Among the significant revisions under the Revised Corporation Code (RCC) intended to strengthen the supervisory authority of the Securities and Exchange Commission over corporations relate to the power of the SEC to impose qualifications or other disqualifications of company directors, as well as to remove directors elected despite disqualification or whose disqualification arose or is discovered subsequent to election (Section 27, RCC).
Section 26 of the RCC provides that a person shall be disqualified from being a director, trustee, or officer of any corporation if, within five years prior to the election or appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment for a period exceeding six years;
(2) For violating this Code; and
(3) For violating Republic Act 8799, otherwise known as “The Securities Regulation Code”;
(b) Found administratively liable for any offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs [a] and [b] above;
The same section empowers the SEC to impose qualifications and other disqualifications in its promotion of good corporate governance or as a sanction in its administrative proceedings.
Recently, the SEC issued Memorandum Circular dated 15 February 2022. Interestingly, it provides a director may also be disqualified (and for that matter, removed) if any of the foregoing grounds occurs during the tenure (or actual incumbency) of the director (Section 7).
The same Circular shall also govern the pleadings, practice and procedure before the SEC in all matters of hearing and proceedings for:
(a) Independent administrative actions for the removal of directors, trustees, and officers;
(b) Removal of directors, trustees, and officers as a sanction in the Commission’s proceedings; and
(c) Imposition of sanctions on the board of directors or trustees who, with knowledge of the disqualification, failed to remove a disqualified director or trustee.
All independent administrative actions for removal brought shall be commenced and heard at the main office of the SEC in Metro Manila, or any of the Extension Offices of the SEC, subject to their respective geographical jurisdictions. This is without prejudice to the power of the SEC En Banc to order the transfer of the proceedings to the main office in Metro Manila or another Extension Office whenever warranted by the prevailing circumstances.
The Company Registration and Monitoring Department, or the Extension Offices shall have original jurisdiction to hear and decide independent administrative actions for the removal of directors, trustees, and/or officers of corporations. However, they shall only have original jurisdiction over actions that are based on the disqualifications as enumerated above.
The Memorandum Circular shall take effect immediately upon its publication in two newspapers of general circulation.
More articles will be written about this Circular. Meanwhile, suffice it to state that the SEC should be commended for issuing timely and relevant Circulars to fully implement the provisions of the RCC and the intent thereof.
First published on The Daily Tribune.
