SEC’s power to demand for inspection/reproduction of corporate books and records
Credit to Author: KELVIN LESTER LEE | Date: Tue, 02 Jul 2019 16:24:15 +0000
One of the modifications introduced by the Revised Corporation Code (RCC), or Republic Act (RA) No. 11232, pertains to the specific corporate books and records a corporation must keep and preserve at its principal office, as well as the investigatory powers of the Securities and Exchange Commission (SEC) to conduct summary investigations if a corporation denies or does not act on demand for inspection and/or reproduction of corporate books and records.
Section 74 of the old corporation code, or Batas Pambansa Blg. 68, provides in part: “Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on his demand.”
The same provision of the old code also provides that all business transaction records, including the minutes, shall be open to inspection and reproduction via demand in writing, by any director, trustee, stockholder or member of the corporation at reasonable hours on business days.
In case of refusal for examination or reproduction of excerpts from its records or minutes by the refusing officer or agent to any director, trustee, stockholder or member, the said officer or agent shall be held liable for damages. The only defenses which would justify the refusal of the officer or agent to comply are as follows: 1) when such director, trustee, stockholder or member has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation; or 2) when such director, trustee, stockholder or member did not act in good faith or for a legitimate purpose in making his demand.
Section 73 of the RCC, on the other hand, provides: “Every corporation shall keep and carefully preserve at its principal office all information relating to the corporation including, but not limited to: a) the articles of incorporation and bylaws of the corporation and all their amendments; b) the current ownership structure and voting rights of the corporation, including lists of stockholders or members, group structures, intra-group relations, ownership data, and beneficial ownership; c) the names and addresses of all the members of the board of directors or trustees and the executive officers; d) a record of all business transactions; e) a record of the resolutions of the board of directors or trustees and of the stockholders or members; f) copies of the latest reportorial requirements submitted to the Commission; and g) the minutes of all meetings of stockholders or members, or of the board of directors or trustees.” The minutes shall set forth in detail the time, place, manner and every act done or ordered done at the meeting by any director, trustee, stockholder or member.
Furthermore, the RCC already allows a representative of any director, trustee, stockholder or member of the corporation to request for inspection of corporate records at reasonable hours on business days, as well as demand in writing for copies of such records or excerpts from said records. In turn, the inspecting or reproducing party shall remain bound by the confidentiality rules under prevailing laws, such as the rules on trade secrets or processes under RA 8293, otherwise known as the “Intellectual Property Code of the Philippines”, as amended, RA 10173, otherwise known as the “Data Privacy Act of 2012”, RA 8799, otherwise known as “The Securities Regulation Code”, and the Rules of Court. Of course, this provision excludes a requesting party who is not a stockholder or member of record, or is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor shall have no right to inspect or demand reproduction of corporate records.
If the corporation denies or does not act on a demand for inspection and/or reproduction, the SEC shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records within five days from receipt of a report by the aggrieved party. At the same time, the SEC shall subject any stockholder abusing his rights to request for inspection/reproduction of records to administrative sanctions under Section 158 of the RCC, without prejudice to the provisions of RA 8293 and RA 10173. Likewise, any officer or agent of the corporation who refuses to allow such inspection and/or reproduction of records shall also be liable for damages and in addition, it is an offense punishable under Section 161 of the RCC, if proven guilty.
Section 73, last paragraph of the RCC provides for a clear definition of a stock transfer agent being “one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation.” A stock transfer agent needs to have a license secured from the SEC and must have paid a fixed fee, renewable annually, for the stock transfer agent to operate in the Philippines. However, the corporation still has discretion whether or not to appoint a stock transfer agent. The abovementioned provision also provides that the SEC may require stock corporations which transfer and/or trade stocks in secondary markets to have an independent transfer agent.
Considered as a provision for the protection of corporations and stockholders, the primordial consideration of Section 73 of the RCC is to require and encourage corporations to strictly follow with the requirements on safekeeping of corporate books and records and guide the stockholders of their rights on requests for inspection and reproduction of corporate records.
In light of the abovementioned modifications on Section 73 of the RCC, we at the SEC encourage all registered corporations to update and monitor their corporate books and records, submit their latest reportorial requirements on time and cooperate with the SEC in case of violations of the abovementioned provision. I advise them to check the official SEC website for further information.
Kelvin Lester K. Lee is a Commissioner of the Securities and Exchange Commission (SEC). He is the co-chairperson of the SEC Committee on Memorandum Circular/s To Operationalize Revised Corporation Code Provisions. The views and opinions stated herein are his own. You may email your comments and questions to oclee@sec.gov.ph.
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