TITLE XIV

DISSOLUTION
RA 11231 (as amended)

• ARTICLES 117- 122 ( OLD)

• ARTICLES 133-139 ( NEW)
 DISSOLUTION
• Not all corporations are successful in its business operations in
the Philippines and not all domestic corporations in the Philippines
are meant forever. Like humans, corporate life comes to an end
and this is what is technically referred to as dissolution and
liquidation.
• Dissolution in the Philippines is the stage in terminating the life of
a corporation and liquidation in the Philippines is the process of
winding up the affairs, settlement of corporate obligations/ debt
and distribution of remaining corporate assets through liquidating
dividends in the Philippines.
 DISSOLUTION
• Dissolution is the extinguishment of the franchise of a corporation
and the termination of its corporate existence.
• Dissolution of a corporation in the Philippines under the
Corporation Code of the Philippines (RA 11231 as amended)
could be involuntary upon Securities and Exchange Commission
(SEC) complaint coupled with a prescribed process of notice and
hearing or voluntary based on the application of the corporation
with the SEC (section 133). Voluntary dissolution of corporation in
Philippines come in a number of ways as follows:
 DISSOLUTION
• Section 134- Voluntary Dissolution Where No Creditors Are Affected
How effected?
A.By majority of vote of the Board of Directors or Trustees adopting
resolution for the dissolution of the Corporation, adopted by the affirmative
vote of stockholders owning at least majority of the outstanding capital stock
or majority of the members of a meeting to be held upon the call of the
directors or trustees;
B. Sending of notices to each stockholder or member either by registered
mail or by special delivery, of the time, place and object of the meeting
calling for the approval of the dissolution of the Corporation, at least thirty
(30) days ( New law is 20 days) prior to the said meeting ( whether
entitled to vote or not- additional)
 Voluntary Dissolution Where No Creditors Are
Affected: How Effected
C.Publication of such notice of meeting for three (3) consecutive
weeks in newspaper published in the place where the principal
office of said corporation is located, and if none, in newspaper of
general circulation in the Philippines; (New Law: Notice of the time,
place and object of the meeting shall be published once prior to
the date of the meeting in a newspaper published in the place
where the principal office of said corporation is located, or if no
newspaper is published in such place, in a newspaper of general
circulation in the Philippines)
 Voluntary Dissolution Where No Creditors Are
Affected: How Effected
D. Verified request for resolution shall be filed with the Commission
stating: (a) the reason for dissolution; (b) the form, manner,and time when
notices were given; (c) names of the stockholders and directors or
membersand trustees who approved the dissolution; (d) the date, place,
and time of the meeting i whcih the vote was made; and (e) details of
publication ( New)
E.Filing with the SEC of a (1) copy of the resolution authorizing the
dissolution certified by a majority of the Board of Directors or Trustees
and countersigned by the Corporate Secretary (New ) (2) proof of
publication; and (3); and favorable recommendation from the appropriate
regulatory agency, when necessary.
 Voluntary Dissolution Where No Creditors Are
Affected: How Effected

F.Issuance by the SEC of the Certification of Dissolution

New Law: Within fifteen (15) days from receipt of the verified
request for dissolution, and in the absence of any withdrawal within
said period, the Commission shall approve the request and issue
the certificate of dissolution. The dissolution shall take effect only
upon the issuance by the Commission of a certificate of dissolution.
 Voluntary Dissolution Where No Creditors Are
Affected: How Effected

No application for dissolution of banks,banking and quasi-

banking institutions, pre- need, insurance and trust
companies, NSSLAs, pawnshops, and other financial
intermediaries shall be approved by the Commission unless
accompanied by a favorable recommendation of the
appropriate government agency.
 Voluntary Dissolution Where No Creditors Are Affected

