Propriety of Returning the Remaining Assets of Communications Insurance Co. After Liquidation of Its Assets

DOJ OPINION NO. 049, s. 2005 October 20, 2005 Commissioner Benjamin S. Santos Insurance Commission 1071 United Nations Avenue Manila Sir : This has reference to your request for legal opinion on the propriety of "returning the remaining corporate assets of Communications Insurance Company, after the liquidation of its assets to its claimants and creditors." You state that the Communications Insurance Company has proposed to the Insurance Commission the release/turnover to the stockholders the remaining assets of the company knowing fully well that only three (3) claims in the total sum of P94,412.50 were paid out of the total allowed claims of P34,772,194.82 due to the non-appearance of other creditors despite the sending of individual notices by registered mail and two (2) publications in newspapers of general circulation among its claimants and creditors. The request, it appears, was precipitated by the Memorandum of Ms. Julia C. Duenas to the Insurance Commissioner dated July 19, 2005 stating therein that the Insurance Code is silent on the manner of disposition of a liquidated company's remaining assets after payment of debts to its creditors. TcCSIa Section 122 of the Corporation Code of the Philippines, in so far as pertinent, provides: cddoj06 xxx xxx xxx "Upon 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 " (Emphasis supplied) Interpreting the said provision, the Supreme Court, in the case of Spouses Ramon A. Gonzales and Lilia Y. Gonzales v. Sugar Regulatory Administration , 1 explained, thus: "Juridical persons, whether incorporated or not, whether owned by the government or the private sector, may come to an end at one time or another for a variety of reasons, e.g. the fulfillment or the abandonment of the business purposes for which a corporation was set up. Thus, the Corporation Code provides for termination of corporate life, the dissolution of the corporation, the winding up of its operations, the liquidation of its assets, the payment of its obligation and distribution of any residual assets to its stockholders ." (Emphasis supplied). Upon the other hand, in the case of Pres. of PDIC as Liquidator of Pacific Banking Corporation vs. Hon. Wilfredo Reyes, 2 the Supreme Court had the occasion to rule that: "In the liquidation of a corporation, after the payment of all corporate debts and liabilities , the remaining assets, if any, must be distributed to the stockholders in proportion to their interests in the corporation. The share of each stockholder in the assets upon liquidation is what is known as liquidating dividend." (Emphasis supplied)." TIESCA Applied to the instant case, assuming that all the debts and liabilities of the Communications Insurance Company were already fully paid or settled, it is our opinion that residual assets may be turned over to the stockholders in proportion to their share holdings. If the creditors or stockholders are unknown or cannot be found, the residual assets will be escheated in favor of the city or municipality where the asset is located. 3 It is to be noted however that there is nothing in Section 122 of the Corporation Code of the Philippines which bars an action for the recovery of the debts of the corporation against the liquidator thereof after the lapse of the winding up period of three (3) years. 4 The dissolution of a corporation does not extinguish the debts due or owing it. A creditor of a dissolved corporation may follow its assets, as in the nature of a trust fund, into the hands of its former stockholders. 5 Please be guided accordingly. Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary Footnotes 1. 174 SCRA 378 [1989]. 2. G.R. No. 154973, June 21, 2005. 3. Section 122, paragraph 3 of the Corporation Code of the Philippines in relation to Rule 91 of the Rules of Court. 4. Republic of the Philippines v. Marsman Dev. Co ., 44 SCRA 418 [1972]. 5. The Corporation Code of the Philippines Annotated by Hector S. De Leon, 1999 Edition, p. 732.