulation,
of the registration statement and all other pertinent it’s just to properly inform the investors. Rather than saying na
documents shall simultaneously be filed with that Exchange. ‘uy, 400% to monthly. Sure walang palya”. That is very blue-
All amendments to the registration statement shall also sky selling, so to speak.
simultaneously be filed with that Exchange. Upon filing of
the application for listing on that Exchange, two (2) copies Exempt Securities
of the application shall be filed with the Commission.
Any security issued by a financial situation licensed by the
c. Upon the registration statement being declared effective Bangko Sentral ng Pilipinas to engage in quasi-banking,
by the Commission, the sale of the securities subject thereto other than its own shares of stock, shall be exempt from
shall be commenced within two (2) business days and be registration under Section 8.1 of the Code; provided,
continued until they have been completely sold or until the however, that the purchase and sale of any such security
sale has been terminated by action of the issuer. Upon shall not be exempt from anti-fraud, civil liability or other
completion or termination of the offering by the issuer, provisions of the Code.
notification of such shall be promptly given to the
Commission. Such notification shall include the number of Are Certificates of Participation considered as exempt?
securities sold. If attempts to sell the securities which are SEC Opinion
the subject of the registration statement have ceased, the December 8, 1997
issuer shall terminate the offering.
It is your contention that the “Certificates of Participation”
d. After termination of the offering, the sale or offering for to be issued under the scheme described above are
sale of additional securities shall be effected through a “exempt” from the registration requirements pursuant to
separate registration statement relating to the additional Sec. 5 of the Revised Securities Act, (RSA), quoted
securities irrespective of whether they had been previously hereunder.
registered but not sold.
Section 5. Exempt Securities – (a) Except as expressly
Publication of Notice of Filing provided, the requirement of registration under subsection
(a) of this section four of this Act shall not apply to any of
a. The registrant shall prepare and file with its registration the following classes of securities. xxx
statement a notification of the filing which shall recite that a (3) Any security issued or guaranteed by any banking
registration statement for the sale of the subject security institution authorized to do business in the Philippines, the
has been filed with the Commission, that the registration business of which is substantially confined to a banking or a
statement is open to inspection by interested parties during financial institution licensed to engage in quasi-banking, and
business hours at the Commission and that copies thereof is supervised by the Central Bank.
shall be furnished to everyone requesting such at a
reasonable charge. The Code requires the issuer Take note that the above provision uses the phrase “and is
immediately to publish the notification, at its own expense, supervised by the Central Bank” as a condition for the
in two newspapers of general circulation in the Philippines, securities to be considered as “exempt”.
once a week for two consecutive weeks.
The philosophy behind the above exemption is that
b. The registrant shall submit to the Commission, as part of registration under the RSA (now, RSC) is no longer
its filing of the registration statement, an affidavit with a necessary in the public interest or for the protection
copy of the publication that was, or is to be made, attesting of the investors inasmuch as they are issued by the
that such action has been or will be immediately taken. institutions over which the Bangko Sentral already
exercises regulatory and supervisory care, and
So, there’s also publication of notice of the filing. therefore are presumed to be already adequately
regulated by that Office.
Prospectus Delivery Rule
However, in the present case, the Bangko Sentral, in its
Securities required to be, and which are, registered shall not letter-comment dated October 22, 1997, manifested that
be sold unless a prospectus, which has been filed with the the certificates of participation to be issued under the
registration statement in the form and containing the proposed scheme do not appear to be related to banking
information hereinafter described, is widely disseminated business, and therefore, are not among those contemplated
and sufficient copies have been made available so that all to be exempt from SEC registration inasmuch as the Bangko
who desire may obtain one. Sentral itself recognizes the fact that the investment scheme
is not regulated by that agency, the securities above
We have the “Prospectus Delivery Rule”. Securities required to described do not fall within the exemption contemplated in
be, and which are, registered shall not be sold unless a
51
the above-cited RSA, provision. Therefore, the issuance

thereof requires registration under the RSA. These are called ‘exempt transactions. You have to differentiate
exempt securities from exempt transactions. It might not be
SEC Opinion an exempt security, but it might fall under exempt
February 8, 2006 transactions.
Does the unit investment trust fund (UITF), like the Security (a) At any judicial sale, or sale by an executor,
Bank Secure Peso Fund fall under the definition of administrator, guardian or receiver or trustee in insolvency
“securities” under the Securities Regulation Code? or bankruptcy.
If the said UITF is a kind of securities, must it be registered (b) By or for the account of a pledge holder, or mortgagee
with the SEC? Further, must the issuer comply with or any of a pledge lien holder selling of offering for sale or
reportorial and anti-fraud provisions of Securities Regulation delivery in the ordinary course of business and not for the
Code? purpose of avoiding the provision of this Code, to liquidate
a bonafide debt, (yun yung purpose ng pag pledge mo, to
“Section 3. Definition of Terms. - 3.1. "Securities" are liquidate a bonafide debt), a security pledged in good faith
shares, participation or interests in a corporation or in a as security for such debt.
commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instruments, whether (c) An isolated transaction in which any security is sold,
written or electronic in character. It includes: offered for sale, subscription or delivery by the owner
therefore, or by his representative for the owner’s account,
(a) Shares of stocks, bonds, debentures, notes evidences of such sale or offer for sale or offer for sale, subscription or
indebtedness, asset-backed securities; delivery not being made in the course of repeated and
successive transaction of a like character by such owner, or
(b) Investment contracts, certificates of interest or on his account by such representative and such owner or
participation in a profit sharing agreement, certifies of representative not being the underwriter of such security.
deposit for a future subscription;
(d) The distribution by a corporation actively engaged in the
(c) Fractional undivided interests in oil, gas or other mineral business authorized by its articles of incorporation, of
rights; securities to its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
(d) Derivatives like option and warrants;
Stock dividends is an exempt transaction—the liquidation of
(e) Certificates of assignments, certificates of participation, stock dividends.
trust certificates, voting trust certificates or similar
instruments (e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other
(f) Proprietary or nonproprietary membership certificates in remuneration is paid or given directly or indirectly in
corporations; and connection with the sale of such capital stock.
(g) Other instruments as may in the future be determined (f) The issuance of bonds or notes secured by mortgage
by the Commission.” upon real estate or tangible personal property, when the
entire mortgage together with all the bonds or notes secured
From the foregoing definitions, the unit investment trust thereby are sold to a single purchaser at a single sale.
fund agreement attached in your letter, falls within the
scope of definition of “securities”. However, said investment (g) The issue and delivery of any security in exchange for
trust fund constitutes an exempt security under Sec. 9(9.1) any other security of the same issuer pursuant to a right of
(e), of the SRC, which provides thus: conversion entitling the holder of the security surrendered
in exchange to make such conversion: Provided, That the
“Sec. 9. Exempt Securities – 9.1. The requirement for security so surrendered has been registered under this Code
registration under Subsection 8.1 shall not as a general rule or was, when sold, exempt from the provision of this Code,
apply to any of the following classes of securities: xxx and that the security issued and delivered in exchange, if
(e) Any security issued by a bank except its own shares of sold at the conversion price, would at the time of such
stock.” conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion the par
Accordingly, registration of said securities with the SEC value of the security surrendered in such exchange shall be
pursuant to the SRC is not necessary. At any rate, it does deemed the price at which the securities issued and
not preclude the issuer from complying with pertinent anti- delivered in such exchange are sold.
fraud provisions under existing Philippine laws.
Ito yung mga debt-to-equity or equity-to-debt conversion.
Therefore, no need for registration.
(h) Broker’s transaction, executed upon customer’s orders,
Exempt Transactions on any registered Exchange or other trading market.
The requirement of registration under Subsection 8.1 shall Broker’s transaction of any registered exchange because they
not apply to the sale of any security in any of the following are already under the supervision of an exchange market like
transactions: in the Philippine stock exchange.
52
competent individuals. Meaning, they do their due diligence,

(i) Subscriptions for shares of the capitals stocks of a alam nila kung ano yung binibili nila sayo. Di sila basta basta
corporation prior to the incorporation thereof. So initial this bumibili ng shares of stock sayo, inaaral nila. Besides, they are
is pre-incorporation subscription is exempt. regulated by other law, to be prudent enough.
or in pursuance of an increase in its authorized capital stocks If you are claiming for these exemptions, please take note that
under the Corporation Code, when no expense is incurred, you should also file a notice of exemption. Di po siya
or no commission, compensation or remuneration is paid or automatic.
given in connection with the sale or disposition of such
securities, and only when the purpose for soliciting, giving SRC RULE 10-1. Exempt Transactions
or taking of such subscription is to comply with the
requirements of such law as to the percentage of the capital 1. Disclosure to investors. – Any person claiming
stock of a corporation which should be subscribed before it exemption under Section 10.1 of the Code shall provide
can be registered and duly incorporated, or its authorized, to any party to whom they offer for sale or sell securities
capital increase. in reliance on such exemption written disclosure
containing the following information:
The subscription from increase is not considered as an exempt
transaction. a) The provision of Section 10 of the Code under which
exemption from registration is claimed;
(j) The exchange of securities by the issuer with the existing
security holders exclusively, where no commission or other b) Whether the Commission’s confirmation that such
remuneration is paid or given directly or indirectly for offer and sale qualifies as an exempt transaction
soliciting such exchange. has been obtained; and
(k) The sale of securities by an issuer to fewer than twenty c) The following statement in bold face, prominent
(20) persons in the Philippines during any twelve-month type:
period.
THE SECURITIES BEING OFFERED OR SOLD HAVE NOT
Per year ito. So ang ginagawa ng iba, hinihimay. Hindi naman BEEN REGISTERED WITH THE SECURITIES AND
public kasi bawal talaga yan mag public. I do have clients which EXCHANGE COMMISSION UNDER THE SECURITIES
I advised na to stop kasi they don’t know na meron palang REGULATION CODE. ANY FUTURE OFFER OR SALE
ganitong batas. So,i told them na do not sell it to the THEREOF IS SUBJECT TO REGISTRATION
public otherwise you would be violating the SRC. REQUIREMENTS UNDER THE CODE UNLESS SUCH
OFFER OR SALE QUALIFIES AS AN EXEMPT
(l) The sale of securities to any number of the following TRANSACTION.
qualified buyers:
2. Exemptive relief under Section 10.1(c) (isolated
(i) Bank; transaction) shall not be available to an issuer of securities
which shall not be considered as an “owner” thereof.
(ii) Registered investment house;
3. Exemptive relief under Section 10.1(k) (Private
(iii) Insurance company; Placement) shall be subject to the following terms and
conditions:
(iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political a.The issuer claiming such relief shall not engage
subdivision thereof or manage by a bank or other in any form of general solicitation or advertising in
persons authorized by the Bangko Sentral to engage in connection therewith;
trust functions;
b. Securities sold in any such transaction may only
If you are selling it to a qualified buyer, it is an exempt be sold to persons purchasing for their own
transaction. These are the qualified buyers. account;
EXEMPT TRANSACTIONS (continuation) c. Sales may be made to no more than nineteen

(19) “non-qualified” buyers. A corporation,
partnership or other entity shall be counted as one
i.Investment company; or buyer; provided, however, if that entity is
ii.Such other person as the commission may by rule determine organized for the specific purpose of acquiring the
as qualified buyers, on the basis of such factors as financial securities offered and is not a qualified buyer under
sophistication, net worth, knowledge, and experience in Section 10.1(l) of the Code, then each beneficial
financial and business matters, or amount of assets under owner of equity securities in the entity shall count
management. as a separate buyer under this Rule;
2019 TSN Discussion These are what you have to write in the information when you
So please memorize those qualified buyers. Kasi pag sinabi mo sell or mag [aavail] ka ng exemption.
qualified buyers and doon mo binenta, kahit ilang shares of
stock pa yan, it is not required to be registered. Why? Look at
the qualified buyers, there is a presumption that these are
53
d. The issuer provides any person to whom they And then the SEC after the filing of a notice will issue a
offer for sale or sell securities pursuant thereto with confirmation of availability of exemption. A confirmation of
the following information: exemption at saka mo ibenta.
Q: Can the SEC reject or revoke the registration statement that

i. the exact name of the issuer and its you are fired from purposes of registration security?
predecessor, if any;
A: Yes. The requirement of the SEC is not only the filing but
ii. address of its principal executive offices; also the approval. So you cannot compel through a mandamus
the SEC to issue or to approve your registration statement kasi
iii. place of incorporation; it requires a discretion to evaluate the documents that you’ve
presented. Ang purpose lang naman ng registration and
iv. exact title and class of the security; approval statement is for the SEC to determine if may capacity
ka to pay your investors kasi remember nag promise ka sa
v. par or stated value of the security; investor mo “yes give me your money because I’m going to use
this as capital for purposes of giving you dividends as a profits”.
vi. number of shares or total amount of securities SEC is there and the SRC to determine whether or not: first,
outstanding as of the end of the issuer’s most you are capacitated to do that; second if you are a legitimate
recent fiscal year; business entity; Otherwise, if walang ganitong regulation it is
for people to say “yes I have money” or blue sky selling. [2020
vii. name and address of the transfer agent; TSN]
viii. nature of the issuer’s business;

CONFIRMATION OF AVAILABILITY EXEMPTION
ix. nature of products or services offered;
5. Confirmation of Availability of Exemption - Any
x. nature and extent of the issuer’s facilities; person may apply to the Commission for confirmation that
an exemption under Section 10 is available, in which case
xi. name of the chief executive officers and SEC Form 10-1 shall be filed not later than ten (10) days
members of the board of directors; prior to the initiation of any efforts to sell the securities
which are subject thereto, and include the prescribed filing
xii. issuer’s most recent balance sheet and profit fee; provided, however that a confirmation of an exemption
and loss and retained earnings statement for under Sections 10.1(k) or (l) shall only be given where the
each of the two preceding fiscal years or such securities sold pursuant to such exemption are purchased by
shorter period as the issuer (including its persons purchasing for their own account and who shall not
predecessor) has been in existence; sell the same for a period of at least one (1) year (restriction
period) from the date of such acquisition.
xiii. whether the person offering or selling the xxx
securities is affiliated, directly or indirectly,
with the issuer; Kasi pwede namang less than 19 ka tapos binenta pala sa iba
so that is not part of it.
xiv. whether the offering is being made directly or
indirectly on behalf of the issuer, or any xxx
director, officer or person who owns directly a. In connection with a transaction under Subsection
or indirectly more than ten percent (10%) of 10.1(i), any fee paid pursuant to requirements under the
the outstanding shares of any equity security Corporation Code may be applied in satisfaction of fees owed
of the issuer and, if so, the name of such under this Rule.
person; and
xv. information required under paragraph 1 of b. The Commission shall not be precluded from acting on
this Rule. any application for confirmation filed after the initiation
of any efforts to sell the securities.
Provided, however, where the issuer is a reporting
company under Section 17 of the Code, a copy of
its most recent annual report (SEC Form 17-A) may
be used to provide any of the required information. REJECTION and REVOCATION OF REGISTRATION OF
SECURITIES
e. The issuer files with the Commission a notice of
exemption from registration requirements under The Commission may reject a registration statement and
Section 8 of the Code on SEC Form 10-1, including as an refuse registration of the security there-under, or revoke the
exhibit thereto, information furnished to investors in affectivity of a registration statement and the registration of
connection therewith pursuant to this paragraph, within ten the security there-under after the due notice and hearing by
(10) days after the initiation of any efforts to sell the issuing an order to such effect, setting forth its finding in
securities which are subject thereto. respect thereto, if it finds that:
(a) The issuer:
54
(i) Has been judicially declared insolvent; stock exchanges under Section 6(j) of P.D. No. 902-A
reversed the decision of the PSE.
(ii) Has violated any of the provision of this Code,
the rules promulgate pursuant thereto, or any RULING: The question as to what policy is, or should be
order of the Commission of which the issuer has relied upon in approving the registration and sale of
notice in connection with the offering for which a securities in the SEC is not for the Court to determine, but
registration statement has been filed is left to the sound discretion of the Securities and Exchange
Commission. In mandating the SEC to administer the
(iii) Has been or is engaged or is about to engage Revised Securities Act, and in performing its other functions
in fraudulent transactions; under pertinent laws, the Revised Securities Act, under
Section 3 thereof, gives the SEC the power to promulgate
(iv) Has made any false or misleading such rules and regulations as it may consider appropriate in
representation of material facts in any prospectus the public interest for the enforcement of the said laws. The
concerning the issuer or its securities; second paragraph of Section 4 of the said law, on the other
hand, provides that no security, unless exempt by law, shall
(v) Has failed to comply with any requirements that be issued, endorsed, sold, transferred or in any other
the Commission may impose as a condition for manner conveyed to the public, unless registered in
registration of the security for which the accordance with the rules and regulations that shall be
registration statement has been filed; or promulgated in the public interest and for the protection of
investors by the Commission. Presidential Decree No. 902-
(b) The registration statement is on its face incomplete or A, on the other hand, provides that the SEC, as regulatory
inaccurate in any material respect or includes any untrue agency, has supervision and control over all corporations
statements of a material fact required to be stated therein and over the securities market as a whole, and as such, is
or necessary to make the statement therein not misleading; given ample authority in determining appropriate policies.
or Pursuant to this regulatory authority, the SEC has
manifested that it has adopted the policy of "full material
(c) The issuer, any officer, director or controlling person disclosure" where all companies, listed or applying for
performing similar functions, or any under writer has been listing, are required to divulge truthfully and accurately, all
convicted, by a competent judicial or administrative body, material information about themselves and the securities
upon plea of guilty, or otherwise, of an offense involving they sell, for the protection of the investing public, and
moral turpitude and /or fraud or is enjoined or restrained by under pain of administrative, criminal and civil sanctions. In
the Commission or other competent or administrative body connection with this, a fact is deemed material if it tends to
for violations of securities, commodities, and other related induce or otherwise effect the sale or purchase of its
laws. securities. 15 While the employment of this policy is
recognized and sanctioned by the laws, nonetheless, the
Revised Securities Act sets substantial and procedural
Philippine Stock Exchange v CA, SEC standards which a proposed issuer of securities must satisfy.
G.R. No. 125469 16 Pertinently, Section 9 of the Revised Securities Act sets
forth the possible Grounds for the Rejection of the
FACTS: (PALI), a domestic real estate corporation, had registration of a security:
sought to offer its shares to the public in order to raise funds
allegedly to develop its properties. In January 1995, PALI — The Commission may reject a registration statement and
was issued a permit to sell by the SEC. In order to facilitate refuse to issue a permit to sell the securities included in such
the trading among its investors, PALI sought to course the registration statement if it finds that —
trading of its shares through the Philippine Stock Exchange,
Inc. (PSE), for which purpose it filed with the said stock (1) The registration statement is on its face incomplete or
exchange an application to list its shares, with supporting inaccurate in any material respect or includes any untrue
documents attached. Before the PSE could ask on the statement of a material fact or omits to state a material fact
application of PALI, the BOD of the PSE received a letter required to be stated therein or necessary to make the
from the Heirs of Marcos claiming that the late President statements therein not misleading; or
Ferdinand Marcos was the legal and beneficial owner of the
certain properties forming part of the Puerto Azul Beach (2) The issuer or registrant —
Hotel and Resort Complex which PALI claims to be among
its assets and that the Ternate Development Corporation, (i) is not solvent or not in sound financial condition;
which is among the stockholders of PALI, likewise appears
to have been held and continue to be held in trust by one (ii) has violated or has not complied with the provisions of
Rebecco Panlilio for then President Marcos and now, this Act, or the rules promulgated pursuant thereto, or any
effectively for his estate, and requested PALI's application to order of the Commission;
be deferred.
(iii) has failed to comply with any of the applicable
PALI's answer stated that the properties forming part of the requirements and conditions that the Commission may, in
Puerto Azul Beach Hotel and Resort Complex were not the public interest and for the protection of investors,
claimed by PALI as its assets. On the contrary, the resort is impose before the security can be registered;
actually owned by Fantasia Filipina Resort, Inc. and the
Puerto Azul Country Club, entities distinct from PALI. PSE (iv) has been engaged or is engaged or is about to engage
rejected the application of PALI. Subsequently, the SEC in in fraudulent transaction;
the exercise of its supervisory and regulatory powers over
55
(v) is in any way dishonest or is not of good repute; or commodity options and commodity leverage, or margin
contracts.
(vi) does not conduct its business in accordance with law or
is engaged in a business that is illegal or contrary to Late 90’s lang to nauso eh. They could make derivative out of
government rules and regulations. a market. For example, you are a manufacturing company and
you’re using a material na nag fa-fluctuate yung value like for
(3) The enterprise or the business of the issuer is not shown example COTTON. Tapos di mo alam, let’s say ang presyo per
to be sound or to be based on sound business principles; kilo is P10 (not sure). But you are so afraid that at the time na
kakakilanganin mo sya, at the time na mag oorder ka, iba na
(4) An officer, member of the board of directors, or principal yung presyo. So what you will do, you will enter into a contract
stockholder of the issuer is disqualified to be such officer, with someone, speculative, na I’m gonna peg it at P10. Kung
director or principal stockholder; or tataas ang presyo, lugi ka, ikaw yung mag sho-shoulder. Kung
liliit yung presyo, lugi ako. I’ll still pay you the difference. So
(5) The issuer or registrant has not shown to the satisfaction yun yung tinatawag na commodity futures contract.
of the Commission that the sale of its security would not
work to the prejudice of the public interest or as a fraud 2019 TSN Discussion
upon the purchasers or investors. (Emphasis Ours) Commodity futures contract is just like you are a
manufacturing company, let us say meron kang raw materials
A reading of the foregoing grounds reveals the medyo traded like corn. So it is like you are going to enter into
intention of the lawmakers to make the registration contract now to supply at the later date at the fixed price.
and issuance of securities dependent, to a certain Ganyan lang yan example manufacturing company ka you need
extent, on the merits of the securities themselves, and a commodity, a raw material for your product tapos takot ka
of the issuer, to be determined by the Securities and na mag fluctuate. So you enter into contract now to fix the
Exchange Commission. This measure was meant to price. This is actually a derivative contract, your underlying
protect the interests of the investing public against instrument here is the acquisition of commodity.
fraudulent and worthless securities, and the SEC is
mandated by law to safeguard these interests, following the COMMODITY means any goods, articles, services, rights
policies and rules therefore provided. The absolute reliance and interests, including any group or index of any of the
on the full disclosure method in the registration of securities foregoing, in which commodity interests contracts are
is, therefore, untenable. As it is, the Court finds that the presently or in the future dealt in.
private respondent PALI, on at least two points (nos. 1 and
5) has failed to support the propriety of the issue of its FORWARD means a contract between a buyer and a seller
shares with unfailing clarity, thereby lending support to the whereby the buyer is obligated to take delivery and the
conclusion that the PSE acted correctly in refusing the listing seller is obliged to make a delivery of a fixed amount of an
of PALI in its stock exchange. This does not discount the underlying commodity at a pre-determined price and date.
effectivity of whatever method the SEC, in the exercise of Payment in full is due at the time of delivery.
its vested authority, chooses in setting the standard for
public offerings of corporations wishing to do so. However, The only difference between FUTURES contract and FORWARD
the SEC must recognize and implement the mandate of the contract is: pag sinabi mong forward contract, it’s between the
law, particularly the Revised Securities Act, the provisions of buyer and the seller. Pag sinabi mong futures contract, there
which cannot be amended or supplanted by mere is a market na sometimes hindi mo alam kanino mo sya
administrative issuance. binebenta o kanino ka nakikipag-kontrata kasi nasa market
sya. May mga middlemen. Kaya sya tinatawag na futures.
So that’s why you have to get the approval of the SEC. There a futures market so to speak.
Now let’s go to certain contracts or securities that are Without prejudice to applicable Bangko Sentral ng Pilipinas
regulated. rules and circulars, the public trading of commodities of
futures contracts and pertinent Commission rules
shall remain suspended until further orders of the
COMMODITY FUTURES CONTRACTS
Commission.
RA 8799. Section 11. Commodity Futures Contracts. - No
It’s not illegal but it’s currently not allowed because it is
person shall offer, sell or enter into commodity futures
suspended in our jurisdiction.
contracts except in accordance with the rules, regulations
and orders the Commission may prescribe in the public
2019 TSN Discussion
interest. The Commission shall promulgate rules and
Bakit walang suspension doon forward contracts, kasi walang
regulations involving commodity futures contracts to protect
market value ang forward contract. Anong isususpend mo eh
investors to ensure the development of a fair and
wala naming market. Forward contract is a party to party
transparent commodities market.
transaction.
COMMODITY FUTURES CONTRACT means a contract
Now let’s go to fraudulent practices for securities market
providing for the making or taking, delivery at a prescribed
participants…
time in the future of a specific quantity and quality of a
commodity or the cash value thereof, which is customarily
offset prior to the delivery date, and includes standardized
contracts having the indicia of commodities futures, PROHIBITIONS ON FRAUD, MANIPULATION AND
INSIDER TRADING
56
1. By effecting any transaction in such security which