New: A verified request for dissolution shall be filed with the Commission
stating: (a) the reason for dissolution (b) the form, manner,and time when the
notices were given; (c) names of the stockholders and directors or members
and trustees who approved the dissolution; (d) the date, place,and time of the
meeting in whcih the vote was made; and details of publication.
Note: The SEC will not deny an application for dissolution when there are no
creditors involved because of the Constitutional prohibition against involuntary
servitude or the constitutional guarantee of association, and the right to refuse
to continue an association. Since other than the stockholders or members of the
corporation, no third parties are involved, the State through the SEC, will
generally grant the application for the dissolution of the Corporation
 Section 135- Voluntary Dissolution Where Creditors
are Affected
• If there are creditors involved or who may prejudiced, there is a
need to file a formal 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
proceeding, the SEC is not mandated to dissolve the corporation,
especially when it would be detrimental to the interest of the
creditors, who may wish to rehabilitate the operations of the
Corporation to ensure that it would be able to pay-off all of its
debts. This authority of the SEC is also provided in PD 902-A
 Voluntary Dissolution Where Creditors Are Affected:
How Effected
A. A petition for dissolution shall be filed with the SEC, signed by
the majority of the Corporation's BOD or Trustees verified by its
President or Secretary or one of its Directors or Trustees, and shall
set forth:
√ all claims and demand against it; and
√ That its dissolution was resolved upon by the
affirmative vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock or by at least
two-thirds (2/3) of the members, at a meeting called for
that purpose;
 Voluntary Dissolution Where Creditors Are Affected:
How Effected
B.If the petition is sufficient in from and substance, the SEC, by an order
reciting the purpose of the petition, fix a deadline for filing objections
to the petition date shall not be less than thirty (30) days nor more than
sixty (60) days after the entry of the order;
C.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 the there be no such newspaper, then
in a newspaper of general circulation of the Philippines, and a similar
copy shall be posted for three (3) public places in such municipality or
city;
 Voluntary Dissolution Where Creditors Are Affected:
How Effected

D. Upon five (5) days’ notice, given after the date on which the right to file
objections as fixed in the order has expired, the SEC shall proceed to
hear the petition and try any issue made by objections filed;and
E.If no such objection is sufficient,and the material allegations of the
petition are true, it shall render judgement dissolving the corporation and
directing such disposition of it assets as justice requires, and may appoint
a receiver to collect such assets and pay the debts of the corporation.
 Steps in Voluntary Dissolution Where Creditors Are
Affected
Additional:
The petition shall likewise state: (a) reason for dissolution; (b) the form,
manner, and time when notices were given; and (c) the date, place, and
time of the meeting in which the vote was made. The Corporation shall
submit to the Commission the following: (1) a copy of the resolution
authorizing dissolution, certified by a majority of the board of directors or
trustees and countersigned by the secretary of the corporation; and (2)
list of its creditors.
The dissolution shall take effect only upon the issuance by the
Commission of a certificate of dissolution
 Section 136- Dissolution by Shortening Corporate
Term
Under its Internal Rules, the SEC would require the following:
A. Notice of dissolution of the Corporation by shortening of the Corporate
term shall be published in a newspaper of general circulation for three (3)
consecutive weeks;
B. Filling of the list of the corporate directors, with their consent to the
shortening of the Corporate Term;
C. Submission of the following with SEC:
i. Undertaking under oath by the majority stockholders or principal
officers of the Corporation that they shall personally answer for any
outstanding obligations of the Corporation;
 Section 136- Dissolution by Shortening Corporate
Term
ii.Latest audited financial statements of the Corporation which must must not be
earlier than the date of the stockholders’ or membership meeting approving the
amendment to the articles of incorporation;and
iii. BIR Clearance on the tax liabilities of the Corporation.
Under Section 136
Upon the expiration of the shortened term, as stated in the approved amended
articles of incorporation, the corporation shall be deemed dissolved without any
further proceedings, subject to the provisions of this code on liquidation.
In the case of expiration of corporate term, dissolution shall automatically take
effect on the day following the last day of the corporate term stated in the
articles of incorporation, without the need for the issuance by the Commission of a
certificate of dissolution.
 Section 136- Dissolution by Shortening Corporate
Term
It is apparent from the above mentioned provision that it is only upon approval of
the amended articles of incorporation by the SEC that the corporation shall be
deemed dissolved. This means that if the shortened term, as proposed in the
amendment of the articles of incorporation, expires before the approval by the
SEC, the corporation will not be automatically dissolved upon such expiration but
only upon SEC approval of the amendment. On the other hand, if the SEC gives its
approval before such shortened term expires, the dissolution can take effect only
upon the expiration of such shortened term.
In the absence of a stipulation as to a shorter period, the life of a corporation is 50
years ( new perpetual existence). Hence, if you do not wish to continue the life of
a corporation, you may shorten its corporate term. In order to do so, you must
amend the Articles of Incorporation to reflect the new corporate term.
 Section 137- Withdrawal of Request and Petition for
Dissolution (New Provision)
A withdrawal of the request for dissolution shall be made in writing, duly verified by any
incorporator, director, trustee, shareholder, or member and signed by the same number
of incorporators, director, trustees, shareholders, or members necessary to request
dissolution as set forth in the foregoing section. The withdrawal shall be submitted no
later than 15 days from receipt by the Commission of the request of the dissolution.
Upon receipt of the request of the withdrawal of dissolution, the commission shall
withhold action on the request for dissolution and shall, after investigation (a) make
pronouncement that the request for dissolution is deemed withdrawn; (b) direct a joint
meeting of the board of directors or trustees and the stockholders or members for the
purpose pf ascertaining whether to proceed with dissolution; or (c) issue such other
orders as it may deem appropriate.
A withdrawal of the petition for dissolution shall be in the form of a motion and similar in
substance to a withdrawal of request for dissolution but shall be verified and filed
during the deadline for filing to the petition.
 Section 137- Involuntary Dissolution

A corporation may be dissolved by the Commission motu propio or upon

filing of a verified complaint by any interested party. The following are the
grounds:
A.Non-use of corporate charter as provided of this Code- Failure to organize
and commence transaction of its business within two (2) years from date of
its incorporation ( SEC 22)- Under the New CODE (Sec 21, 5 years)
B.It it has duly organized and/ or commenced the transaction of its business,
but subsequently becomes continuously inoperative for a period of at least
five (5) years, the same shall be ground for the suspension or revocation of
its corporate franchise or certificate of incorporation.
 Section 137- Involuntary Dissolution

Note: A delinquent Corporation shall have 2 years to resume operations and

comply with all the requirements that the Commission shall prescribe. Upon
compliance by the corporation, the Commission shall issue an order lifting the
delinquent status. Failure to comply with the requirements and resume
operations within the period given by the Commission shall cause the
revocation of the corporation’s certificate of incorporation.
The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation of the
certificate of incorporation of companies under their special regulatory
jurisdiction.
 Section 137- Involuntary Dissolution

C.Upon receipt of a lawful court order dissolving the corporation;

D.Upon by final judgement that the corporation procured its corporation through
fraud;
E.Upon by the final judgment that the corporation:
1.Was created for the purpose of committing, concealing or aiding the
commission of securities violation, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
2.Committed or aided in the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew the same:and
 Section 137- Involuntary Dissolution

3.Repeatedly and knowingly tolerated the commission of graft and

corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers, or employees
If the Corporation is ordered dissolved by final judgement pursuant to the grounds
set forth in subparagraph (e) hereof, its assets, after payment of its liabilities, shall
upon petition of the Commission with the appropriate Court, be forfeited in favor
of the national government. Such forfeiture shall be without prejudice to the
rights of innocent stockholders and employees for services rendered, and to the
application of other penalty or sanction under this Code or other laws.
The Commission shall give reasonable notice to, and coordinate with, the
appropriate regulatory agency prior to the involuntary dissolution of companies
under their special regulatory jurisdiction.
 Section 137- Involuntary Dissolution

• Alhambra Cigar and Cigarette Manufacturing Corp v SEC, held that

corporation cannot extend its life by amendment of its AOI to be
effected during the three (3) years statutory period for liquidation when
its original term had already expired. The three year statutory period for
corporate liquidation is not for the purpose for continuing business for
which it is established, but strictly limited to liquidation; and the
extension of corporate life of corporation is deemed to constitute new
business and cannot validly pursued during the liquidation stage.
• Note: Section 11 ( corporate term for specific period may be extended in any
single instance by amendment of the AOI, but cannot be made earlier than 5
(five) years ( new law 3 years) prior to the original or subsequent expiry
date.
 Section 139. Corporate liquidation.

• Except for banks, which shall be covered by the applicable provisions of the
Republic Act No. 7653, otherwise known as “The New Central Bank Act, as
amended, and RA 3591, otherwise known as the Philippines Deposit
insurance Corporation Charter, as amended, every corporation whose
charter expires pursuant to its articles of incorporation, is annulled by its
forfeiture, or whose corporate existence is terminated in any other manner,
shall nevertheless remain as a body corporate for three (3) years after the
effective date of dissolution, for 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, but not
for the purpose of continuing the business for which it was established.
 Section 139. Corporate liquidation.
• 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. 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 beneficial interest in the stockholders, members,
creditors or other persons in interest.
• Except as otherwise provided for in Sections 93 and 94 of this code,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 in favor of the national
government..
• 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.
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION
• Liquidation means the winding up of the affairs of the
corporation by getting its assets, settling with creditors
and debtors, and the amount of profit or losses.
• Any corporation contemplating dissolution must submit
tax return on the income earned by it from the beginning
of the year up to the date of dissolution or retirement and
pay the corresponding tax due upon demand by the
Commissioner of Internal revenue (BPI v CIR, 363 SCRA
840)
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION
• 1.Liquidation By Duly Appointed Receiver ( Sec 134 last par)
Under Section 6(c) of P.D 902-A, receivers may be appointed whenever: 1. necessary
in order to preserve the rights of the party-litigants; and or (2) protect the interest of the
investing public and creditors. A receivership is created by means of judicial or quasi
judicial appointment of the receiver. The appointment of a receiver operates to
suspend the authority of a corporation and of its directors and officers over its property
and effects, such authority being reposed in the receiver (YAM vs CA 303, SCRA 1)
The receiver is actually an officer of the court and must therefore be accountable to the
court. Under PD 902-a, the SEC is empowered to create or appoint a management
committee, board, or body to undertake the management of the Corporation. Such
management committee, board, or body shall have the power to take the custody of,
and control over, all the existing assets and property of the corporation.
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION

• The SEC may, on the basis of the recommendation and findings of the
committee, determine that the continuance in business of such
corporation would be feasible or profitable nor work to the best interest
of stockholders, parties litigants, creditors, or the general public. Again,
the three year period does not apply in such mode of liquidation
because the corporation is substituted by the receiver who may sue or
be sued.
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION
2.Liquidation By The Corporation Itself or its Board of Directors
(Section 139 1st par)
The Corporation during the winding-up may negotiate and transfer the
assets of the dissolved corporation, provided the stockholders give their
consent. (Chung v IAC, 163 SCRA 534). The time during which the
corporation, through its own officers, may conduct the liquidation of its
assets and sue and be sued as a corporation is limited to three years
from the time the period of dissolution commences; but there is no time
limit within which the trustee must complete a liquidation placed in their
hands.
 Bar Question
• A group of stockholders of Sesame Corporation filed in court
against the members of the BOD to make good of
stockholders, in proportion to their shareholdings, the losses
incurred by the incorporation because of the defendant BOD's
management. While the case was pending, the corporation
was dissolved. During the three-year period from its
dissolution, the BODs decided to extend the corporate life by
amendment of its AOI. Can the BODs do so?
 Sample Bar Question
Answer:
The BODs cannot pass a resolution to extend corporate life after the corporation was
dissolved, for the following reasons:
1. After the corporation is dissolved, corporate life terminates. So there is no more life
to extend;
2. If the board is given a 3 year grace period after its dissolution to wind up and
liquidate, that grace period can be utilized for nothing more than the liquidation of the
corporation. The Board cannot pass a resolution not germane to the liquidation
process.
3. Even if the extension was done by the board before its dissolution, the extension
and filing of an amendment to the AOI need the approval of stockholder holding at
least 2/3 of the outstanding capital stock of the corporation.
 Bar Question
• X Corporation shortened its corporate life by
amending its articles of incorporation. It has no
debts but owns a prime property located in
Quezon City. How would the said property be
liquidated among the five stockholders of said
corporation?
 Sample Bar Question
Answer:
The property of X corporation can be liquidated among the five
stockholders by selling the property to a third person and dividing
the proceeds, or selling the property to one or more of the
stockholders and paying the non-buying stockholder/s both in
proportion to the shareholdings of each stockholder.
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION
3.Liquidation By Trustees to Whom the Assets of the Corporation had been
Conveyed.
Under section 139 (second par) of the corporate code, at any time during the three (3)
years of liquidation, a 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, all interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in the stockholders,
members, creditors or other persons in interest. In such cases, the three (3) year
limitation will not apply provided the designation of the trustee is made within said
period. Unless the trusteeship is limited in its duration by the deed of trust, there is no
time limit which trustee must finish the liquidation, and he may sue or be sued even
beyond the three (3)-year period.
 METHODS OF LIQUIDATION OF DISSOLVED
CORPORATION
3.Liquidation By Trustees to Whom the Assets of the Corporation had been
Conveyed.

