Atty. John Quirante

June 4, 1980 Atty. John Quirante Delta Motor Corporation P.O. Box 305 MCC Makati, Metro Manila Dear Atty. Quirante: This is in connection with your letter-query dated March 19, 1980 relative to the voluntary dissolution of your client corporation. It appears from your letter that the corporation plans to dissolve and to eventually transfer the properties to its stockholders in proportion to their stockholdings; that it has no creditors; and that majority of the stocks (90%) is owned by one person. Your query is whether or not it is lawful to transfer all the properties of the corporation to the aforesaid majority stockholders with the appropriate waivers of the minority stockholders. In the negative, whether or not it is lawful for the corporation to sell substantially, all the assets of the corporation to the said majority stockholder. It is settled that dissolution of a corporation involves two legal steps: (1) the termination of the corporate existence, at least, as far as the right to go on doing ordinary business is concerned; and (2) the winding up of its affairs, the payment of its debts and the distribution or the assets among the stockholders (Ballantine, Sec. 709, cited in 3 Agbayani, Commercial; Laws of the Philippines, p. 1680) .Your query therefore, touches only on the second step. There are three methods by which said corporation may wind up its affairs: (1) Under Section 66 of the Corporation Law or under Section 3 of Rule 104 of the Rules of Court, the court may appoint a receiver to take charge of the assets and dispose of them as the law may permit and justice may require; (2) under Section 77 of the Corporation Law, the directors and executive officers of the corporation may themselves take charge of winding up the affairs of the corporation, the life of which is extended for three years, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property, and to divide is capital stock, but not for the purpose of continuing the business for which it was established; and (3) under Section 78 of the Corporation Law, the corporation may, within a period of three years, and as alternative method, transfer and convey all its property to trustees for the benefit of members, stockholders, creditors and others interested (Tolentino, Commercial Laws of the Philippines, pp. 772-773). Under any of such methods, the stockholders of a corporation are therefore entitled to have the assets sold or converted into cash which will in turn be distributed (Mason v Pewavis Min Co 133 US 50),for the dissolution of the corporation results in the vesting of legal title to the corporate property in the stockholders, who become co-owners thereof. This title however is subject to the payment of the debts of the corporation, the property being held in trust until all corporate obligations will have been paid under the "trust fund theory". Considering that the subject corporation has no creditors, the corporation may avail of the second method of winding up its corporate affairs. Likewise since the minority stockholders are willing to execute the necessary waivers in favor of the controlling stockholder who owns 90% of the stocks in said corporation, we see no legal impediment to such an arrangement, which is purely internal such that public interest would not be affected thereby. In view thereof, it becomes unnecessary to answer your second query. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department