Re: Winding-Up Period; Trustees in Liquidation

September 4, 2015 SEC-OGC OPINION NO. 15-11 RE: WINDING-UP PERIOD; TRUSTEES IN LIQUIDATION Atty. Ronald S. Baquiano BAQUIANO & ASSOCIATES LAW OFFICE Suite 101, 2nd Floor, Roseate Pensione 32 V. Urgello Street, Cebu City Sir : This refers to your letter dated 27 April 2015 requesting for an opinion on whether the Deed of Sale signed and executed by the Board of Directors and majority of the Stockholders, except one, of Victorino Reynes & Sons, Inc., three (3) years after its dissolution by way of expiration of its corporate term, is valid and binding? You mentioned in your letter that Victorino Reynes & Sons, Inc. was registered with the Commission on 12 April 1951 and that its corporate term has expired on 11 April 2001. It is the registered owner of the following real properties: Lot No. TCT No. Area (square meter) 730 7729 1,511 783-A 3057 1,791 778-B 58868 452 783-B Aggregate Total Area: 3,754 square meters Having no known creditors, outstanding debts/obligations nor pending litigation, sometime in 1 February 2005, the board of directors and stockholders signed and executed Extrajudicial Settlement and Partition of the abovementioned real properties. On 3 January 2012, over six (6) years after the execution of the extrajudicial settlement and partition, and over ten (10) years after its dissolution, the Board of Directors and majority of the stockholders, except one stockholder, signed and executed a Deed of Absolute Sale of all the abovementioned properties to a buyer, except the share of the lone stockholder who did not sell. The lone stockholder did not oppose the sale and conveyance, and settled for her share of what is left of the conveyance of the properties of the corporation pursuant to the aforementioned extrajudicial settlement and partition. After all the pertinent taxes have been paid and the Certificate Authorizing Registration (CAR) has been issued by the Bureau of Internal Revenue (BIR), the Registry of Deeds has reservation on whether the deed of sale executed by the Board of Directors and the majority of the stockholders, except one, is valid and could be registered, reasoning that he needs the opinion of the Commission on this issue. Hence, this query. Please be advised that the Commission does not, as a matter of settled policy, render opinions on issues which may potentially be litigated in the future in an intra-corporate 1 and/or civil case such as matters which involve the substantive and contractual rights of private parties who would, in all probability, contest the same in court if the opinion turns out to be adverse to their interest, and on matters which would necessarily require a review and interpretation of contracts or an opinion on the validity of contracts since interpretation of contracts is justiciable in nature and contract review calls for legal examination of contract on a general legal basis and not on specific legal issues. 2 Also, please find instructive the case of Consuelo Metal Corporation v. Planters Development Bank , 3 to wit: "However, the SEC's jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts ." (Emphasis and underscoring supplied) Hence, we are constrained from answering your queries. However, for purposes of information only, we impart the following previous opinions on the winding-up period and the concept of "Trustees in Liquidation". aDSIHc The Commission has opined that: " If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) itself , following the rationale of the Supreme Court's decision in Gelano vs. Court of Appeals (103 SCRA 90) may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation . . . . (emphasis ours) In our jurisdiction, the statutes and jurisprudence are silent regarding the consequences of the death of a director, acting as trustee in liquidation, during the liquidation or winding up period. In some American jurisdictions, directors who become trustees of the corporation on dissolution hold on as joint tenants with right of survivorship incident to their tenancy. In other words, when one or more directors die, the surviving trustees take the whole title subject to the trust, and the latter may exercise the powers and duties of the deceased director-trustee. However, it is also provided that in case of the death, resignation, inability or refusal to act, of the directors as trustees, or the survivors, the court may appoint trustees to fill the vacancy, upon the application of any person interested ." 4 While Section 122 of the Corporation Code gives a dissolved corporation three (3) years to continue as a body corporate for purposes of liquidation, the disposition of the remaining undistributed assets must necessarily continue even after such period. Following the SEC Commission En Banc decision in the case of Northern Luzon Transportation, Inc. Isabela Cultural Corporation, petitioner, SECAC No. 347 October 7, 1991 , quoted in part hereunder: "Section 122 simply means that after the expiration of the three-year winding-up period, pending actions by or against the dissolved corporation are abated. Section 122 should not, however, be construed to prevent a corporation from pursuing activities which would complete the final liquidation of a dissolved corporation. In this case, Northern Luzon Corporation, Inc. which term has long expired, was unable to dispose of its remaining assets even during the three-year period granted it by Section 122. Accordingly, it should be allowed to continue liquidating its remaining assets in order to complete the process of dissolving the corporation. Likewise, it should be allowed to distribute the proceeds from said disposition to its stockholders or creditors if any. A contrary interpretation would have unjust and absurd results." 5 Previously, the Commission further opined: "In your case, it appears that the expired corporation has not completed its liquidation and there are numerous real properties still under its name. The obligation to dispose of the said real properties, through sale or other mode of assignment, in order to fully liquidate the corporation falls upon the directors of the said expired corporation so that all proceeds from the sale or assignment of the properties shall be divided accordingly among all those with remaining interest in the said expired corporation." 6 (Emphasis supplied) Lastly, it should be emphasized that under the existing law, the approval of this Commission is not required in the distribution or liquidation of assets. There is nothing in Section 122 of the Corporation Code which requires this Commission's approval of distribution or liquidation of assets of a dissolved corporation. The same is a matter of internal concern of the corporation and falls within the power of the directors and stockholders or duly appointed liquidation trustee. 7 However, should there be substantial issues, the same may be brought to court, pursuant to the Consuelo Metal case aforementioned. We hope the foregoing discussion has provided you sufficient guidance in resolving your concerns. ETHIDa By the Authority of the Commission: (SGD.) CAMILO S. CORREA General Counsel Footnotes 1. Pursuant to Section 5.2 of the Securities Regulation Code (SRC), the Commission's jurisdiction over all intra-corporate disputes under Section 5 of Presidential Decree No. 902-A has been transferred to the courts of general jurisdiction or the appropriate Regional Trial Courts. 2. SEC Memorandum Circular No. 15, Series of 2003. 3. G.R. No. 152580, June 26, 2008. 4. SEC-OGC Opinion No. 14-29 dated 22 October 2014 addressed to Ms. Theresita M. Ceralde, citing Clemente v. CA , G.R. No. 82407, March 27, 1995, and SEC-OGC Opinion No. 10-06 dated 29 January 2010 addressed to Chato & Vinzons-Chato. 5. SEC Opinion No. 33-03 dated 14 May 1996 addressed to Atty. Nita G. Untalan; SEC-OCG Opinion No. 09-31 dated 9 December 2009 addressed to Ms. Liza Bautista; SEC-OGC Opinion No. 14-22 dated 8 August 2014 addressed to Mr. Manuel T. Hing. 6. SEC-OGC Opinion No. 14-29, 22 October 2014 addressed to Ms. Theresita M. Ceralde. 7. SEC-OGC Opinion No. 14-22 dated 8 August 2014 addressed to Manuel T. Hing.