The proposed Corporation Code amendments
EUNEY MARIE MATA-PEREZ
The Senate finally approved on third reading Senate Bill 1280 (SB 1280) which, once passed into law, introduces major amendments to our existing Corporation Code (Batas Pambansa Blg. 68) passed 38 years ago in 1980.
It’s thus worth noting the significant amendments the Bill seeks to introduce.
Overall, the amendments seek to improve corporate governance, address compliance issues, and aim to protect minority shareholders and the public.
They necessarily impose additional obligations on corporations, including their directors, stockholders and officers.
SB 1280 allows a corporation to have a perpetual term, unless otherwise stated in its certificate of incorporation. This amends the default 50-year term prescribed in the existing code.
The welcome relief is that it allows corporations with expired terms to be “revived” through an application which may be filed at “any time”.
On good governance, directors are expressly obliged to perform their duties not just in accordance with law, but also in accordance with the rules of good governance.
In this regard, it codified the requirement that independent directors should comprise at least 20% (but not less than two) of the entire board of corporations “vested with public interest”. These corporations include banks, public utilities, insurance companies, hospitals, educational institutions, those whose securities are registered with the SEC pursuant to the Securities Regulations Code (SRC) and/or listed in the stock exchange, and public corporations (those with assets of at least P50 million and 200 or more shareholders, with at 100 shares of a class of its equity shares).
SB 1280 also requires that material contracts of corporations vested with public interest must be approved by at least 2/3 of the entire membership of the board, with at least a majority of the independent directors approving the same.
The bill further requires such corporations to elect a compliance officer.
To address issues of lack of quorum at stockholders’ meetings, which results in hold over boards, among others, SB 1280 empowers the SEC (after a failure to constitute quorum in previous meetings and upon application by a member or stockholder) to summarily order the holding of a meeting for purposes of conducting an election.
In such meeting, a quorum is “deemed” constituted despite the absence of the majority of the members or stockholders.
SB 1280 allows stockholders to vote in absentia or by electronic means, a mode presently permitted only for directors. This additional means will also help constitute a quorum easier.
Aside from increasing penalties for violations of the Corporation Code, SB 1280 also states that penalties for offending corporations may, at the court’s discretion, be imposed upon their directors, trustees, stockholders or members.
Other notable amendments introduced by SB 1280 include the following:
• Allowing the creation of one-person corporations, which will be a good alternative for sole proprietors. (We will discuss the details of this amendment in a subsequent article);
• Empowering the SEC to remove a disqualified director or trustee motu proprio or upon verified complaint;
• Requiring treasurers to be directors;
• Empowering the SEC to issue orders of inspection of corporate records after summary proceedings, if a member or stockholder is denied access to such records;
• Mandating additional items for disclosure to stockholders, including directors’ compensation, material changes in the corporation’s business and strategies, and adequacy of internal controls or risk management systems;
• Expressly prohibiting execution of voting trust agreements which may circumvent laws against anti-competitive agreements, abuse of dominant position, and anti-competitive mergers and acquisitions;
• Expanding the grounds for dissolution to include a finding (by final judgment) of fraud or a finding that the corporation was used to commit, conceal or aid commission of crime, smuggling, tax evasion, money laundering, graft and corrupt practices, and/or SRC violation; making commission of fraudulent or illegal acts by directors, trustees, officers, or employees, and repeated and willful misstatement of facts as additional grounds for dissolution;
• Requiring the submission of directors’ compensation report, directors’ appraisal or performance report, as among the annual regular reports to be filed with SEC by corporations vested with public interest;
• Allowing financial statements of corporations with paid-up capital of less than P600,000 to be certified only by the president and treasurer, and not audited by an independent CPA;
• Adding offenses punishable under the Corporation Code, such as concealment by a director of his or her disqualification, willful certification of incomplete, inaccurate, false or misleading statements, collusion by independent auditors and engaging in graft and corrupt practices; and
• Providing that an arbitration agreement may be incorporated in the articles of incorporation or by-laws of unlisted corporations.
There’s no doubt that SB 1280, if passed into law, will cause ripples in the corporate world. Thus, it would be prudent for corporations, as well as their stockholders, directors and officers, to familiarize themselves now with the changes the bill seeks to introduce.
More to follow . . .
Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com
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