Atty. Sidrito V. Ramiro

February 24, 1988 Atty. Sidrito V. Ramiro Suite 208, Jiao Building 2 Timog cor. Quezon Ave. Quezon City Sir : This refers to your letter, dated February 10, 1988, requesting for information on the query posed therein. It appears therein that your clients are subscribers to the stock of Express Travel Philippines, Inc. and that they have certain unpaid subscriptions therein. Due to adverse circumstances, Express Travel Philippines, Inc. is not in a position to meet its obligations as they fall due. Your clients were signatories to the checks of the corporation, and considering that the drawer had no funds to meet the same, your clients became respondents for violation of BP No. 22. To avoid prosecution and protect their integrity, your clients agreed to pay the corporate obligations represented by the amount of the checks, on condition that such payment shall be treated as payment to their unpaid subscriptions. Hence, your query is restated as follows: What are the SEC requirements to legally effect the payment of subscription by way of offset of corporate liabilities? There are authorities to the effect that if a corporation is indebted to a subscriber, and conflicting rights of creditors are not involved, it may lawfully pay the debt by cancelling the subscription or issuing its stock. (11 Fletcher, Cyc. Corp.,1986 rev. vol.,sec. 5197 at 439).In other words, absent of conflicting rights on the part of other creditors, a corporation may issue stock in payment of a debt due by it. (13 Am. Jur.,sec. 211).Corporation may issue stock to a person in consideration of an assumption of a corporate indebtedness. (Fletcher, loc. cit.) In the absence of a charter or statutory restrictions, payment of stock subscription need not be made in cash, but may consist in whatever, considering the situation of the corporation, represents to that corporation a fair, just, lawful and needed equivalent for the money subscribed. (Am. Jur.,op. cit.,p. 367). Thus, payment of subscriptions may consist of a previously incurred indebtedness of a corporation. Such indebtedness must be duly acknowledged by the board of directors. Please be reminded, however, that under Section 62 of the Corporation Code, "where the consideration is other than actual cash, . . ., the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the Securities and Exchange Commission." In this connection, the following are the requirements of the Commission: 1. Detailed schedule of liabilities being offset, showing all debts and credits to such liability account, date, nature of account, and amount. 2. Deed of assignment executed by the creditors assigning the amount due to him in payment for the unpaid subscriptions. 3. Company's book of accounts must be kept up to date and be made available for examination by the Commission to determine that the liabilities represent valid and legitimate claims against the company. 4. If the principal office of the corporation is located in the province, a report by an independent certified Public Accountant must be submitted. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman