Atty. Teresita A.M. Villaruz

June 16, 2003 SEC OPINION NO. 33-03 Atty. Teresita A.M. Villaruz Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor Citibank Tower, Citibank Plaza, 8741 Paseo de Roxas, Makati City, Philippines M a d a m e : This is in response to your letter seeking confirmation of your position that the board of liquidators-trustees of the subject Northern Mindanao Colleges, Inc . may be allowed to continue the process of winding up even beyond the statutory limit of three years set by the Corporation Code. Section 122 of the Corporation Code provides: "Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets but not for the purpose of continuing the business for which it was established." Usually, by express statutory provision, the existence of corporations created for a limited time is prolonged or extended either for a period of three years or indefinitely for the limited purpose of winding up their business affairs, paying debts, distributing assets and of suing and being sued. (Ballantine on Corporations, p. 718) Within Philippine jurisdiction, the general rule is that there is no juridical personality after dissolution. If there is, it is only a juridical personality to serve but one purpose- for all transactions pertaining to liquidation, culminating in the disposition and distribution of the dissolved corporation's remaining assets. Any matter entered into that is not for the purpose of liquidation will be a void transaction because of the non-existence of the corporate party. Section 122 of the Corporation Code further provides: "At any time during the three years of liquidation, a corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after such conveyance by the corporation of its property in trust, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest." EcSCHD In such cases, the three year limitation period will not apply provided the designation of the trustee is made within said period. Unless the trusteeship is limited in its duration by the deed of trust, there is no time limit by which the trustee must finish the liquidation, and he may sue or be sued even beyond the three year period. (Villanueva, Philippine Corporate Law, p. 690.) The above discussion clearly shows that on one hand, a dissolved corporation may, during the three-year term after dissolution, appoint a trustee or a receiver who may act beyond that period; On the other hand, if the three-year extended life has expired without a trustee or receiver being expressly designated by the corporation within that period, the board of directors or trustees themselves, following the rationale laid down in Gelano vs. Court of Appeals may be permitted to continue as "trustees" by legal implication to complete the corporate liquidation Reburiano vs. Court of Appeals ( 301 SCRA 342 ), reiterated the ruling of the Supreme Court that seeks to allow the full liquidation of the corporate affairs even beyond the three-year period provided for in the Code, and invoked in addition the transitory provision of Section 145 of the Corporation Code. In the said case, the High Court declared: "For indeed as early as 1939, in the case of Sumera vs. Valencia, this Court held: It is to be noted that the time during which the corporation through its own officers may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but there is no time limit within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 [now Sec. 122]) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment ." Similarly, the SEC En Banc, in the matter of Northern Luzon Transportation, Inc. SEC AC No. 347 October 7, 1991 ruled that: "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 Transportation, 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." We trust that we have sufficiently addressed your concerns. HSDCTA Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel