Corporate Dissolution and Liquidation
Corporate Dissolution and Liquidation
A.
Nature
of
Dissolution2
Dissolution
of
a
corporation
signifies
the
extinguishment
of
its
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
a. Where
no
creditors
are
affected
by
the
dissolution,
by
an
administrative
application
for
dissolution
filed
with
the
SEC;1
b. Where
creditors
are
affected
by
dissolution,
by
a
formal
petition
for
dissolution
filed
with
the
SEC,
with
due
notice,
and
hearing
to
be
duly
conducted;2
and
c. Shortening
of
corporate
term
by
the
amendment
of
the
articles
of
incorporation.3
2. Involuntary
II.
Voluntary
Dissolution
(Section
117)
A.
No
Creditors
Affected
(Section
118)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
B.
There
Are
Creditors
Affected
(Sections
119
and
122).
Section
119.
Voluntary
dissolution
where
creditors
are
affected.
Where
the
dissolution
of
a
corporation
may
prejudice
the
rights
of
any
Upon
five
(5)
day's
notice,
given
after
the
date
on
which
the
right
to
file
objections
as
fixed
in
the
order
has
expired,
the
Commission
shall
proceed
to
hear
the
petition
and
try
any
issue
made
by
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
creditor,
the
petition
for
dissolution
shall
be
filed
with
the
Securities
and
Exchange
Commission.
The
petition
shall
be
signed
by
a
majority
of
its
board
of
directors
or
trustees
or
other
officers
having
the
management
of
its
affairs,
verified
by
its
president
or
secretary
or
one
of
its
directors
or
trustees,
and
shall
set
forth
all
claims
and
demands
against
it,
and
that
its
dissolution
was
resolved
upon
by
the
affirmative
vote
of
the
stockholders
representing
at
least
two-thirds
date
shall
not
be
less
than
thirty
(30)
days
nor
more
than
sixty
(60)
days
after
the
entry
of
the
order.
Before
such
date,
a
copy
of
the
order
shall
be
published
at
least
once
a
week
for
three
(3)
consecutive
weeks
in
a
newspaper
of
general
circulation
published
in
the
municipality
or
city
where
the
principal
office
of
the
corporation
is
situated,
or
if
there
be
no
such
newspaper,
then
in
a
newspaper
of
general
circulation
in
the
Philippines,
and
a
similar
copy
shall
be
posted
for
three
(3)
consecutive
weeks
in
three
(3)
public
places
in
such
municipality
or
At
any
time
during
said
three
(3)
years,
the
corporation
is
authorized
and
empowered
to
convey
all
of
its
property
to
trustees
for
the
benefit
of
stockholders,
members,
creditors,
and
other
persons
in
interest.
From
and
after
any
such
conveyance
by
the
corporation
of
its
property
in
trust
for
the
benefit
of
its
stockholders,
members,
creditors
and
others
in
interest,
all
interest
which
the
corporation
had
in
the
property
terminates,
the
legal
interest
vests
in
the
trustees,
and
the
city.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Upon
the
winding
up
of
the
corporate
affairs,
any
asset
distributable
to
any
creditor
or
stockholder
or
member
who
is
unknown
or
cannot
be
found
shall
be
escheated
to
the
city
or
municipality
where
such
assets
are
located.
Except
by
decrease
of
capital
stock
and
as
otherwise
allowed
by
this
Code,
no
corporation
shall
distribute
any
of
its
assets
or
property
except
upon
lawful
dissolution
and
after
payment
of
all
its
debts
and
liabilities.
(77a,
89a,
16a)
petition
for
dissolution
with
the
SEC.
The
proceedings
are
quasi-
judicial
in
nature
and
conducted
to
ensure
that
the
rights
of
the
creditors
are
fully
protected.