The dissolution of the corporation itself, or the expiration of its three-year period,
should not be a bar to the enforcement of its rights as a coprporation. One of these
rights includes the right to seek from the court the execution of a valid and final
judgment- through its trustee/liquidator- for the benefit of its stockholder, creditors and
any other person who may have legal claims against it.
 Bar Question
The Corporation, once dissolved thereafter continues to be a
body corporate for three years for purposes of prosecuting and
defending suits by and against it and of enabling it to settle and
close its affairs, culminating in the final disposition and
distribution of its remaining assets. If the three- year extended
life expires without a trustee or receiver being designated by the
corporation within that period and by that time (expiry of three-
year extended term), the corporate liquidation is not yet over,
how, if at all, can a final settlement of the corporate affairs be
made?
 Sample Bar Question
• Answer:
If the three year extended life has expired without a trustee or receiver
having been expressly designated by the corporation within that period,
the Board of Directors ( or Trustee) itself may be permitted to so
continue as trustees by legal implication to complete the corporate
liquidation. Still in the absence of Board of Directors, or Trustees, those
having any pecuniary interest in the assets, including not only the
shareholders but likewise the creditors of the corporation, acting for and
in its behalf, might make proper representation with the Securities and
Exchange Commission, for working out a final settlement of the
Corporate concerns ( Clemente V CA, 242, SCRA 717)
EFFECTS OF DISSOLUTION OF A CORPORATION

1. It shall continue as body corporate for three years after dissolution,

for the purpose of liquidation but not for the purpose of continuing the
business for which it is established.
2. At any time during said three years, the corporation is authorized
and empowered to convey all of its property to Trustee for the benefit of
stockholders, members, creditors, and other persons in interest.
3. After conveyance of corporate property as stated above, all interest
the corporation had in the aid property terminates, and legal title shall
vest in the transferee.
EFFECTS OF DISSOLUTION OF A CORPORATION

4.Upon winding up of the corporate affairs, any asset distributable to any

creditors or stockholder or member who is unknown or cannot be found
shall be escheated to the city or municipality where such assets are
located.
5.Distribution of its assets or property shall be done only after payment of
all its debts and liabilities.
 CONSEQUENCES IF THE CORPORATE LIQUIDATION IS NOT
TERMINATED WITHIN THREE-YEAR PERIOD OF LIQUIDATION

1.Pending suit for or against the corporation which were

initiated prior to the expiration of the three year period shall
continue.
2.New actions may still be filed against the trustee of the
corporation even after the expiration of the three year
period of liquidation but before the affairs of said
corporation have been finally liquidate or settled by the
trustee.
 CONSEQUENCES IF THE CORPORATE LIQUIDATION IS NOT
TERMINATED WITHIN THREE-YEAR PERIOD OF LIQUIDATION

3. A corporation which has pending action which cannot be finished within

the three year period after its dissolution is authorized to convey all its property
including pending choses of action, to a trustee to enable it to prosecute and
defend suits by or against the corporation beyond the three year period. Where
no trustee is appointed, its counsel who prosecuted and represented the
interest of the Corporation may be considered as trustee of said corporation , at
least wuth respect to the matter in litigation (Gelano vs CA, 103 SCRA 90)
4. The creditors of the Corporation who were not paid may follow the
property of the Corporation that may have passed to its stockholders unless
barred by prescription or laches or disposition of said property in favor of
purchaser in good faith ( Tan Bio v Commissioner of Internal revenue, 4 SCRA
986).