Draft Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records

June 23, 2020 SEC NOTICE TO : All Interested Parties SUBJECT : Draft Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records Pursuant to Section 179 (o) of Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines, in conjunction with Section 73 of the same Code, the Commission intends to issue Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records . HTcADC In view of the foregoing, all interested parties are invited to submit their comments, positions and inputs on the draft SEC Memorandum Circular embodying the Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records . All interested parties may submit their comments, positions and inputs to the Company Registration and Monitoring Department (CRMD), c/o Atty. Fermo B. Avila II, through email address ([emailprotected]) not later than 03 July 2020 . Issued on June 23, 2020. ATTACHMENT DRAFT MEMORANDUM CIRCULAR NO. _______ Series of 2020 TO : ALL CONCERNED SUBJECT : Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records WHEREAS , Section 73 of Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines ("RCC"), provides that corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation in person or by a representative at reasonable hours on business days, and a demand in writing may be made by such director, trustee or stockholder at their expense, for copies of such records or excerpts from said records. WHEREAS , the same Section also states that any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the RCC shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 161 of the RCC: provided, that if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability shall be imposed upon the directors or trustees who voted for such refusal: provided further, that it shall be a defense that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making the demand to examine or reproduce corporate records, or is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor. CAIHTE WHEREAS , the same Section further provides that, if the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may report such to the Commission, and, within five (5) days from receipt of such report, the Commission shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records. WHEREAS , Section 161 of the RCC states that the penalties imposed under that section shall be without prejudice to the Commission's exercise of its contempt powers under Section 157 of the RCC. NOW THEREFORE , the Commission hereby promulgates the procedure for conducting investigations of violations of the right to inspect and/or reproduce corporate records: SECTION 1. An aggrieved party may file a Verified Report with the Company Registration and Monitoring Department ("CRMD"), or any of the Extension Offices of the Securities and Exchange Commission ("Commission"), if a corporation, or any of its officers or agents, denies or does not act on a demand for inspection and/or reproduction of corporate records, in accordance with Section 73 of the RCC. SECTION 2. The following may constitute a violation of the right to inspect and/or reproduce corporate records: a. Outright refusal to allow the director, trustee, stockholder, or member of the corporation, to peruse any of the corporate records in person, or by a representative; b. Failure to take, within a reasonable amount of time, the necessary steps that would allow the director, trustee, stockholder, or member of the corporation, to peruse any of the corporate records in person, or by a representative; c. Failure to give the director, trustee, stockholder, or member a reasonable amount of time to peruse any of the corporate records in person, or by a representative; d. Outright refusal to allow the director, trustee, stockholder, or member of the corporation, to reproduce any of the corporate records in person, or by a representative, at his/her own expense; e. Failure to take, within a reasonable amount of time, the necessary steps that would allow the director, trustee, stockholder, or member of the corporation, to reproduce any of the corporate records in person, or by a representative, at his/her own expense; or f. Failure to give the director, trustee, stockholder, or member a reasonable amount of time to reproduce any of the corporate records in person, or by a representative, at his/her own expense. SECTION 3. The Verified Report shall contain the following: a. Corporate name, SEC registration number, and complete mailing address of the subject corporation; b. The relevant facts and circumstances pertaining to the violation of the right to inspect and/or reproduce corporate records, which shall include: i. The date and time of demand; ii. A statement that, at the time the demand to inspect and/or reproduce the corporate records was made, the aggrieved party is a director, trustee, stockholder, member, or an authorized representative of a director, trustee, stockholder, or member, of the subject corporation: Provided, that pieces of evidence that will support such fact shall be attached to the Verified Report; aScITE iii. The complete name and mailing address of the custodian of the corporate records to whom the demand was made and/or addressed, and his/her position in the corporate structure of the subject corporation; iv. The form of the demand, whether written or verbal: Provided, that, if the demand was in writing, a clear photocopy of the written demand letter shall be attached to the Verified Report; v. The specific corporate records to be inspected, as stated in the demand; vi. The manner by which the demand was made by the aggrieved party; and vii. The relevant circumstances after the demand was made. c. The following statements: i. That the aggrieved party is not a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor; ii. That the aggrieved party has not improperly used any information secured through any prior examination of the records or minutes of the subject corporation or of any other corporation; and iii. That the aggrieved party acted in good faith and for a legitimate purpose in making the demand to examine or reproduce corporate records. d. Name and signature of the aggrieved party, and his/her position in the corporate structure of the subject corporation: Provided, that, if the aggrieved party is a duly authorized representative, his/her proof of authority shall be attached to the Verified Report: Provided, further, that the signature of the aggrieved party shall serve as a certification of the truthfulness of the allegations in the Verified Report; e. An affidavit duly signed by the aggrieved party, which shall allege the following attestations: i. The allegations in the Verified Report are true and correct based on his or her personal knowledge, or based on authentic documents; ii. The Verified Report is not filed to harass, cause unnecessary delay, or needlessly increase the cost regulation and/or litigation; and iii. The factual allegations therein have evidentiary support or, if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery. f. A Certification against Forum Shopping duly signed by the aggrieved party, wherein he/she shall certify under oath: i. That he/she has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his/her knowledge, no such other action or claim is pending therein; ii. If there is such other pending action or claim, a complete statement of the present status thereof; and DETACa iii. If he/she should thereafter learn that the same or similar action or claim has been filed or is pending, he/she shall report that fact within five (5) calendar days therefrom to the Company Registration and Monitoring Department, or the appropriate Extension Office, of the Commission. g. The supporting documents and/or evidence, if any, to support the allegations or arguments; and h. Such other matters the aggrieved party deems necessary to include. A sample of the Verified Report is attached below as ANNEX "A" . SECTION 4. Within Five (5) calendar days from the filing of the Verified Report and payment of the filing fee, the CRMD or the appropriate Extension Office shall issue a Summons, which shall be directed to the respondent, or the person alleged to have violated the aggrieved party's right to inspect and/or reproduce, and shall contain: a. The name of the appropriate Extension Office, or the CRMD, and the names of the parties to the action; b. A direction that the respondent file with the Commission, and serve to the aggrieved party, his Verified Answer within Ten (10) calendar days from receipt of the Summons; c. A notice that, unless the respondent files and serves a Verified Answer, the aggrieved party will take judgment by default and may be granted the relief applied for; d. The signature of the Director of the CRMD or the appropriate Extension Office, or his/her duly authorized representative; and e. A photocopy of the Verified Report and the supporting documents and/or evidence, if any. SECTION 5. Within Ten (10) calendar days from the receipt of the Summons, the respondent shall file and serve a Verified Answer containing the following: a. The facts or circumstance relevant and necessary to explain why the respondent should not be held liable for the alleged violation of the aggrieved party's right to inspect and/or reproduce the corporate records; b. The legal grounds on which the Verified Answer is based; c. Name and signature of the respondent, and his/her position in the corporate structure of the subject corporation, if any: Provided, that, if the affiant is a duly authorized representative of the respondent, his/her proof of authority shall be attached to the Verified Answer: Provided, further, that the signature of the respondent or the duly authorized representative shall serve as a certification of the truthfulness of the allegations in the Verified Answer; d. An affidavit duly signed by the respondent or the duly authorized representative, which shall allege the following attestations: i. The allegations in the Verified Answer are true and correct based on his or her personal knowledge, or based on authentic documents; and ii. The factual allegations therein have evidentiary support or, if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery. HEITAD e. The supporting documents and/or evidence, if any, to support the claims or arguments; and f. Such other matters the respondent deems necessary to include. SECTION 6. Before the rendition of a Final Order, the CRMD or the appropriate Extension Office, in its discretion, may conduct a clarificatory conference, not later than Thirty (30) days after the last Verified Answer is filed, for the purpose of ascertaining facts, issues and other matters necessary and relevant to the resolution of the proceedings, and further examination or submission of additional documents thereto. SECTION 7. Within Thirty (30) days after the conclusion of the clarificatory conference, or the receipt of the last affidavits, documents, or papers, or the expiration of the period for filing the same, the CRMD or the appropriate Extension Office shall issue a Final Order, containing the appropriate order, sanction, relief or denial thereof or such other conditions or terms to be imposed, and a demand for payment of the penalties, if applicable. SECTION 8. If the Final Order includes a directive to the respondent to allow the aggrieved party to inspect and/or reproduce any of the corporate records, both parties shall file a joint Verified Status Account ("VSA"), or their respective VSAs, within Fifteen (15) days from the date of compliance, or from the last day of the period within which to comply. Unless contradicted and overcome by other evidence, the respondent is presumed to have failed to comply with the Final Order if the respondent failed to file a VSA within the period stated in the immediately preceding paragraph. The CRMD or the appropriate Extension Office may issue a Show Cause Order, which shall include a directive to the respondent to show good cause as to why the Commission should not impose sanctions or penalties for failing to comply with the Final Order. Unless contradicted and overcome by other evidence, the respondent is presumed to have complied with the Final Order if the aggrieved party failed to file a VSA within the period stated in this section. SECTION 9. The Verified Status Account shall include the following: a. The name of the appropriate Extension Office, or the CRMD, the names of the parties to the action, and the SEC Case Number; b. Corporate name and SEC registration number of the subject corporation; c. A narration of the relevant facts and circumstances after the receipt of the Final Order; d. A statement of whether the Respondent has complied, to the satisfaction of the aggrieved party, with the order of the CRMD, or the appropriate Extension Office, to allow the inspection and/or reproduction of the subject corporate records, and the reasons therefor; e. Name and signature of the aggrieved party and/or the respondent: Provided, that the signatures of the aggrieved party and/or respondent shall serve as a certification of the truthfulness of the allegations in the VSA; f. An affidavit duly signed by the aggrieved party and/or the respondent, which shall allege the following attestations: aDSIHc i. The allegations in the VSA are true and correct based on his or her personal knowledge, or based on authentic documents; and ii. The factual allegations therein have evidentiary support or, if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery. g. The supporting documents and/or evidence, if any, to support the allegations or arguments; and h. Such other matters the aggrieved party and/or the respondent deem necessary to include. A sample of the Verified Status Account is attached below as ANNEX "B" . SECTION 10. Within Thirty (30) days from the receipt of the joint VSA or the last VSA, or from the expiration of the period within which to file the VSA, the CRMD or the appropriate Extension Office shall issue a Resolution which shall contain the following: a. A concise statement of the facts, findings and conclusions; b. The reasons and the law on which it is based; c. The names of the persons responsible or liable, if applicable; d. The appropriate order, sanction, relief or denial thereof or such other conditions or terms to be imposed, and a demand for payment of the penalties, if applicable; e. Name and Signature of the Director of the CRMD, or the appropriate Extension Office, or the duly authorized representative. SECTION 11. The Commission may impose any or all of the sanctions under Section 158 of the Revised Corporation Code of the Philippines, taking into consideration the extent of participation, nature, effects, frequency and seriousness of the violation. SECTION 12. The penalties imposed under these rules shall be without prejudice to the Commission's exercise of its contempt powers under Section 157 of the RCC. SECTION 13. Upon the order of the Commission En Banc , the authorization from the Chief State Prosecutor or a Regional State Prosecutor, and the approval of the court, the Commission may assist in the prosecution of the violation of the right to inspect and/reproduce corporate records. The task of assisting in the prosecution of the said violation may be designated to the Enforcement and Investor Protection Department (EIPD), Company Registration and Monitoring Department (CRMD) and/or appropriate Extension Offices. SECTION 14. The SEC rules of procedure on motions for reconsideration, appeals and execution proceedings shall apply. SECTION 15. These rules shall take effect immediately after its publication in the Official Gazette or in at least Two (2) newspapers of general circulation in the Philippines. ATICcS Done this ___ day of June 2020, Pasay City, Philippines. EMILIO B. AQUINO Chairperson ANNEX A Verified Report I. SUBJECT CORPORATION Corporate Name: _____________________________________________ SEC Registration Number: _____________________________________ Mailing Address: _____________________________________________ ___________________________________________________ ___________________________________________________ II. RELEVANT FACTS AND CIRCUMSTANCES i. Date and Time of Demand: ________________________________________. ii. At the time the demand to inspect and or reproduce the corporate records was made, the undersigned aggrieved party is a (Please check the appropriate box and fill-in the details, if applicable): [ ] Director; [ ] Trustee; [ ] Stockholder; [ ] Member; or [ ] Duly authorized representative of ____________________, (Complete name of the principal) who is a director, trustee, stockholder and/or member of the subject corporation at the time the demand to inspect and or reproduce the corporate records was made. iii. The complete name of the custodian of the corporate records to whom the demand was made is ____________________, with the position of ___________________, and mailing address at ___________________________________________________________________________________________________________________________. iv. The demand was made in ________________________ (written/verbal) form. v. The corporate record/s to be inspected and/reproduced, as stated in the demand, is/are: ___________________________________________________________________________________________________________________________ __________________________________________________________________________________________________________. vi. In making the demand, the undersigned ___________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________. vii. After the demand was made, ________________________________________________________________________________________ ___________________________________ _______________________________________________________________________________________________________. III. OTHER FACTUAL STATEMENTS i. The undersigned aggrieved party is not a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor; ii. The undersigned aggrieved party has not improperly used any information secured through any prior examination of the records or minutes of the subject corporation or of any other corporation; and iii. The aggrieved party acted in good faith and for a legitimate purpose in making the demand to examine or reproduce corporate records. ETHIDa ___________________________ (Signature over printed name) Aggrieved Party (Complete mailing address) VERIFICATION AND CERTIFICATION AGAINST FORUM SHOPPING I, _________________________________________________ (Complete name of aggrieved party) , of legal age, _______________________ (Citizenship) , and a resident of _____________________________________________________________________________________________, on oath, state: 1. That I, as the aggrieved party, have caused this Verified Report to be prepared; that I read and understood its contents which are true and correct based on my own personal knowledge and/or based on authentic documents; 2. That the Verified Report is not filed to harass, cause unnecessary delay, or needlessly increase the cost regulation and/or litigation; 3. That the factual allegations therein have evidentiary support or, if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery; 4. That I have not commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his/her knowledge, no such other action or claim is pending therein; and 5. That if I should thereafter learn that the same or similar action or claim has been filed or is pending, I shall report that fact within five (5) calendar days therefrom to the Company Registration and Monitoring Department, or the appropriate Extension Office, of the Commission. IN WITNESS WHEREOF, I have hereunto set my hand this ______ day of ___________, 20__. ________________ Affiant SUBSCRIBED AND SWORN to before me this ____________ day of _____________, 20__. NOTARY PUBLIC ANNEX B Department of Finance Company Registration and Monitoring Department In the matter of: SEC CRMD Case No. xx-xxxx For: Violation of Right to Inspection and/or Reproduction of Corporate Records Mr. ___________, Aggrieved Party, vs. ______________, INC. (SEC Registration No. xxxxxxxxx), and Mr. ____, Corporate Secretary, Respondents . VERIFIED STATUS ACCOUNT Aggrieved Parties, MR. ____________, unto this Honorable Department, most respectfully alleges the following, to wit: 1. That after the receipt of the Honorable Department's Final Order, ________________________________________________________________________________________________________________ _________________. 2. To the satisfaction of the aggrieved party, Respondents have complied with the order of the Honorable Department to allow the inspection and/or reproduction of the subject corporate records, because _____________________________________. ________________ Aggrieved Party VERIFICATION I, ______________________ (Complete name of aggrieved party) , of legal age, ____________________ (Citizenship) , and a resident of ________________________________________________________________________________________, on oath, state: 1. That I, as the aggrieved party, have caused this Verified Status Account to be prepared; that I read and understood its contents which are true and correct based on my own personal knowledge and/or based on authentic documents; and 2. That the factual allegations therein have evidentiary support or, if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery. TIADCc IN WITNESS WHEREOF, I have hereunto set my hand this ________ day of ______, 20____. _________________ Affiant SUBSCRIBED AND SWORN to before me this _________ day of ________________, 20__. NOTARY PUBLIC