involves no change in the beneficial ownership thereof;
These are some of what they do to manipulate share price.
Share price naman kasi talaga you can never predict it. But  So kunyari, may nakalagay dun. Bili ka ng karne,
some are saying they are “market experts”. To some extent tapos yun pala wala naman beneficial chance of
based on their experience they can, they have the probability ownership kasi kakonchaba niya naman yung
to predict because it takes a while noh to, if you talk to seller nung karne, in my example.
someone who is an expert in the field, they have to lose a lot  From 2019 TSN:
of money before they gain. May mga magagaling din naman
EXAMPLE: How do you make it appear na it is
but it takes time, it takes certain skills.
heavily traded? Nabenta ko to sayo kunyari and
then benta mo din pabalik sa akin. Yung sa
Manipulation of Security Prices hotcakes stand, kunyari mga relatives mo yung
pumipila. Just to make it appear na it is better to
It shall be unlawful for any person acting for himself or the other stalls,
through a dealer or broker, directly or indirectly:
3. By performing similar act where there is not change in

 To create a false or misleading appearance of active beneficial ownership
trading in any listed security traded in an Exchange
or any trading market (hereafter referred to  Kunyari may bibili, tapos hindi naman pala
purposes of this Chapter as “Exchange”): talagang bibili.
1. By effecting any transaction in such security which

Manipulation of Security Prices (cont.)
involves no change in the beneficial ownership thereof;
 To effect, alone or with others, a series of

2. By entering an order or orders for the purchase or transactions in securities that:
sale of such security with the knowledge that a simultaneous i.Raises their price to induce the purchase of a security,
order or orders of substantially the same size, time and whether of the same or a different class of the same issuer
price, for the sale or purchase of any such security, has or or of a controlling, controlled, or commonly controlled
will be entered by or for the same or different parties; or company by others;
ii.Depresses their price to induce the sale of a

3. By performing similar act where there is not change security, whether of the same or a different
in beneficial ownership class, of the same issuer or of a controlling,
controlled, or commonly controlled company
by others; or
Discussion: Now these are examples of manipulation of
security prices.
iii.Creates active trading to induce such a purchase or
sale through manipulative devices such as
To create false or misleading appearance… Now, ang lagi kong
marking the close, painting the tape,
ine-example nito is that, if you want to buy shares, lets say
squeezing the float, hype and dump, boiler
punta ka sa isang controlled environment. Punta ka sa isang
room operations and such other similar
market, palengke. Tapos they are selling practically the same
devices.
goods. Same ang quality of meat. May mga stall. Pasok ka.
Nakita mo yung isa, maraming nakapila, maraming buyers nan
aka abang. What’s your impression, your impression is “uy mas Discussion:
maganda doon, mas quality yung product”. So pagpunta mo (referring to (ii))
doon, mas maganda yung product, so chances are mas i-aallow Depresses their price to induce the sale of a security… Sisiraan.
mo na mas mataas presyo niya compared dun sa iba, kasi you Sisiraan para mumura, para mabenta nila.
have the perception na madaming bumibili, siguro masarap.
Siguro ganun, so mataas yung presyo. (referrering to (iii))
Creates active trading to induce… Ang daming terms nito which
So these are what we call manipulation of the prices, because are very technical so to speak. For example, marking the close,
you don’t know for a fact na talagang masarap yun. Its just painting the tape, squeezing the float, hype and dump, broiler
that, people are making it appear that its actively traded, so room operations and such other similar devices.
that it will shoot up the prices.
The purpose is to make it appear that it is actively traded, when
Now if you are a public company, there are a lot of factors for in truth and in fact is not really that actively traded.
prices to shoot up. Information, its either information or any
information, bad or good publicity, it could have an effect on Manipulation of Security Prices (cont.)
the share price. You can never predict that, there are a lot of
factors. Now, these are manipulations:  To circulate or disseminate information that the
price of any security listed in an Exchange will or is
likely to rise or fall because of manipulative market
operations of any one or more persons conducted
for the purpose of raising or depressing the price of
57
the security for the purpose of inducing the Kaya nga tinawag sya na wash sale kasi parang linabhan mo
purchase or sale of such security. lang. Wash sale regulations disallow an investor who holds an
unrealized loss from accelerating a tax deduction into the
 To make false or misleading statement with respect current tax year.
to any material fact, which he knew or had
reasonable ground to believe was so false and Wash sale regulation protects against an investor who holds an
misleading, for the purpose of inducing the unrealized loss and wishes to claim it as a tax deduction within
purchase or sale of any security listed or traded in the current tax year. The security is the repurchased in the
an Exchange. Prcd hope that it will recover its previous value, which would only
become taxable in some future tax year.
 To effect, either alone or others, any series of
Q: Why is wash sale prohibited?
transactions for the purchase and/or sale of any
A: Because there is no apparent change of beneficial
security traded in an Exchange for the purpose of
ownership. Binenta mo, binili mo din after, gusto mo lang
pegging fixing, or stabilizing the price of such
makakuha ng unrealized loss for purposes of tax deduction.
security, unless otherwise allowed by the Code or
by tules of the Commission.
Improper matched order
 No person shall use or employ, in connection with Engaging in transactions where both the buy and sell orders
the purchase or sale of any security any are entered at the same time with the same price and
manipulative or deceptive device or contrivance. quantity by different but colluding parties.
Neither shall any short sale be effected nor any
stop-loss order be executed in connection with the
purchase or sale of any security except in
Discussion:
accordance with such rules and regulations as the
Kunyari may ibebenta ka, bibilhin mo lang din, tapos nag-
Commission may prescribe as necessary or
cocollude na kayo sa parties. Just to make it appear that it is
appropriate in the public interest or for the
actively traded.
protection of investors.
2019 TSN Discussion
Example: Kunwari bilhin mo ito, tapos bilihin ko lang after, it
 The foregoing provisions notwithstanding, the creates an appearance that it is being actively traded, when in
Commission, having due regard to the public fact wala naman talaga kasi nag-collude lang naman kayo.
interest and the protection of investors, may, by
rules and regulations, allow certain acts or i.e: (broker to broker ‘to)
transactions that may otherwise be prohibited Broker: “Uy! Meron akong portfolio, ito yung securities,
under this Section. [before] magclose yung market, order ka naman (ng purchase
order), mag-order din ako [sayo].”
Discussion:
So those are examples of manipulation of security prices. Para it shows that the stocks under your portfolio are heavily
traded, where in fact wala naman, because you are colluding.
Wash Sale Analogy: Para lang ‘yang market:

