The Securities and Exchange Commission (“SEC”) issued the Guidelines on Corporate Dissolution under SEC Memorandum Circular No. 5, series of 2022 (“Guidelines”). The Guidelines, that implements Sections 133 to 138 of the Revised Corporation Code (“RCC”), consolidates the different modes of dissolving a corporation and lays down the requirements and procedure for each mode.
Modes of dissolution
A corporation may be dissolved voluntarily or involuntarily. Voluntary dissolution could be done by (1) shortening the corporate term, (2) filing a request for dissolution (where no creditors are affected), and (3) filing a petition for dissolution (where creditors are affected). In case of shortening of corporate term, the SEC makes a distinction between a remaining corporate term of at least one year from the approval of the application and a remaining corporate term of less than one year.
On the other hand, involuntary dissolution could be initiated by the SEC on its own or by petition of an interested party.
The requirements and procedure for each mode are as follows:
| Modes | Voluntary dissolution where no creditors are affected | Dissolution by shortening of corporate term | Involuntary dissolution[1] | |
| remaining corporate term of at least one year from the approval of the application | remaining corporate term of less than one year from the approval of the application | |||
| Procedure | If the dissolution will not prejudice the rights of any creditor, it could be effected by majority vote of the board of directors and shareholders’ vote representing majority of the outstanding capital stock. At least 20 days prior to the meeting, notice of the meeting must be given to each shareholder. The notice must also be published once 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a newspaper of general circulation in the Philippines.Within 15 days from SEC’s receipt of the application, it could be withdrawn by majority vote of the directors and majority of the outstanding capital stock. The SEC will then conduct an investigation. SEC may approve the withdrawal, direct a joint meeting of the directors and shareholders to ascertain whether to proceed with the dissolution, or issue orders as it may deem appropriate.On the other hand, in the absence of a withdrawal request, the SEC will approve the application and issue a Certificate of Dissolution. | The dissolution may be effected by amending the articles of incorporation to shorten the corporate term. An amendment of the articles requires approval by a majority vote of the board of directors and the vote of the stockholders representing at least two-thirds of the outstanding capital stock.Dissolution shall automatically take effect on the day following the last day of the corporate term stated in the amended articles of incorporation, without the need for the issuance by the SEC of a certificate of dissolution. | The SEC, on its own initiative (motu proprio), or any interested party, by filing a verified complaint, may initiate the dissolution of a corporation.For involuntary dissolution commenced by the SEC motu proprio, the provisions on investigation proceedings and administrative actions under the Rules of Procedure of the SEC shall apply.For involuntary dissolution filed by any interested party, the provisions on adjudicative actions under the Rules of Procedure of the SEC shall be applied. | |
| General Requirements | Verified request for dissolution with a Certification Against Forum ShoppingNotarised board resolution authorising the dissolutionPublisher’s affidavit of publicationLatest due General Information Sheet (GIS)Audited Financial Statements (AFS) as of last fiscal yearAffidavit under oath by the President and TreasurerTax Clearance CertificateSecretary’s Certificate of no pending intra-corporate disputeClearance/favorable recommendation from other SEC departments or from other regulators, when necessary[2]To be filed with SEC Company Registration and Monitoring Department (CRMD) or SEC Extension Office. | Notarised directors’ certificate authorising the shortening of the termAmended articles of incorporationMonitoring clearanceSecretary’s Certificate of no pending intra-corporate disputeClearance/favorable recommendation from other SEC departments or from other regulators, when necessary.To be filed with SEC Corporate and Partnership Registration Division or SEC Extension Office. | Notarised directors’ certificate authorising the shortening of the termAmended articles of incorporationAudited Financial Statements (AFS) as of last fiscal yearAffidavit under oath by the President and TreasurerTax Clearance CertificatePublisher’s affidavit of publicationCertificate of no pending intra-corporate disputeClearance/favorable recommendation from other SEC departments or from other regulators, when necessary.To be filed with SEC Financial Analysis and Audit Division or SEC Extension Office. | Verified Complaint/ PetitionCertificate Against Forum Shopping;Secretary’s Certificate authorising the filing of the complaint, if filed by a corporation; andAffidavits and other documentary evidence to support the claim.To be filed with SEC CRMD or Extension Office. |
Implications for business in the Philippines
It bears noting that under the Guidelines, if dissolution will be effected by shortening of corporate term and the remaining term is for a period of at least one year from the approval of the application, a tax clearance is not required. However, the Tax Code mandates all dissolving corporation to secure a tax clearance from the Bureau of Internal Revenue.[3] As it usually takes a long period of time to obtain a tax clearance, a company intending to apply for dissolution must be ready to submit a tax clearance to the SEC when required to do so.
With the Guidelines, the public is guided as to the requirements and procedures relevant to the dissolution route that a corporation seeks to undertake.
If you have any questions or require any additional information, please contact Felix Sy or Aubbrey Lim of Insights Philippines Legal Advisors (a member of ZICO Law).
This alert is for general information only and is not a substitute for legal advice.
[1] A corporation may be dissolved involuntarily based on any of the following grounds:
- Non-use of corporate charter as provided under Section 21 of the RCC;
- Continuous inoperation of a corporation as provided under Section 21 of the RCC:
- Upon receipt of a lawful court order dissolving the corporation;
- Upon finding by final judgment that the corporation procured its incorporation through fraud; and
- Upon finding by final judgment that the corporation:
- was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices;
- committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders knew; and
- repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers, or employees.
- fraud in the procurement of certificate of registration;
- Failure to file or register Financial Statements; General Information Sheet; or Stock and Transfer Book or Membership Book any of the following for a period of at least five years.
However, when another agency or tribunal has been identified by law as the primary regulator, investigative or administrative body for specific cases such as smuggling, tax evasion, money laundering or graft and corrupt practices, all complaints or petitions for revocation based on the commission of acts enumerated under the foregoing shall be endorsed to said primary regulator, investigative or administrative body, for their appropriate action.
For more information, please contact:
Felix T Sy, Partner, Insights Abodago Philippines (a member of ZICO Law)
felix.sy@insights-law.com
[2] No application for dissolution of banks, banking and quasi-banking institutions, preneed, insurance and trust companies, nonstock savings and loan associations, pawnshops, and other financial intermediaries shall be approved by the SEC unless accompanied by a favorable recommendation of the appropriate government agency.
[3] See Sec. 52(C) of the National Internal Revenue Code (NIRC) as amended by the TRAIN Law.