In
such
proceedings,
the
SEC
is
not
mandated
to
dissolve
the
corporation,
especially
when
it
would
Under
its
internal
rules,
the
SEC
would
require
the
following:2
a. Notice
of
the
dissolution
of
the
corporation
by
shortening
of
the
corporate
term
be
published
in
a
newspaper
of
general
circulation
for
three
(3)
consecutive
weeks;
b. Listing
of
the
corporate
creditors,
with
their
consent
to
the
shortening
of
the
corporate
term;
c. Submission
by
the
majority
stockholders
or
principal
officers
of
the
corporation
of
an
undertaking
under
oath
that
they
shall
personally
answer
for
any
outstanding
obligations
of
the
corporation;
and
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
d. The
latest
audited
financial
statements
of
the
corporation
which
must
not
be
earlier
than
the
date
of
the
stockholders'
or
membership
meeting
approving
the
amendment
to
the
articles
of
incorporation,
and
a
BIR
clearance
on
the
tax
liabilities
of
the
corporation.
1
III.
Involuntary
Dissolution
(Section
121;
Section
6(l),
P.D.
902-A;
Section
2,
Rule
66,
Rules
of
Court)
Section
121.
Involuntary
dissolution.
A
corporation
may
be
dissolved
by
the
Securities
and
Exchange
Commission
upon
filing
of
a
verified
complaint
and
after
proper
notice
and
hearing
on
the
grounds
provided
by
existing
laws,
rules
and
regulations.
(n)
PRESIDENTIAL
DECREE
NO.
902-A
Section
6.
x
x
x
(i)
To
suspend,
or
revoke,
after
proper
notice
and
hearing,
the
franchise
or
certificate
of
registration
of
corporations,
partnerships
or
associations,
upon
any
of
the
grounds
provided
by
law,
including
the
following:
1.
Fraud
in
procuring
its
certificate
of
registration;
3.
Refusal
to
comply
or
defiance
of
any
lawful
order
of
the
Commission
restraining
commission
of
acts
which
would
amount
to
a
grave
violation
of
its
franchise;
4.
Continuous
inoperation
for
a
period
of
at
least
five
(5)
years;
5.
Failure
to
file
by-laws
within
the
required
period;
6.
Failure
to
file
required
reports
in
appropriate
forms
as
determined
by
the
Commission
within
the
prescribed
period;
x
x
x
CIVIL
CODE
Section
2.
When
Solicitor
General
or
public
prosecutor
must
commence
action.
The
Solicitor
General
or
a
public
prosecutor,
when
directed
by
the
President
of
the
Philippines,
or
when
upon
complaint
or
otherwise
he
has
good
reason
to
believe
that
any
case
specified
in
the
preceding
section
can
be
established
by
proof,
must
commence
such
action.
A.
Quo
Warranto
SEC Opinion, 5 July 1979, the XIII SEC QUARTERLY BULLETIN 3 (No. 4, Oct. 1979).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
B.
Non-user
of
Charter
and
Continuous
In-Operation
(Section
22)
Section
22.
Effects
on
non-use
of
corporate
charter
and
continuous
inoperation
of
a
corporation.
ed.), p. 841.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Organize
involves
the
election
of
officers,
providing
for
the
subscription
and
payment
of
the
capital
stock,
the
adoption
of
by-laws,
and
such
other
steps
as
are
necessary
to
endow
the
of
incorporation,
but
cannot
be
made
earlier
than
five
(5)
years
prior
to
the
original
or
subsequent
expiry
date.1
o The
privilege
of
extension
of
corporate
term
is
purely
statutory
and
that
all
statutory
conditions
precedent
must
be
complied
with
in
order
that
the
extension
may
be
effectuated.
D.
Demand
of
Minority
Stockholders
for
Dissolution.
IV.
Legal
Effects
of
Dissolution
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
the
purpose
of
prosecuting
and
defending
suits
by
or
against
it
and
enabling
it
to
settle
and
close
its
affairs,
to
dispose
of
and
convey
its
property,
and
to
distribute
its
assets.
Republic
v.
Tancinco,
394
SCRA
386
(2002).
VI.
Methods
of
Liquidation
(Section
122)
A.
The
Board
of
Trustees
Pursuing
Liquidation;
Subject
to
the
3-year
Period
not
terminated
and
the
one
in
charge
thereof
is
still
holding
the
assets
of
the
corporation,
obviously
for
the
benefit
of
all
the
V.
Meaning
of
Liquidation
Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 SCRA 461 (2011).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
creditors
thereof,
the
assessment
aforementioned,
made
within
the
three
years,
definitely
established
the
Government
as
a
creditor
of
the
corporation
for
whom
the
liquidator
is
supposed
to
hold
assets
of
the
corporation.
Republic
v.
Marsman
Dev.
Co.,
44
SCRA
418
(1972).
Reiterated
under
the
Corporation
Code
in
Paramount
Insurance
Corp.
v.
A.C.
Ordonez
Corp.,
561
Old
Rule:
Since
the
old
Corporation
Law
did
not
contain
any
provision
that
allowed
any
action
after
the
3-year
period
for
liquidation,
then
all
actions
for
or
against
the
corporation
as
abated
after
the
expiration
thereof.
National
Abaca
Corp.
v.
Pore,
2
SCRA
989
(1961).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
C.
Liquidation
Pursued
Through
a
Trustee
Gelano
v.
Court
of
Appeals
Facts:
Insular
Sawmill
is
a
corporation
organized
for
the
primary
purpose
of
carrying
on
a
general
lumber
and
sawmill
business.
It
was
leasing
property
of
the
Spouses
Gelano,
and
the
latter
owed
the
company
certain
sums
of
money
arising
from
cash
advances
of
the
husband,
a
loan
in
China
Bank
which
Insular
executed
jointly
with
the
husband,
and
credit
purchases
of
lumber
materials
for
the
spouses
residence.
Insular
then
filed
a
complaint
for
collection
against
the
spouses.
While
the
case
was
on
going,
Insular
amended
its
Articles
of
Incorporation
to
shorten
its
corporate
existence
of
up
to
December
31,
1960
only.
The
amended
Articles
of
Incorporation
was
filed
with
and
approved
by
the
Securities
and
Exchange
Commission,
but
the
trial
court
was
not
notified
of
the
amendment
shortening
the
corporate
existence
and
no
substitution
of
party
was
ever
made.
Almost
4
years
after
the
dissolution
of
the
corporation,
the
trial
court
rendered
a
decision
holding
spouses
liable.
On
appeal,
the
spouses
filed
a
motion
to
dismiss
based
on
the
grounds
that
the
case
was
prosecuted
even
after
dissolution
of
Insular
as
a
corporation
and
that
a
defunct
corporation
cannot
maintain
any
suit
for
or
against
it
without
first
complying
with
the
requirements
of
the
winding
up
of
the
affairs
of
the
corporation
and
the
assignment
of
its
property
rights
within
the
required
period.
Incidentally,
after
the
receipt
of
the
spouses
motion
to
dismiss,
Insular
through
its
former
directors
filed
a
Petition
for
Receivership,
which
petition
remains
pending
before
the
lower
court.
Issue:
Whether
a
corporation
whose
corporate
life
had
ceased
by
the
expiration
of
its
terms
of
existence,
could
still
continue
prosecuting
and
defending
suits
after
its
dissolution
and
beyond
the
period
of
3
years
and
without
having
undertaken
any
step
to
transfer
its
assets
to
a
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
in
the
assets,
including
the
shareholders
and
the
creditors
of
the
corporation,
acting
for
and
in
its
behalf,
might
make
proper
representations
with
the
appropriate
body
for
working
out
a
final
settlement
of
the
corporate
concerns.
Clemente
v.
Court
of
Appeals,
242
SCRA
717
(1995).1
trustee
or
assignee
Held:
YES.
It
can
continue
prosecuting.
When
Insular
Sawmill,
Inc.
was
dissolved
on
December
31,
1960,
under
Section
77
of
the
Corporation
Law,
it
still
has
the
right
until
December
31,
1963
to
prosecute
in
its
name
the
present
case.
Although
private
respondent
did
not
appoint
any
trustee,
yet
the
counsel
who
prosecuted
and
defended
the
interest
of
the
corporation
in
the
instant
case
and
who
in
fact
appeared
in
behalf
of
the
corporation
may
be
considered
a
trustee
of
the
corporation
at
least
with
respect
to
the
matter
in
litigation
only.
Said
counsel
had
been
handling
the
case
when
the
same
was
pending
before
the
trial
court
until
it
was
appealed
before
the
Court
of
Appeals
and
finally
to
this
VII.
Reincorporation:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Chung
Ka
Bio
v.
IAC
Facts:
Philippine
Blooming
Mills
Company,
Inc.
was
incorporated
for
a
term
of
25
years.
The
members
of
its
board
of
directors
executed
a
deed
Doctrine:
that
the
former
had
become
legally
non-existent
for
failure
to
extend
its
corporate
life
and
that
the
latter
had
likewise
been
ipso
facto
dissolved
for
non-use
of
the
charter
and
continuous
failure
to
operate
within
2
years
from
incorporation.
Issue:
Whether
or
not
the
new
corporation
has
not
substantially
complied
with
the
two-year
requirement
of
Section
22
of
the
new
1. Applicable
Legal
Provisions
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Summary
on
Dissolution
and
Liquidations
Proceedings
Recently,
Clemente
v.
Court
of
Appeals2
revisited
the
procedures
of
dissolution
and
liquidation.
In
that
case,
the
Supreme
Court
refused
the
petition
filed
by
alleged
stockholders
of
a
sociedad
anonima
for
the
declaration
of
the
corporate
assets
to
pertain
to
them
in
the
absence
of
showing
any
transfer
or
disposition
by
the
corporation
in
their
favor.
The
Court
said
that
in
the
absence
of
a
corporate
liquidation,
it
is
the
corporation,
not
the
stockholders,
which
can
assert,
if
at
all,
any
title
to
the
corporate
assets.
"If
indeed,
the
sociedad
has
long
become
defunct,
it
should
behoove
petitioners,
or
anyone
else
who
may
have
any
interest
in
the
corporation,
to
take
appropriate
measures
before
a
proper
forum
for
a
peremptory
settlement
of
its
affairs."3
The
Court
then
proceeded
to
lay
down
the
procedures
and
effects
of
dissolution
and
liquidation
of
a
corporation
as
provided
for
in
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Sections
117
to
122
of
the
Corporation
Code,
and
existing
jurisprudence,
thus:
1. The
termination
of
the
life
of
a
juridical
entity
does
not
by
itself
cause
the
extinction
or
diminution
of
the
rights
and
liabilities
of
such
entity
nor
those
of
its
owners
and
creditor;1
2. The
corporation
continues
to
be
a
body
corporate
for
three
(3)
years
after
its
dissolution
for
purposes
of
prosecuting
and
defending
suits
by
and
against
it
and
for
enabling
it
to
settle
and
close
its
affairs,
culminating
in
the
disposition
and
distribution
of
its
remaining
assets;
3. It
may,
during
the
three-year
term,
appoint
a
trustee
or
a
receiver
who
may
act
beyond
that
period;
pending litigation.
1
2
Reburiano
v.
Court
of
Appeals, 3
reiterated
the
ruling
of
the
Supreme
Court
that
seeks
to
allow
the
full
liquidation
of
the
corporate
affairs
even
beyond
the
three-year
period
provided
for
in
the
Code,
and
invoked
in
addition
the
transitory
provision
of
Section
145
of
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)