 A wash sale is a sale of a security (stocks, bonds,
options) at a loss and repurchase of the same or Vendor: “Uy! Um-order ka sa akin ng bangus— order ako sayo
substantially identical security shortly before or ng tilapia!” Tapos collude tayo, para kunwari may dating ‘to sa
after. Wash sale regulations protect against an market.”
investor who holds an unrealized loss and wishes
to make it claimable as a tax deduction within the Vendee: “Uy! Maraming bumubili sa kanya.”
current tax year. The security is then repurchased
in the hope that it will recover its previous value, Marking the Close
which would only become taxable in some future
tax year. Buying and selling securities at the close of the market in an
effort to alter the closing price of the security.
Discussion:
So we have what we wash sale, and I think you have discovered Discussion: Because sometimes, what is important is the
this already in your income tax. closing price. So kaya nga, ang ginagawa, if its actively traded
at the closing price, tataas yung presyo.
Wash sale, may period ka. Benta mo siya, tapos bilhin mo rin
agad. It’s substantially the same. 2019 TSN Discussion
Atty. Ong: If you’ve been in the stock exchange at Makati,
Usually pag wash sale under the tax, ginagawa mo yan siya usually the trading ends at 12nn. If it is actively trading, you
end of the year, then bilhin mo siya ulit beginning of the year. will buy at the closing, the price at the closing will be the
Tapos magkakaloss ka at the end of the year, para madeclare market price of the share at the end of the day.
mo siya as deduction.
2019 TSN Discussion Hyping and Dumping the stocks
58
Engaging in buying activity at increasingly higher prices and Engaging in a series of transactions in securities that are
then selling securities in the market at the higher prices. reported publicly to give the impression of activity or price
movement in a security.
Discussion: You’re going to hype it up when there is really no
change in beneficial ownership. Discussion: Ang dami nito. Some people are doing this to have
an impression of prices. Yung mga nababasa niyo sa news, si
2019 TSN Discussion Mr. X, si Mr. Y, bumili ng ganitong shares, bought ganyan or
Atty. Ong: You just hype it for the price to go up, then you sell ganito. Isipino mo naman do they to report that in the news?
it. Kahit wala naman talagang actual trading, you just hyped it. But yes, because it could be part of painting the tape. They are
reporting it publicly to give the impression of activity or price
Squeezing the float movement in a security. “Uy bumili nga ganito, siguro maganda
and operation. Uy yung kilala kong investors, binenta yung
Taking advantage of a shortage of securities in the market ganito niyang shares sa ganung company, siguro pangit na
by controlling the demand side and exploiting market yung performance.” So those are painting the tape, you are
congestion during such shortages in a way as to create painting a narrative to make it appear to the public in a way
artificial prices. that you want it to.
Discussion: Alam mo naming may demand, you are 2019 TSN Discussion
squeezing, you are actually exploiting the gap between the Atty. Ong: a classic example is when you publish that this “one”
demand and the supply of that particular security. is actively traded, you are inducing the public- sabihin mo
mabenta tong ganito na shares, actively traded ito. So, you are
2019 TSN Discussion going to paint a picture to the public.
Atty. Ong: this artificial trading is geared to a particular result,
that is to alter or manipulate the prices. Fraudulent Transactions
 It shall be unlawful for any person, directly or
Stop Loss Order indirectly, in connection with the purchase or sale
of any securities to:
A stop-loss order is an order placed with a broker to sell a  Employ any device, scheme, or artifice to defraud;
security when it reaches a certain price. Stop-loss orders are
designed to limit an investor’s loss on a position in a
security. Although most investors associate a stop-loss
 Obtain money or property by means of any untrue
statement of a material fact or any omission to
order with a long position, it can also protect a short-
state a material fact necessary in order to make the
position, in which case the security gets bought if it trades
statements made, in the light of the circumstances
above a defined price.
under which they were made, not misleading; or
Discussion: Long position is buying, and it can also protect a
short position, which is selling.  Engage in any act, transaction, practice or course
of business, which operates or would operate as a
2019 TSN Discussion fraud or deceit upon any person.
Example: Ito yung may contract ka with brokers, tapos
sasabihin mo, “pag-ganito na yung presyo, stop na, wag ka na Discussion: So those are manipulation of share prices, this
mag-trade” one naman are the fraudulent transactions.
It is not necessarily illegal but if it is for the purpose of altering 2019 TSN Discussion
the prices, then it becomes illegal. Atty. Ong: As you can see, the provision gives the SEC a leeway
whether or not a transaction is fraudulent or not since the
Although most investors associate a stop-loss order with a long definition is quite broad.
position, it can also protect a short position, in which case the
security gets bought if it trades above a defined price. Note: With the recent Bar Exams, you are asked to define
particular terms. It is better to understand and memorize the
Q: What is LONG POSITION? following terms;
A: a long position—also known as simply long—is the buying of
a stock, commodity, or currency with the expectation that it
will rise in value.2(buying) EXAMPLES OF FRAUDULENT TRANSACTIONS
1. Churning - is where a broker-dealer is sole or

Q: What is a SHORT POSITION?
dominant market maker in a particular industry, and
A: a short, or a short position, is created when a trader sells a
creates a market in that security by repeated
security first with the intention of repurchasing it or covering it
purchases from, and resells to, its individual retail
later at a lower price. A trader may decide to short a security
customers at steady increasing prices.
when she believes that the price of that security is likely to
decrease in the near future.(selling) It is also defined as the excessive trading of securities
by a broker-dealer in a customer’s discretionary
account in order to generate commissions, without
regard to the customer’s investment objective.
Painting the tape
59
2. Scalping - in this sense is the practice of purchasing

a security for one’s own account shortly before recommending What is the insider’s duty to disclose when trading?
that security for long-term investment and then immediately
selling the security at a profit upon the rise in the market price INSIDER’S DUTY TO DISCLOSE WHEN TRADING
following recommendation. Section 27. Insider’s Duty to Disclose When Trading.
Scalping involves a fast-paced activity, it requires 27.1. It shall be unlawful for an insider to sell or buy a
precision, timing and execution. The goal is to buy or security of the issuer, while in possession of material
sell a number of shares involving minor price changes information with respect to the issuer or the security that is
which usually happens from seconds to minutes, and not generally available to the public,
rarely in hours.
DEFENSES OF THE INSIDER
Rationale: This is discouraged since this is involved UNLESS:
in a kind of gambling or that engaged in speculation. a. The insider proves that the information was not
gained from such relationship; or
3. Single Day Trading Practice - is a practice of buying b. If the other party selling to or buying from the
and selling shares in a single trading session, where the insider (or his agent) is identified, the insider proves:
investors settle their accounts at the end of the day. i.that he disclosed the information to the other party, or
ii.that he had reason to believe that the other party otherwise
4. Front Running or Tailgating - is the prohibited is also in possession of the information.
practice of entering into an equity (stock) trade, option, futures
contract, derivative or security-based swap to capitalize on PRESUMPTION
advance, non-public knowledge of a large (block) pending A purchase or sale of a security of the issuer made by
transaction that will influence the price of the underlying ✓ an insider defined in Subsection 3.8, or
security. ✓ such insider’s spouse or relatives by affinity or
consanguinity within the second degree, legitimate or
5. Boiler Room Operations – these refers to activities common-law,
that involve the use of high pressure sale tactics such as direct
mail offers or telephone follow-ups to investors to promote shall be PRESUMED to have been effected while in
purchase and sale of securities wherein there is possession of material nonpublic information if transacted
misrepresentation in these securities. after such information came into existence but prior to
dissemination of information to the public and the lapse of a
reasonable time for market to absorb such information:
INSIDER TRADING
This is a very important concept it has already been asked in Provided, however, That this presumption shall be
the bar. Let’s define first who is an insider. REBUTTED upon a showing by the purchaser or seller that
he was aware of the material nonpublic information at the
INSIDER TRADING time of the purchase or sale.
Ang meaning lang ng insider trading is binigyan ka ng
information which is not supposed to be public about that entity When Information is Material and Non-public
which materially will influence your decision on whether or not 27.2. For purposes of this Section,
to invest or to buy if may investment ka na. Kasi again the
performance of the entity hindi naman public yan information is "material nonpublic" if:
a. It has not been generally disclosed to the public
INSIDER TRADING
Insider trading is an illegal activity which happens when person ✓ and would likely affect the market price of the
uses material, non-public information to make a decision about security after being disseminated to the public
buying or selling a security. This happens when an insider, like ✓ and the lapse of a reasonable time for the
a director, informs an investor of a confidential information market to absorb the information; or
(like an imminent merger), to influence investors to buy or sell
and usually for the purpose of obtaining profit later on.
b. would be considered by a reasonable person
Who is an Insider?
important under the circumstances
Section 3.8. "Insider" means
a. the Issuer; ✓ in determining his course of action whether to
b. a Director or officer (or any person performing buy, sell or hold a security.
similar functions) of, or a person controlling the issuer;
c. a person whose Relationship or former relationship
to the issuer gives or gave him access to material
information about the issuer or the security that is not
Section 27. Insider’s Duty to Disclose When Trading
generally available to the public;
d. A Government employee, director, or officer of an
27.3. It shall be unlawful for any insider to communicate
exchange, clearing agency and/or self-regulatory
material nonpublic information about the issuer or the
organization who has access to material information about
security to any person who, by virtue of the communication,
an issuer or a security that is not generally available to the
becomes an insider as defined in Subsection 3.8, where the
public; or
insider communicating the information knows or has reason
e. a person who Learns such information by a
communication from any foregoing insiders.
60
to believe that such person will likely buy or sell a security Remember if there is no Tender Offer, it will not protect the
of the issuer whole in possession of such information. shareholder. Hindi nila alam na “uy, iba na pala yung majority
or hala iba na pala yung may ari kasi binili yung block.”
27.4. Whereas, kung may Tender Offer, alam niyo na bibilhin kayo
a. It shall be unlawful where a tender offer has alam mon a bibilhin yun company. So you now have the option
commenced or is about to commence for: to get out of it if you don’t want the buyer i-offer mo yung
i.Any person (other than the tender offeror) who is in shares mo.
possession of material nonpublic information relating to such
tender offer, to buy or sell the securities of the issuer that Any person or group of persons acting in concert who
are sought or to be sought by such tender offer if such intends to acquire:
person knows or has reason to believe that the information  15%, now 35% or more of any class of any equity
is nonpublic and has been acquired directly or indirectly from security of a listed corporation or of any class of
the tender offeror, those acting on its behalf, the issuer of any equity security of a corporation with assets of
the securities sought or to be sought by such tender offer, at least fifty million pesos and having 200 or more
or any insider of such issuer; and stockholders with at least 100 shares each or;
ii.Any tender offeror, those acting on its behalf, the issuer of
 Who intends to acquire 30% , now 35% or more of
the securities sought or to be sought by such tender offer,
such equity over such a period of 12 months shall
and any insider of such issuer to communicate material
make a tender offer to stockholders by filing with
nonpublic information relating to the tender offer to any
the Commission a declaration to that effect; and
other person where such communication is likely to result in
furnish the issuer, a statement containing such of
a violation of Subsection 27.4 (a)(I).
the information required in Section 17 of this Code
as the Commission may prescribe. Such person or
group of persons shall publish all requests or
b. For purposes of this subsection the term "securities
invitations for tender, or materials making a tender
of the issuer sought or to be sought by such tender offer or requesting or inviting letters of such a
offer" shall include any securities convertible or
security. Copies of any additional material soliciting
exchangeable into such securities or any options or or requesting such tender offers subsequent to the
rights in any of the foregoing securities. initial solicitation or request shall contain such
information as the Commission may prescribe, and
shall be filed with the Commission and sent to the
PROTECTION OF INVESTORS
issuer not later than the time copies of such
materials are first published or sent or given to
Provisions in the SRC to Protect Investors
security holders.
1. Tender Offer Rule
2. Rules on Proxy Solicitation  If any acquisition of even less than 35% would
3. Disclosure Rule result in ownership of over 51% of the total
outstanding equity securities of a public company,
1. TENDER OFFER RULE the acquirer shall be required to make a tender
offer under this Rule for all the outstanding equity
TENDER OFFER securities to all remaining stockholders of the said
company at a price supported by a fairness opinion
CEMCO HOLDINGS v. NATIONAL LIFE INSURANCE
529 SCRA 355 (2007) provided by an independent financial advisor or
equivalent third party. (Cemco Holdings Inc. V
Tender offer is a publicly announced intention by a person National Life Insurance Co.)
acting alone or in concert with other persons to acquire  A person shall be presumed to have the intent that
equity securities of a public company. would mandate the making of a tender offer
pursuant to paragraph (a) above when the person,
A public company is defined as a corporation which is respectively:
[1] listed on an exchange, or i. acquires 15% or more now 35% of the equity
[2] a corporation with shares of a public company pursuant to an
 assets [at least] P50,000,000.00 and agreement made between or among the person
and the seller or sellers;
 with 200 or more stockholders, ii. Acquires 30% or more (now 35%) of the
 at least 200 of them holding not less than 100 shares of a public company within a period of
shares of such company. 12 months; or
iii. Acquires shares that result in ownership of
more than 50% of the equity shares of a public
Stated differently, a tender offer is an offer by the acquiring company.
person to stockholders of a public company for them to
tender their shares therein on the terms specified in the
Relief from Mandatory Tender offer Requirement
offer. Tender offer is in place to protect minority
shareholders against any scheme that dilutes the share
value of their investments. It gives the minority  The Commsission, upon written application, and
shareholders chance to exit the company under reasonable consistent with the policies set forth in Section 2 of the
terms, giving them the opportunity to sell their shares at the Code and pursuant to its powers under Section 72.1
same price as those of the majority shareholders. thereof, may exempt from the requirement to make a
mandatory tender offer the following proposed
purchases of equity shares of a public company:
61
 the purchase of newly issued shares from acquisition, for its own account or customer to the
unissued capital stock; issuer of the security to the exchange where the
security is traded and to the Commission.
 in connection with foreclosure proceeding
involving a duly constituted pledge or
security arrangement where the So again, remember proxies for purposed of voting? May proxy
acquisition is made by the debtor or solicitation rules tayo sa SRC. This is to ensure that it is not
creditor; abused.
 purchases in connection with privatization
undertaken by the government of the Disclosure Rule
Philippines; or
Every issuer satisfying the requirements in Subsection 17.2
 purchases in connection with corporate hereof shall file with the Commission:
rehabilitation under court supervision.
 Merger or consolidation (a) Within 135 days, after the end of the issuer’s fiscal year, or
 Equity shares of a public company acquired through such other time as the Commission may prescribe, an annual
open market purchases at the prevailing market report which shall include, among others, a balance sheet,
price shall be automatically exempted from profit and losss statement and statement of cash flows, for such
mandatory tender offer requirements provided that last fiscal year, certified by an independent certified public
such purchaser complies with disclosure requirements accountant and a management discussion and analysis of
under sections 18 and 23 of the Code and rules adopted results of operations; and
thereunder.
(b) Such other periodical reports for interim fiscal periods and
current reports on significant developments of the issuer as the
Voluntary Tender Offers Commission may prescribe as necessary to keep current
information on the operation of the business and financial
A person may make a voluntary tender offer. condition of the issuer.
A voluntary tender offer shall be made in accordance with this In the Revised Corporation Code, aside from FS, you have other
Rule. reports.
A person will be presumed to be making a voluntary tender Section 17.2

