Pacis and Reyes

March 23, 1983 Pacis and Reyes 5th Floor (old BPI Building) 6795 Ayala Avenue cor. Herrera St. Makati, Metro Manila Attention : Atty . Jesulito A . Manalo Gentlemen: This refers to your letter dated March 14, 1983, requesting the opinion of this Commission on the queries posed therein. It appears from the facts stated in your letter that your client, Consolidated Mines, Incorporated (CMI) has been non-operational since August 1980 due to serious economic and business reverses suffered by it. That at present, CMI has two pending cases, one in the Regional Trial Court of Pasig for voluntary insolvency and the other in the Securities and Exchange Commission for suspension of payments. That CMI spent so much for the holding of its stockholders' meeting last year, yet, no major policies of the company was taken up or voted upon by the stockholders. The officers were all re-elected to continue running the company. That CMI has only the Masinloc Chromite Operations to speak about, said project being directly handled by Benguet Corporation under an Operating Agreement dated January 8, 1981. You now posed the queries quoted hereunder: 1. Can CMI be allowed to suspend indefinitely the holding of the annual stockholders' meeting which per its By-Laws, is scheduled on the last Wednesday of March or for this year, March 30, 1983, due to non-availability of sufficient funds? 2. May the incumbent directors/officers be allowed to continue on a hold-over status in accordance with Section 23 of the Corporation Code until a stockholders' meeting can be finally called? 3. Instead of the holding of a stockholders' meeting on March 30, 1983, may CMI be allowed to just put out a brief written report on the Masinloc Chromite Operations and other relevant information and to mail this to the stockholders? Anent your first query, please be informed that the Commission in an earlier opinion ruled that "the terms of the directors of a corporation is generally fixed by the charter or general law or the by-laws of a corporation. If the charter or statute fixes their tenure, its provisions, of course are controlling." ( Ltr. to Confederation of Government dated July 26, 1971 ). The pertinent provision of the Corporation Code on the matter provides, thus: llcd "SECTION 23. The Board of Directors or Trustees . Unless otherwise provided in this Code, the corporate powers of all corporation formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, . . . who shall hold office for one (1) year and until their successors are elected and qualified ." (Emphasis supplied). Article VII of the reconstituted by-laws of CMI provides, and we quote: "The annual meeting of the stockholders shall be held on the 3rd Wednesday of February of each calendar year ...when they shall elect by a plurality vote by ballot or viva voce, a board of five directors, to serve for one year, or until their successors are chosen and qualified ..." Hence, pursuant to the aforementioned provisions, the election of directors must be held substantially once in each year and where the by-laws provide for the time of election of directors, the same should be held at the regular appointed time. An annual meeting required and stated for each year cannot be dispensed with by the corporate officers and the incumbent directors cannot postpone the annual meeting so as to extend their tenure of office indefinitely. 5 Fletcher, Cyc. Corp.,sec. 2001 at 27 (1967 Rev. Vol.). The first query is therefore answered in the negative. The second and third queries are rendered academic by the above answer. As to the effect of the alleged insolvency of the corporation, please be advised that in the absence of any statutory restrictions, a corporation, whether insolvent or contemplating insolvency, is possessed of the same dominion and power over its assets as an insolvent natural person. A corporation may exist even without any assets, and it necessarily follows that it is not dissolved by the mere fact that it is insolvent and unable to pay its debts. Neither the mere fact of insolvency affects the company's right to do business, unless forbidden by statute. (15A Fletcher, Cyc. Corp.,sec. 7367 at 39-42 (1967 Rev. Vol.). Considering, therefore, that the annual meeting for the election of directors of CMI was not held in according with its By-Laws, the Board must fix another date within a reasonable time for the holding thereof. Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner