ATTY.’S NOTES [MAY 6, 2021 CORPLAW MEETING] — FINALS By: A.J. Gomez

 ATTY.’S NOTES [MAY 6, 2021 CORPLAW MEETING] — FINALS

By: A.J. Gomez

1. When a foreign corporation buys shares from a filipino corporation, it is not doing business.

Mere advertisement is not doing business

Mere appointment of a lawyer or a nominee is not doing business.

Soliciting business in a continuing basis — doing business

Actively engaged in the management of a Filipino Corp — Doing Business

TWO TEST IN DETERMINING “DOING BUSINESS”

1. Substance test — when the body of the business of the foreign corporation is conducted here in the Philippines. The AOI as stipulated in the purpose clause  determines the body of the business of the corp. 
2. Continuity Test — continued series of transaction basis, a going concern. Showing an intention to establish its commercial presence in the Philippines. 

Why it is important to determine?

Firstly, So that we can determine whether or not they can be issued a license by the SEC. 

Foreign  Corp has two choices if they want to do business in the Philippines:

1. THEY INCORPORATE A SUBSIDIARY 
2. THE GET A LICENSE FROM THE SEC.

Secondly, whether or not to determine if a foreign corp will be allowed to gain access in the Philippine courts. 

Also, the foreign corp has to show to the SEC that your country allows the Philippines to also transact business in your foreign country under the rule of reciprocity.

Rules on suability with respect to foreign corp:

1. With license, doing business — may sue and may be sued
2. Doing business, but no license — may not sue, may be sued

XPN: doctrine of estoppel

1. If you are full aware that foreign corp has no license and still you pursued to transact your business with that corp, you are estopped
2. If you received benefits from such corporation without returning it. [unjust enrichment]
3. Intellectual Property Suit — if their intellectual property rights are violated. That foreign corp will be allowed to sue. The Philippines is a signatory to an international treaty that grants intellectual property rights to those countries who are also signatory in the said treaty

3. A foreign corp not doing business, no license, but suing on isolated transaction — may sue on that isolated transaction, or series of transaction connected with the isolated transaction.

Can that foreign corp be sued? Under the doctrine of equity, YES. SC said , that is true, however, we allow persons of your kind to bring suits in the Philippines against Filipino Corp based on isolated transactions, so if we allow that to your kind, we should allow our own kind to sue you. But Expect the foreign corp to file a motion to dismiss based on lack of jurisdiction.

CORPORATE DISSOLUTION & LIQUIDATION

CORPORATE PERSONALITY OF THE CORP IS NOT A VESTED RIGHT. IT IS A PRIVILEGE GRANTED TO A CORP. Meaning, it may be terminated voluntarily by the corp itself, or involuntarily by the SEC or thru our regular courts or by a complaint of a third party.

End product of a corporate dissolution is the termination of a corporate life. The SJP of the corp ceases to exist essentially. It ceases to exist on paper. 

Different ways of dissolving the corp:

1. Voluntary dissolution [codal]

1. Without debts — mere administrative proceeding; get the necessary votes (majority vote of the bod, and majority vote of the stockholder) [CODAL]
2. With debts — get the majority vote of the bod, 2/3 vote of the stockholder; file a verified complaint to the SEC. Certificate of Dissolution

2. Involuntary dissolution

May be initiated by the SEC moto propio. The SEC may issue an order to dissolve. Or there is a verified complaint by a third party, based on grounds provided by law. E.g., non-use of corporate charter (5 years from the time it is formed and organized); inoperation; receipt of the SEC an order dissolving the corp, the SEC will be furnished a copy and the SEC may implement it.

If the corp was obtained thru fraud. Puro false info ang inilgagay mo sa AOI mo. Thats why make sure you verify the truthfulness of the information feed to you. You might be liable being a lawyer of the corp. Ground for dissolution and filing of criminal prosecution against those x x x

 Also, Upon finding thru a final judgment that a corp was used to commit criminal activities [Ground for dissolution] - NASA CODE

 Also, Toleration of the commission of crimes [directors, trustees, officers, employees [Ground for dissolution] Nasa CODE.

3. Expiration of corporate term — though now, term is perpetual. No expiration. XPN. You are a corp that falls into the exception [formed before the RCC was revised, may lifespan yun for 50 years]. You inform the SEC that you are sticking with your original corporate term. [Corp before the passage of the RCC]. In that case, you are automatically dissolved on the fiftieth year and one day. Ipso facto.
4. Shortening of corporate term — just amend your articles of corp. majority BOD, 2/3 OCS, and from 50 years you can shorten it to 10 years. 

Upon approval of amended AOI you are deemed dissolved [no need for certificate of dissolution] 

END PRODUCT — termination of corporate existence or corporate life. Technically speaking, on paper. Because on reality, something still needs to happen. 

What needs to happen is Corporate Liquidation or Winding Up of corporate affairs. This is where the settlement of corporate obligations are made. Meaning, payment of corporate debts and running after corporate debtors. File collection suit, damage suit etc., use corporate asset to pay off corporate creditors in accordance when preference of payment of creditors. Make good of trust fund doctrine, to satisfy corporate creditors which include the State  through the payment of tax obligations.

Once these corporate obligations are settled, and there are residual assets, this is where stockholders can partake of that, whether inchoate interest as a stock holder will now ripen into corporate rights over specific corporate assets.

What will be followed in the distribution is the AOI, or bylaws, or if it is contained in the plan of liquidation or distribution of assets, if there is none, SEC may intervene or RTC may intervene. But normally my distribution plan talaga.

How long does this dissolution process last? 

Technically three years counting from the dissolution of the corp. from the effectivity of the dissolution of the corp, you count three years. Hopefully, within three year period, you finish he winding up process. In reality, it goes beyond three years. Usually due to the litigation aspect. 

What happens after the expiration of the three year period, are they extinguish? Definitely not, they continue. The litigation continues.

Who is in charge of the liquidation process of the corporation? Who calls the shots?

Law says:

BOD takes charge of the liquidation process. Hire abogado, file cases, prosecute defense against corporation creditors, BOD.

HOWEVER, the mandate of the board will end on the third year from dissolution. What happens after the mandate of the board is terminated on the third year? Somebody has to continue the job of overseeing the winding up process.

The board may decide to appoint a receiver or trustee. 

Their job?

The remaining asset of the corp which is not yet distributed or liquidated will be vested under the name of the receiver or trustee for the purpose of completing the winding up process. 

Term of office? 

SC did not give him the deadline. So, As long as necessary. law knows fully well that litigation may prolong. So hindi siya binigyan nang dealine.

What happens if for example, the board during the three year winding up period engaged a lawyer for a collection suit and within the three year the BOD had not appointed a receiver or trustee?

 In this case, the counsel of record is the receiver or trustee. So the case continues until fully terminated or satisfied.

The appointment of receiver or trustee with whom the remaining asset of the corp will be vested and take charge of during the winding up process depends upon the BOD.

For example, Upon dissolution, the board may already  appoint a receiver or trustee. PWD TO. TOTAL DIYAN DIN NAMAN PAPUNTA YAN. Appoint a trustee or receiver right-away, or appoint a receiver or trustee after three years from dissolution.

NOTE: Liquidation and Rehabilitation are Completely opposite

Liquidation — the corp is beyond rehabilitation. It is insolvent and no longer viable to be revived. If viable to be revived, ang paguusapan natin ay hindi liquidation kundi rehabilitation. 

The goal of a Liquidation Proceeding is to wind up the affairs of the entity and distribute its assets among its creditors. It involves either the filing of a Petition for Liquidation or the failure or conversion of a Rehabilitation Proceeding into a Liquidation Proceeding.

Rehabilitation — how to improve the finance, customer based of the corp, etc. 

Rehabilitation aims to restore the corporation to a state of solvency or to its former healthy financial condition through the adaptation of a Rehabilitation Plan showing that the continued operations is economically feasible and its creditors can recover more if the debtor continues as a going concern instead of it being immediately liquidated