offer where some or all of the following factors are present:
The reportorial requirements of Subsection 17.1 shall apply to
-Active and widespread solicitation of public shareholders for the following:
the shares of public company;
-Solicitation made for a substantial percentage of the issuer’s a) An issuer which has sold a class of its securities pursuant to
stock; a registration under Section 12 hereof: Provided, however, that
-Offer to purchase is made at a oremium over the prevailing the obligation of such issuer to file reports shall be suspended
market price, at a firm rather than negotiable terms; for any fiscal year after the year such registration became
-An offer is contingent on the tender of a fixed number of effective if such issuer, as of the first day of any such fiscal
shares and/or year, has less than 100 holders of such class of securities or
-Offer is only open for a limited period of time. such other number as the Commission shall prescribe and it
notifies the Commission of such;
Rules on Proxy Solicitation
b) An issuer with a class of securities listed for trading on an
 Proxies must be issued and proxy solicitation must be Exchange; and
made in accordance with rules and regulations to be
issued by the Commission. c) An issuer with assets of at least P50,000,000 or such other
 20.2. Proxies must be in writing, signed by the amount as the Commission shall prescribe, and having 200 or
stockholder or his duly authorized representative and more holders each holding at least 100 shares of a class of its
filed before the scheduled meeting with the corporate equity securities: Provided, however, that the obligation of
secretary. such issuer to file reports shall be terminated 90 days after
 20.3. Unless otherwise provided in the proxy, it shall notification to the Commission by the issuer that the number
be valid only for the meeting for which it is intended. of its holders holding at least 100 shares is reduced to less than
No proxy shall be valid and effective for a period 100.
longer than five years at one time.
 20.4 No broker or dealer shall give any proxy, consent
or authorization, in respect of any security carried for Report to be filed by 5% Beneficial Owners
the account of a customer, to a person other than the
customer, without express written authorization of The provisions of this Rule shall apply to any person who
such customer. acquires directly or indirectly the beneficial ownership of more
than 5% of any class of equity securities of company that
 20.5. A broker or dealer who holds or acquires the satisfies the requirements of Subsection 17.2 of the Code.
proxy for at least ten percent 10% or such percentage
as the Commission may prescribe of the outstanding For purposed of this Rule, equity securities means securities
share of the issuer, shall submit a report identifying which provide the holder thereof with voting rights and shall
the beneficial owner within 10 days after such
62
not include convertible securities and other derivatives except established without proof of the reading of the registration
as provided in the definition of beneficial owner in SRC Rule 3. statement by such person.
Any person who qualifies under paragraph 1 of this Rule shall,

within 5 business days after such acquisition, submit to the
issuer, the exchange where the security is trades and to the Civil Liabilities Arising in Connection with Prospectus,
Commission a sworn statement containing the information Communications and Reports
required by SEC Form 18-A.
Any person who:
So let’s discuss the civil liabilities under the SRC.
a. Offers to sell or sells a security in violation of Chapter III, or
Civil Liabilities on Account of False Registration
Statements b. offers to sell or sells a security whether or not exempted by
the provisions of this Code, by the use of any means or
instruments of transportation or communication, by means of
Any person acquiring a security, the registration statement of a prospectus or other written or oral communication which
which or any part thereof contains on its effectivity an untrue includes an untrue statement of a material fact or omits to state
statement of a material fact or omits to state a material fact a material facts necessary in order to make the statements in
required to be stated therein or necessary to make such the light of the circumstances under which they were made,
statements not misleading, and who suffers damage, may sue not misleading the purchaser not knowing of such untruth or
and recover damages from the following enumerated persons, omission, shall be liable to the person purchasing such security
unless it is proved that at the time of such acquisition he knew from him who may sue to recover the consideration paid for
of such untrue statement or omission: such security with interest thereon, less the amount of any
income received thereon, upon the tender of such security, or
A) The issuer and every person who signed the registration for damages if he no longer owns the security.
statement;
57.2- Any person who shall make or cause to be made any
B) Every person who was a director of or any other person statement in any report, or document filed pursuant to this
performing similar functions or a partner in the issuer at the Code or any rule or regulation thereunder, which statement
time of the filing of the registration statement or any part, was at the time and in light of the circumstances under which
supplement or amendment thereof with respect to which his it was made false or misleading with respect to any material
liability is asserted; fact, shall be liable to any person who, not knowing that such
statement for damages caused by such reliance, unless the
C) Every person who is named in the registration statement as person sued shall prove that he acted in good faith and had no
being or about to become a director of, or a person performing knowledge that such statement was false or misleading.
similar functions or a partner in the issuer and whose written
consent thereto is filed with the registration statement;
Civil Liability for Fraud in Connection with Securities
D) Every auditor or auditing firm named as having certified any Transactions
financial statements used in connection with the registration
statement or prospectus. Any person who engages in any act or transaction in violation
of Sections 19.2, 20 or 26, or any rule or regulation of the
E) Every person who, with his written consent, which shall be Commission thereunder, shall be liable to any other person who
filed with the registration statement, has been named as purchases or sells any security, grants or refuses to grant any
having prepared or certified any part of the registration proxy, consent, or authorization, or accepts or declines an
statement, or as having prepared or certified any report or invitation for tender or a security, as the case may be, for the
valuation which is used in connection with the registration damages sustained by such other person as a result of such act
statement, with respect to the statement, report, or valuation or transaction.
which purports to have been prepared or certified by him.
Civil Liability on Account of Insider Trading
F) Every selling shareholder who contributed to and certifies as
to the accuracy of a portion of the registration statement, with Any insider who violates Subsection 27.1 and any person in the
respect to that portion of the registration statement which case of a tender offer who violates Subsection 27.4 (a)(i), or
purports to have been contributed by him. any rule or regulation thereunder, by purchasing or selling a
security while in possession of material information not
G) Every underwriter with respect to such security. generally available to the public, shall be liable in a suit brought
by any investor who, contemporaneously with the purchase or
If the person who acquired the security did so after the issuer sale of securities that is the subject of the violation purchased
has made generally available to its security holders in an or sold securities of the same class unless such insider, or such
income statement covering a period of at least 12 months person in the case of a tender offer, proves that such investor
beginning from the effective date of the registration statement, knew the information or would have purchased or sold at the
then the right of recovery under this subsection shall be same price regardless of disclosure of the information to him.
conditioned on proof that such person acquired the security
relying upon such untrue statement in the registration An insider who violates Subsection 27.3 or any person in the
statement or relying upon the registration statement and not case of a tender offer who violates Subsection 27.4(a) or any
knowing of such income statement, but such reliance may be rule or regulation thereunder, by communicating material
nonpublic information, shall be jointly and severally liable
63
under Subsection 61.1 with, and to the same extent as the Penalties
insider or person in the case of a tender offer to whome the
communication was directed and who is liable under Subsection Any person who violates any of the provisions of this code or
61.1 by reason of his purchase or sale of a security. the rules and regulations promulgated by the Commission
under authority thereof or any person who in a registration
Limitation of Actions statement filed under this code, makes any untrue statement
of a material fact or omits to state any material fact required
No action shall be maintained to enfore any liability created to be stated therein or necessary to make the statements
under Section 56 or 57 of this code unless brought within 2 therein not misleading, shall, upon conviction, suffer a fine of
years not less that P50,000 nor more than P5,000,000 or
imprisonment of not less than 7 years nor more than 21 years,
-after the discovery of the untrue statement or the omission or or both in the discretion of the court. If the offender is a
-if the action is to enforce a liability created under Subsection corporation, partnership or association or other judicial entity,
57.1 (a) unless brought within 2 years after the violation upon the penalty, may in the discretion of the court be imposed upon
which it is based. such juridical entity and upon the officer or officers of the
-In no event shall any such action be brought to enforce a corporation, partnership, association or entity responsible for
liability created under section 56 or subsection 57.1 (a) more the violation, and id such officer is an alien, he shall in addition
than 5 years after the security was bona fide offered to the to the penalties prescribed, be deported without further
public, or under Subsection 57.1 (b) more than 5 years after proceedings, after the service of sentence.
the sale.
So, that ends our discussion for the SRC.
No action shall be maintained to enforce any liability created
under any other provision of this Code unless brought within 2
years after the discovery of the facts constituting the cause of
INTRA-CORPORATE REMEDIES
action and within 5 years after such cause of action accrued.
This is just an additional topic for us to discuss since we are
Cease and Desist Order dealing with Corporation Law.
The Commission, after proper investigation or verification, PD 902-A is the first law for intra-corporate disputes.
motu proprio or upon verified complaint by any aggrieved
party, may issue a cease and desist order without the necessity In 1976, PD 902-A vested the SEC with quasi-judicial power
of a prior hearing if in its judgement the act or practice, unless over intra-corporate disputes. While this jurisdiction was
restrained, will operate as a fraud on investors or is otherwise eventually transferred to regional trial courts designated as
likely to cause grave or irreparable injury or prejudice to the special commercial courts by the Securities Regulation Code
investigation public. in 2000, the SEC had the authority over intra-corporate
disputes.
Until the Commission issues a cease and desist order, the fact
that an investigation has been initiated or that a complaint has Section 5, PD 902-A
been filed, including the contents of the complaint, shall be Section 5. In addition to the regulatory and adjudicative
confidential. Upon issuance of a cease and desist order, the functions of the Securities and Exchange Commission
Commission shall make public such order and a copy thereof overorporations, partnerships and other forms of
shall be immediately furnished to each person subject to the associations registered with it as expressly granted under
order. existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving.
Any person against whom a cease and desist order was issued
may, within 5 days from receipt of the order, file a formal a) Devices or schemes employed by or any acts, of the board
request for a lifting thereof. Said request shall be set for of directors, business associates, its officers or partnership,
hearing by the Commission not later than fifteen (15) days amounting to fraud and misrepresentation which may be
from its filing and the resolution thereof shall be made not later detrimental to the interest of the public and/or of the
than 10 days from the termination of the hearing. If the stockholder, partners, members of associations or
Commission fails to resolve the request within the time herein organizations registered with the Commission;
prescribed, the cease and desist order shall automatically be
lifted. b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders,
members, or associates; between any or all of them and the
In SEC vs Performance Foreign Exchange Corporation, it states corporation, partnership or association of which they are
out the requirement for the SEC to issue a cease and desist stockholders, members or associates, respectively; and
order between such corporation, partnership or association and
the State insofar as it concerns their individual franchise or
First, there must be a proper conduct of investigation or right to exist as such entity;
verification and second, there must be a showing that the act
or practice sought to be restrained will operate as a fraud on c) Controversies in the election or appointments of directors,
investors or is likely to cause grave, irreparable injury or trustees, officers or managers of such corporations,
prejudice to the investing public. partnerships or associations.
64
d) Petitions of corporations, partnerships or associations to SEC. 8. Prohibited pleadings. – The following pleadings
be declared in the state of suspension of payments in cases are prohibited:
where the corporation, partnership or association possesses 1. Motion to dismiss;
sufficient property to cover all its debts but foresees the 2. Motion for a bill of particulars;
impossibility of meeting them when they respectively fall 3. Motion for new trial, or for reconsideration of judgment or
due or in cases where the corporation, partnership or order, or for re-opening of trial;
association has no sufficient assets to cover its liabilities, but 4. Motion for extension of time to file pleadings, affidavits or
is under the management of a Rehabilitation Receiver or any other paper, except those filed due to clearly compelling
Management Committee created pursuant to this Decree. reasons. Such motion must be verified and under oath; and
5. Motion for postponement and other motions of similar
Discussion: intent, except those filed due to clearly compelling reasons.
Q. Again, so what is intra-corporate dispute? Such motion must be verified and under oath.
A. It was actually defined under Section 5, PD 902-A.
So let’s discuss what constitutes an Election Contest in relation
Please take note, this definition was still under the Insolvency to corporation law.
Act of 1956 or ACT 1956. Similar lang din, FRIA cases are still
under the jurisdiction of commercial courts. But this definition SEC. 2. Definition. – An election contest refers to
is actually (from) the old Insolvency Law.  any controversy or dispute
 involving title or claim to any elective office (sir:
Upon the enactment of R.A No. 8799, otherwise known as
not appointive office) in a stock or non-stock
“The Securities Regulation Code” which took effect on corporation,
August 9, 2000, the jurisdiction of the SEC over intra-
corporate controversies and other cases enumerated in  the validation of proxies, (remember when we
Section 5 of P.D. No. 902-A has been transferred to the talked about elections, we can actually vote
courts of general jurisdiction, or the appropriate RTC. through proxy – ang stockholder)
 the manner and validity of elections, and
That’s why when you file insolvency cases you lodge it with the  the qualifications of candidates, including the
RTC and no longer the SEC. proclamation of winners, to the office of director,
trustee or other officer directly elected by the
INTERIM RULES OF PROCEDURE GOVERNING INTRA- stockholders in a close corporation or by members
CORPORATE CONTROVERSIES UNDER R. A. NO. 8799 of a non-stock corporation where the articles of
A.M. No. 01-2-04-SC. March 13, 2001 incorporation or by-laws so provide.
SECTION 1. (a) Cases covered. – These Rules shall

govern the procedure to be observed in civil cases involving
the following: Inspection of Corporate Books and Records
1. Devices or schemes employed by, or any act of, the board The provisions of this Rule shall apply to disputes exclusively
of directors, business associates, officers or partners, involving the rights of the stockholders or members to
amounting to fraud or misrepresentation which may be inspect the books and records and/or
detrimental to the interest of the public and/or of the To be furnished with financial statements of a corporation,
stockholders, partners, or members of any corporation, under Sections [73 and 74 of the Revised] Corporation Code
partnership, or association; of the Philippines.
2. Controversies arising out of intra-corporate, partnership,
or association relations, between and among stockholders, You can actually go to the SEC and ask for the books and
members, or associates; and between, any or all of them magsusummon yung SEC pero kung hindi ka talga papayagan
and the corporation, partnership, or association of which you can file a case in the commercial courts.
they are stockholders, members, or associates,
respectively; Derivative Suits
3. Controversies in the election or appointment of directors, A stockholder or member may bring an action in the name
trustees, officers, or managers of corporations, of a corporation or association, as the case may be,
partnerships, or associations; provided, that:
4. Derivative suits; and (1) He was a stockholder or member at the time the acts
5. Inspection of corporate books. or transactions subject of the action occurred and at the
time the action was filed;
Discussion: So these rules shall govern the procedure to be Note:Follow the Intra Corporate Remedies
observed in civil cases involving those which we just in Derivative Suit
enumerated. Ang naiba lang dyan is dinagdag yung Derivative
suit which actually, we’ll discuss later, its already enumerated (2) He exerted all reasonable efforts, and alleges the same
there. And inspection of corporate books. with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws
What are the prohibited pleadings when you have a case under or rules governing the corporation or partnership to obtain
those particular enumeration? So mga dilatory pleadings, the relief he desires;
because again, the concept of intra-corporate dispute is that it Note Remedy of last Resort
has to be dissolved at the urgent time, because mape-pending
yung business transactions of a particular entity. So what are (3) No appraisal rights are available for the act or acts
prohibited: complained of; and
(4) The suit is not a nuisance or harassment suit.
65
In case of nuisance or harassment suit, the court shall

forthwith dismiss the case.
NATURE OF CONTROVERSY TEST
What then is the Nature of Controversy Test?

TESTS TO DETERMINE THE EXISTENCE OF INTRA- Under the controversy test, the dispute must be rooted in
CORPORATE CONTROVERSY the existence of an intra-corporate relationship, and
must refer to the enforcement of the parties’ correlative
Test to determine the existence of Intra-Corporate rights and obligations under the Corporation Code, as
Controversy well as the internal and intra-corporate regulatory rules
of the corporation, in order to be an intra-corporate dispute.
Two Tests: These are essentially determined through the allegations in the
1. Relationship Test complaint which determine the nature of the action.
2. Nature of Controversy Test
REAL v. SANGU PHILIPPINES
Gulfo vs Ancheta Jurisprudence consistently states that an
intra-corporate dispute is one that arises from intra- G.R. No. 168757 | January 19, 2011
FIRST DIVISION | DEL CASTILLO, J.
corporate relations; relationship between or among the
stockholders, or the relationship between the stockholder
and the corporation. In order to limit the broad definition of FACTS:
intra corporate dispute, this court has applied the Real was the Manager of Sangu Philippines, Inc. (Sangu), a
relationship test and the controversy test. corporation engaged in the business of providing manpower for
general services to various clients. In 2001, Real filed a
complaint for illegal dismissal against Sangu. Real alleged that
he was removed from his position as Manager through a Board
These two tests, when applied, have been the guiding principle
Resolution adopted by Sangu’s BOD. He received a letter from
in determining whether the dispute is an intra-corporate
Sangu stating that he has been terminated from service for the
controversy or a civil case.
following reasons: (1) continuous absences at his post at Ogino
for several months; (2) loss of trust and confidence; and (3) to
Why is it important? It is because of jurisdiction. If it is an intra- cut down operational expenses to reduce further losses being
corporate controversy, you filed it with the commercial courts, experienced by Sangu.
if it is a civil case, you filed it with any courts or the regular
courts. The Labor Arbiter declared that Real was illegally dismissed,
but before the NLRC, Sangu averred that the Labor Arbiter has
In Union Glass & Container Corp., et al. v. SEC, et al., the Court no jurisdiction because the case is an intra-corporate
declared that the relationship test determines whether the controversy.
relationship is:
The NLRC found such contention of Sangu to be meritorious
 “[a] between the corporation, partnership or association and opined that through the admission of Real in his pleadings
and the public; that he is a stockholder of Sangu, it is clearly established that
his action against Sangu is an intra-corporate controversy. This
 [b] between the corporation, partnership or association decision of the NLRC was later affirmed by the Court of Appeals.
and its stockholders, partners, members, or officers;
Before the Supreme Court, Real insisted that he is not a
 [c] between, the corporation, the partnership or corporate officer. He argues that a corporate officer is one who
association and the State [insofar] as its franchise, permit holds elective position as provided in the Articles of
or license to operate is concerned; and Incorporation or one who is appointed to such other positions
by the BOD as specifically authorized by its By-Laws. And, since
he was neither elected nor is there any showing that he was
 [d] among the stockholders, partners or associates
appointed by the BOD to his position as Manager, Real
themselves.” maintains that he is not a corporate officer. Thus, his action
against Sangu does not arise from intra-corporate relations but
Under this test, no doubt exists that the parties were members rather from employer-employee relations.
of the same association, but this conclusion must still be
supplemented by the controversy test before it may be Sangu, for its part, alleged that (1) Real was an incorporator,
considered as an intra-corporate dispute.
stockholder and manager of Sangu; (2) As an incorporator, he
was one of only seven incorporators of Sangu and one of only
Relationship alone does not ipso facto make the dispute intra- four Filipino members of the BOD; and that (3) his appointment
corporate; the mere existence of an intra-corporate as manager was by virtue of the corporations By-Laws.
relationship does not always give rise to an intra-corporate
controversy. The incidents of that relationship must be ISSUE:
considered to ascertain whether the controversy itself is intra- Whether Real’s complaint for illegal dismissal constitutes an
corporate. This is where the controversy test becomes intra-corporate controversy and thus, beyond the jurisdiction
material. of the Labor Arbiter.
Take note, it’s not an OR test, it’s an AND. Even if it complies RULING: NO.
with the Relationship test, you still have to ask, does it pass In the case of Mainland Construction v. Movilla, the Supreme
the Controversy test? Court held that the better policy to be followed in determining
66
jurisdiction over a case should be to consider concurrent factors Applying the Nature of the Controversy Test
such as the status of relationship of the parties or the nature It is not difficult to see that the reasons given by Sangu for
of the question that is subject of their controversy. dismissing Real have something to do with his being a Manager
of the corporation and nothing with his being a director or
In DMRC Enterprises v. Esta del Sol Mountain Reserve, the stockholder. For one, Reals’ continuous absences in his post in
Court introduced the nature of controversy test. It declared in Ogino relates to his performance as Manager. Second, Sangu’s
this case that it is not the mere existence of an intra-corporate loss of trust and confidence in Real stemmed from his alleged
relationship that gives rise to an intra-corporate controversy, acts of establishing a company engaged in the same line of
because to rely on the relationship alone will divest the regular business as Sangu and submitting proposals to the latter’s
courts of their jurisdiction for the sole reason that the dispute clients while he was still serving as its Manager. While the
involves a corporation, its directors, officers, or stockholders. Supreme Court notes that Sangu also claim that these acts as
constituting acts of disloyalty of Real as director and
Under the nature of the controversy test, the incidents of that stockholder, the Court, however, thinks that the same is a
relationship must also be considered for the purpose of mere afterthought on their part to make it appear that the
ascertaining whether the controversy itself is intra-corporate. present case involves an element of intra-corporate
The controversy must not only be rooted in the existence of an controversy. This is because before the Labor Arbiter, Sangu
intra-corporate relationship, but must as well pertain to the did not see such acts to be disloyal acts of a director and
enforcement of the parties’ correlative rights and obligations stockholder but rather, as constituting willful breach of trust
under the Corporation Code and the internal and intra- reposed upon Real as Manager.
corporate regulatory rules of the corporation. If the relationship
and its incidents are merely incidental to the controversy or if Certainly, what we have here is a case of termination of
there will still be conflict even if the relationship does not exist, employment which is a labor controversy and not an intra-
then no intra-corporate controversy exists. Thus, the two-tier corporate dispute. In sum, the Court holds that Real’s
test (the two elements for the existence of an intra-corporate complaint likewise does not satisfy the nature of controversy
controversy) was adopted, that is the relationship test and the test.
nature of controversy test.
With the elements of intra-corporate controversy being absent
According to the Supreme Court, the fact alone that a plaintiff in this case, the Supreme Court thus hold that Real’s complaint
is a stockholder and director of a corporation does not for illegal dismissal against Sangu is not intra-corporate. Rather
automatically classify the case as an intra-corporate it is a termination dispute and, consequently, falls under the
controversy. To reiterate, not all conflicts between the jurisdiction of the Labor Arbiter.
stockholders and the corporation are classified as intra-
corporate. There are other factors to consider in determining VELARDE v. LOPEZ, INC.
whether the dispute involves corporate matters as to consider G.R. No. 153886 | January 14, 2004
them as intra-corporate. THIRD DIVISION | CARPIO-MORALES, J.
Applying the Relationship Test

FACTS:
An examination of the complaint for illegal dismissal, however,
Eugenio Lopez Jr., then President of respondent Lopez, Inc., as
reveals that the root of the controversy is Real’s dismissal as
LENDER, and petitioner Mel Velarde, then General Manager of
Manager of Sangu. Hence, Real is involved in this case not in
Sky Vision Corporation (Sky Vision), a subsidiary of Lopez, Inc.,
his capacity as a stockholder or director, but as an alleged
as BORROWER, forged a notarized loan agreement covering the
corporate officer. In applying the relationship test, therefore, it
amount of ten million (P10,000,000.00) pesos.
is necessary to determine if Real is a corporate officer of Sangu
so as to establish the intra-corporate relationship between the
As Velarde failed to pay the installments as they became due,
parties.
Lope, Inc., apparently in answer to a proposal of Velarde
respecting the settlement of the loan, advised him by letter
“Corporate officers” are those officers of the corporation who
that he may use his retirement benefits in Sky Vision in partial
are given that character by the Corporation Code or by the
settlement of his loan after he settles his accountabilities to the
corporation’s by-laws. The number of corporate officers is thus
latter and gives his written instructions to it (Sky Vision).
limited by law and by the corporation’s by-laws.
Velarde protested the computation indicated in the letter,
There is nothing to prove that Real’s appointment was made
asserting that the imputed unliquidated advances from Sky
pursuant to Sangu’s By-Laws. No copy of board resolution
Vision had already been properly liquidated.
appointing Real as Manager or any other document showing
that he was appointed to said position by action of the BOD was
Thus, Lopez, Inc. filed a complaint for collection of sums of
submitted by Sangu. What the Supreme Court found were
money with damages at the Regional Trial Court (RTC) of Pasig
mere allegations of Sangu in its various pleadings that Real was
City against Velarde, alleging that he violated the loan
appointed as Manager of the corporation and nothing more.
agreement as Velarde failed to put up the needed collateral for
the loan and pay the installments as they became due, and that
It has been consistently held that “an ‘office’ is created by the
despite his receipt of letters of demand dated December 1,
charter of the corporation and the officer is elected (or
19977 and January 13, 1998, he refused to pay.
appointed) by the directors or stockholders.” Clearly here,
Sangu failed to prove that Real was appointed by the BOD.
By way of compulsory counterclaim, Velarde claimed that he
Thus, there is no intra-corporate relationship between the
was entitled to retirement benefits from Sky Vision in the
parties insofar as Real’s complaint for illegal dismissal is
amount of P98,280,000.00, unpaid salaries in the amount of
concerned and that same does not satisfy the relationship test.
P2,740,000.00, unpaid incentives in the amount of P500,000,
unpaid share from the "net income of Plaintiff corporation,"
67
equity in his service vehicle in the amount of P1,500,000, court to contest the management’s decision to: (1) post
reasonable return on the stock ownership plan for services guards to secure the premises of the corporate property; (2)
rendered as General Manager, and moral damages and padlock the premises; and (3) deny her access to the same
attorney’s fees. on May 28, 2007 due to her alleged default on the provisions
of the MOA.
Lopez, Inc. filed a manifestation and a motion to dismiss the
counterclaim for want of jurisdiction, asserting that the Thus, we agree with petitioners that while the case purports
counterclaims, being money claims arising from a labor to be one for forcible entry filed by Mariam against BIRI’s
relationship, are within the exclusive competence of the employees and contractors in their individual capacities, the
National Labor Relations Commission. true nature of the controversy is an intra-corporate dispute
between BIRI and its shareholder Mariam, regarding the
ISSUE: management of, and access to, the corporate property
Whether Lopez, Inc. is correct in asserting that the subject of the MOA. We therefore find that the MCTC never
counterclaims is within the jurisdiction of the NLRC. acquired jurisdiction over the ejectment case filed by
Mariam.
RULING: NO.
At the heart of Velarde’s counterclaim is his alleged forced
retirement which is also the basis of his claim for, among other TAN v. DOWNTOWN REALTY INVESTMENT, INC.
things, unpaid salaries, unpaid incentives, reasonable return on G.R. No. 201497 (Notice), Oct. 3, 2018
the stock ownership plan, and other benefits from a subsidiary
While we have ruled before that the General Manager is not
company of the Lopez, Inc.
a corporate officer, it was for the reason that there was no
express mention in the by-laws for the position of the
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the
General Manager. We emphasized that a general enabling
Securities Regulation Code) applies to a corporate officer’s
clause allowing the Board of Directors to create an additional
dismissal. For a corporate officer’s dismissal is always a
office is insufficient to give the office created a corporate
corporate act and/or an intra-corporate controversy and
character. This is not the case here.
that its nature is not altered by the reason or wisdom which the
Board of Directors may have in taking such action.
At this juncture the conclusion that petitioner occupied the
position of General Manager is also supported by substantial
With regard to Velarde’s claim for unpaid salaries, unpaid share
evidence. Petitioner’s appointment to the position is
in net income, reasonable return on the stock ownership plan
supported by the minutes of the meeting of the Board of
and other benefits for services rendered to Sky Vision,
Directors held on Jan. 28, 2008. The GIS submitted by DRI
jurisdiction thereon pertains to the Securities Exchange
to the SEC, listed petitioner as an officer under the
Commission even if the complaint by a corporate officer
nomenclature of “Manager”. More, petitioner cannot
includes money claims since such claims are actually part of
downplay his position by claiming that he was a mere
the prerequisite of his position and, therefore, interlinked with
“Manager” of the building. Petitioner himself admits that the
his relations with the corporation. The question of
building is the only asset of the corporation. Even as DRI
remuneration involving a person who is not a mere
was about to be sold, he was authorized to represent DRI in
employee but a stockholder and officer of the
its negotiations with Yao. What is apparent is that petitioner
corporation is not a simple labor problem but a matter
actively participated in the running of DRI’s affairs pursuant
that comes within the area of corporate affairs and
to the functions of a General Manager. The imprecise
management, and is in fact a corporate controversy in
nomenclature of his position cannot detract from the fact
contemplation of the Corporation Code.
that petitioner exercised the functions of General Manager
under the by-laws and was treated as such by DRI.
However, the filing of the counter-claim against Lopez, Inc. is
improper because it is not the real party-in-interest, it should
be against Velarde’s employer, Sky Vision, Lopez Inc.’s
subsidiary. WISE HOLDINGS, INC. v. GARCIA
G.R. No. 199174 (Notice), June 10 2019
It cannot be gainsaid that a subsidiary has an independent and Basic as a hornbook principle is that jurisdiction over the
separate juridical personality, distinct from that of its parent subject matter of a case is conferred by law and determined
company, hence, any claim or suit against the latter does not by the allegations in the complaint which comprise a concise
bind the former and vice versa. statement of the ultimate facts constituting the plaintiff’s
cause of action. The nature of an action, as well as which
Velarde argues nevertheless that jurisdiction over the court or body has jurisdiction over it, is determined based
subsidiary is justified by piercing the veil of corporate fiction. on the allegations contained in the complaint of the plaintiff,
Piercing the veil of corporate fiction is warranted, however, only irrespective of whether or not the plaintiff is entitled to
in cases when the separate legal entity is used to defeat public recover upon all or some of the claims asserted therein.
convenience, justify wrong, protect fraud, or defend crime,
such that in the case of two corporations, the law will regard The nature of the controversy test requires that the
the corporations as merged into one. issue in the complaint must refer to the enforcement
of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-
TUMAGAN v. KAIRUZ corporate regulatory rules of the corporation.
G.R. No. 198124, Sep. 12, 2018
Here, the allegations of the complaint show on their face
In sum, what appears on record as the true nature of the
that the action is for reconveyance of property in recognition
controversy is that of a shareholder seeking relief from the
68
of trust. Petitioners seek the return of all shares of stock of 4. Availability of appraisal rights for the act or acts
Sunrich, of which they are the real and beneficial owners. complained of; and
5. Prejudice or damage to the corporation,
partnership or association in relation to the relief
CACHO v. BALAGTAS sought.
G.R. No. 202974, Feb. 7, 2018
In case of nuisance or harassment suits, the court may,
From these, it is clear that the termination complained of is
motu proprio or upon motion, forthwith dismiss the case.
intimately and inevitably linked to respondent Balagtas’s
role as petitioner North Star’s Executive Vice President: first,
VENUE
the alleged misappropriations were committed by
respondent Balagtas in her capacity as vice president, one
All actions covered by these Rules shall be commenced and
of the officers responsible for approving the disbursements
tried in the Regional Trial Court which has jurisdiction
and signing the checks. And, second, these alleged
over the principal office of the corporation,
misappropriations breached petitioner Cacho’s and North
partnership, or association concerned. Where the
Star’s trust and confidence specifically reposed in
principal office of the corporation, partnership or association
respondent Balagtas as vice president.
is registered in the Securities and Exchange Commission as
Metro Manila, the action must be filed in the city or
That all these incidents are adjuncts of her corporate office
municipality where the head office is located
lead the Court to conclude that respondent Balagtas’s
dismissal is an intra-corporate controversy, not a mere labor
dispute.
SERVICE OF PLEADINGS
When so authorized by the court, any pleading and/or
document required by these Rules may be filed with the
BELO MEDICAL GROUP, INC. v. SANTOS court and/or served upon the other parties by facsimile
G.R. No. 185894, Aug. 30, 2017 transmission (fax) or electronic mail (e-mail). In such cases,
Applying the relationship test, this Court notes that both the date of transmission shall be deemed to be prima facie
Belo and Santos are named shareholders in Belo Medical the date of service.
Group’s Articles of Incorporation and General Information
Sheet for 2007 . the conflict is clearly intra-corporate as it
involves two (2) shareholders, although the ownership of PROHIBITED PLEADINGS
stocks of one stockholder is questioned. Unless Santos is
adjudged as a stranger to the corporation because he holds The following pleadings are prohibited:
his shares only in trust for Belo, then both he and Belo,
based on official records, are stockholders of the 1. Motion to dismiss
corporation. Belo Medical Group argues that the case should 2. Motion for bill or particulars
not have been characterized as intra-corporate because it is 3. Motion for new trial, or for reconsideration of
not between two (2) shareholders as only Santos or Belo can judgment or for re- opening of trial
be rightful stockholder of the 25 shares of stock. This may 4. Motion for extension of time to file pleadings,
be true. But this finding can only be made after trial where affidavits or any other paper, except those filed due
ownership of the shares of stock is decided. to clearly compelling reasons. Such motion must be
verified and under oath; and
Applying the nature of the controversy test, this is still 5. Motion for postponement and other motions of
an intra-corporate dispute. The Complaint for interpleader similar intent, except those filed due to clearly
seeks a determination of the true owner of the shares of compelling reasons. Such motion must be verified
stock registered in Santos’ name. ultimately, however, the and under oath.
goal is to stop Santos from inspecting corporate books. This
goal is so apparent that, even if Santos is declared the true
owner of the shares of stock upon completion of the MANAGEMENT COMMITTEE
interpleader case, Belo Medical Group still seeks his
disqualification from inspecting the corporate books based As an incident to any cases filed under these Rules it the
on bad faith. Therefore, the controversy shifts from a mere Interim Rules on Corporate Rehabilitation, a party may apply
question of ownership over movable property to the exercise for the appointment of a management committee for the
of a registered stockholder’s proprietary right to inspect corporation, partnership, or association, when there us
corporate books. imminent danger of:
1. Dissipation, loss, wastage or destruction of assets

or other properties; and
PROCEDURAL RULES (A.M. No. 01-02-04-SC) 2. Paralyzation of its business operations which may
be prejudicial to the interest of the minority
Nuisance and harassment suits are prohibited. In stockholders, party- litigants or the general public.
determining whether a suit is a nuisance or harassment suit,
the court shall consider, among others, the following:
JUDGMENT BEFORE PRE-TRIAL
1. The extent of the shareholding or interest of the
initiating stockholder or member, If after the submission of the pre-trial brief, the court
2. Subject matter of the suit; determines that, upon consideration of the pleadings, the
3. Legal and factual basis of the complaint; affidavits and other evidence submitted by the parties, a
69
judgment may be rendered, the court may order the parties The provisions of this Rule shall apply to disputes exclusively
to file simultaneously their respective memoranda within a involving the rights of stockholders or members to inspect
non-extendible periods of twenty (20) days from the receipt the books and records and/or to be furnished with the
of the order. Thereafter, the court shall render judgment, financial statements of a corporation, under section 74 and
either full or otherwise, not later than ninety (90) days from 75 of Batas Pampanga Blg. 68, otherwise known as the
the expiration of the period to file the memoranda. Corporation Code of the Philippines.
Discussion: So pwedeng magkaroon ng judgment before pre-

trial because again, the nature of the cases here is a Complaint for Inspection of Corporate Books and
consideration. Records
TRIAL SCHEDULE In addition to the requirements in Section 4, Rule 2 of these

Rules, the complaint must state the following:
Unless judgment is rendered pursuant to Rule 4 of these
Rules, the initial hearing shall be held not later than thirty 1. The case is for the enforcement of plaintiff’s right
(30) days from the date of the pre- trial order. The hearings of inspection of corporate orders or records and/ or
shall be completed not later than sixty (60) days from the ti be furnished with financial statements under
date of the initial hearing, thirty (30) days which shall be Section 74o- 75 of the Corporation Code of the
allotted to the plaintiffs and thirty (30) days to the Philippines;
defendants in the manner prescribed in the pre- trial order. 2. A demand for inspection and copying of books and
The failure of a party to present a witness on a scheduled records and/ or to be furnished with financial
hearing date shall be deemed a waiver of such hearing date. statements made by the plaintiff upon defendant
However, a party may present such witness or witness 3. The refusal of defendant to grant the demands of
within his remaining allotted hearing dates. the plaintiff and the reasons given for such refusal,
if any; and
4. The reasons why the refusal of the defendant to
RULES FOR ELECTION CONTESTS
grant the demand of the plaintiff is unjustified and
An election contest refers to any controversy or dispute illegal, stating the law and jurisprudence in support
involving title or claim to any elective office in a stock or no- thereof.
stock corporation, the validation of proxies, the, manner and
the validity of elections, and the qualification of candidates,
including the proclamation of winners, to the office of Duty of the Court upon filing of the complaint
director, trustee or other officer directly elected by the
Within two (2) days from the filing of the complaint, the
stockholders in a close corporation or by members of a non-
court, upon a consideration of the allegations thereof, may
stock corporation where the articles of incorporation or by-
dismiss the complaints outright if it is not sufficient in form
laws so provide.
and substance, or if its is sufficient, order the issuance of
summons which shall be served, together with a copy of the
Complaint in an election contest complaint within two (2) days from its issuance.
In addition to the requirements in Section 4, Rule 2 of these
Rules, the complaint in an election contest must state the
following: DERIVATIVE SUITS
1. The case was filed within fifteen (15) days from the
date of the election if the bylaws of the Derivative action
corporation do not provide for a procedure for
resolution of the controversy, or within fifteen (15) A stockholder or member may bring an action in the name
days from the resolution of the controversy by the of a corporation or association, as the case may be,
corporation as provided in its bylaws; and provided, that:
2. The plaintiff has exhausted all intra- corporate 1. He was a stockholder or member at the time the
remedies in election cases as provided for in the acts or transactions subject of the action occurred
bylaws of the corporation. and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust
Duty of the court upon filing of the complaint all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
Within two (2) days from the filing of the complaint, the corporation or partnership to obtain the relief he
court, upon a consideration of the allegation thereof, may desires;
dismiss the complaint outright if it is not sufficient in form 3. No appraisal rights are available for the act or acts
and substance, or if it is sufficient, order the issuance of complained of; and
summons which shall be served, together with a copy of the 4. The suit is not a nuisance or harassment suit.
complaint, on the defendant within two (2) days from its
issuance. In case of nuisance or harassment suit, the court shall
forthwith dismiss the case. (sec. 1)
Take note of the requisites as it must be complied with.
INSPECTION OF CORPORATE BOOKS AND RECORDS
70
DISCONTINUANCE
A derivative action shall not be discontinued, compromised

or settled without approval of the court. During the
pendency of the action, any sale of shares of the complaining
stockholders shall be approved by the court. If the court
determines that the interest of the stockholders or members
will be substantially affected by the discontinuance,
compromise or settlement, the court may direct that notice,
by publication or otherwise, be given to the stockholders or
members whose interest it determines will be so affected.
(Sec. 2.)
PROVISIONAL REMEDIES
A party may apply for any of the provisional remedies

provided in the Rules of Court as may be available for the
purposes. However, no temporary restraining order or
status quo order shall be issued save in exceptional cases
and only after hearing the parties and the posting of bond.
(Sec. 1)
You can avail of provisional remedies if you file a case for intra-
corporate dispute. Note that TROs are only allowed in
exceptional cases so as not to paralyze the corporation in its
operation.
Sanctions on the parties or counsel
In any of the following cases, the court may, upon motion

motu proprio, impose appropriate sanctions:
1. In case the court determines in the course of the
proceeding that the action is a nuisance or
harassment suit;
2. In case a pleading, motion or other paper is filed in
violation of Section 7, Rule 1 of these Rules;
3. In case a party omits or violates the certification
required under Section 4, Rule 2 of these Rules;
4. In case or unwarranted denials in the answer to the
complaint;
5. In case of willful concealment or non-disclosure of
material facts or evidence;
The sanctions may include an order to pay the other party

of parties the amount of the reasonable expenses incurred
because of the act complained of, including reasonable
attorney's fees. (sec. 1)
Disciplinary Sanctions on the Judge
The presiding judge may, upon a verified complaint filed

with the Office of the Court Administrator, be subject to
disciplinary action under any of the following cases;
(1) Failure to observe this special summary procedures
prescribed in these Rules; or
(2) Failure to issue a pre-trial order in form prescribed in
these Rules. (Sec. 2)
END
71

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BUSINESS ORGANIZATION II

The provisions of this Title shall primarily govern close

2019 TSN Discussion (c) Greater quorum or voting requirements in meetings of

corporation you do have that preemptive right on all issuance

So, these corporations sole and religious societies are governed

forbidden by competent, authority or by the Constitution, rules,

 The problem here is analogous to the right of the

The courts have refused to permit a person to obtain

Banks and quasi-banks, preneed, trust, insurance, public

2,000,000.00 to 3,000,000.00 The purpose of the nominee is that in case of incapacity or

CHANGE OF NOMINEE OR ALTERATE NOMINEE LIABILITY OF SINGLE STOCKHOLDER

the Commission may place the Corporation under delinquent

amended articles of incorporation reflecting the

If all requirements have been complied with, the

2019 TSN Discussion

This is what happened with KAPA. Hindi na hiningtay ang

Pwede din mag issue ng subpoena. When you read this,

2. Violation of Disqualification Provision Liability of Directors, Trustees, Officers, or other

If the offender is a corporation, the penalty may, at the

CORPORATE DEATH 2. Involuntarily

Issue: Whether or not the Corporation (club) was validly

WITHDRAWAL OF PETITION FOR DISSOLUTION

Fletcher has written: "Since the privilege of extension is

 a partnership duly registered with the (SEC). This means

creditors be at an advantaged position? Mas makakakuha ba

Rehabilitation  When approved by the owner in case of a sole

(d) state the legal effects of the Commencement Order,

2019 TSN Discussion

Commencement Order (cont.)

b. Subject to the discretion of the court, to cases

f. The clearing and settlement of financial

(referring to item a) WAIVER OF TAXES AND FEED DUE TO THE NATIONAL

(referring to item b)  Upon issuance of the Commencement Order by the

be successfully rehabilitated. In determining

*Minimum requirements for substantial likelihood, see above.

Q. Who is your Rehabilitation Receiver?

Discussion: The court shall initially appoint the rehabilitation

An individual shall be deemed to have a conflict of interest

unencumbered property or any encumbering thereof by

Sec. 64. Creditor Approval of Rehabilitation Plan. –

For the avoidance of doubt, the provisions of other laws to the

successful implementation of the Rehabilitation Plan PHIL. BANK OF COMMUNICATIONS v. BASIC

In a pre-negotiated rehabilitation , may usapan na kayo ng

On April 7, 2005, foreseeing the impossibility of meeting its

The rehabilitation receiver submitted an Alternative

“The Court reiterates that the SEC’s approval of the

An insolvent debtor may apply for liquidation by filing a

If the petition, or the motion, as the case may be is sufficient

SEC. 112. Liquidation Order. — The Liquidation Order

Who is the Liquidator?

Should there be Court–Appointed Liquidator? Yes.

definition of "security." The US Supreme Court,

 Worse, the investment scheme of RIGEN has the

the above-cited RSA, provision. Therefore, the issuance

competent individuals. Meaning, they do their due diligence,

EXEMPT TRANSACTIONS (continuation) c. Sales may be made to no more than nineteen

Q: Can the SEC reject or revoke the registration statement that

viii. nature of the issuer’s business;

(a) The issuer:

1. By effecting any transaction in such security which

3. By performing similar act where there is not change in

1. By effecting any transaction in such security which

 To effect, alone or with others, a series of