SEC En Banc Case No. 04-15-371 Cla-Ro Merchandising Corporation - versus - Company Registration And Monitoring Department

PICC Secretariat Building,PICC Complex, Pasay City Securities and Exchange Commission Republic of the Philippines Department of Finance

CORPORATION, MONITORING DEPARTMENT COMPANY REGISTRATION AND CLA-RO MERCHANDISING versus - Non-filing of AFS during years when a corporation was not operating SEC En Banc Case No. 04-15-371

DECISION

years 2006 to 2014, despite the latter's explanation that it had already ceased all business operations since October 2005, otherwise it shall be liable for Fine, viz: MERCHANDISING CORPORATION (CLA-RO) to file its Annual Financial Statements for the MONITORING This is an Appeal from the Letter-Orderi of the COMPANY REGISTRATION AND DEPARTMENT (CRMD) dated 7 May 2014,2 directing CLA-RO

This refers to your Letter dated 21 April 2014 informing the Commission of [CLA-R0]'s cessation of business since 2006 and that the Commission has been consistently [and yearly] furnished the Affidavit of No Business Operations duly filed with the BIR. xxx

Please be advised that [CLA-RO], despite its non-operation shall Corresponding fines shall be assessed upon such non/late filing. still comply with the annual submission of the financial statements within 120 days from end of fiscal year.

Annual Financial Reports under Section 141 of the Corporation Code, viz: CLA-RO argued that "doing business" is condition sine qua non for the requirement of

annual report of its operations, together with a statement of its assets and liabilities, certified by any independent certified public accountant in appropriate cases XXX Sec. 141. Annual report of corporations. - Every corporation, domestic or foreign, lawfully doing business in the Philippines shall submit to the Securities and Exchange Commission an financial

to be "doing business" and therefore exempt from filing, viz: Because it admits to non-operation for those years, CLA-RO argues that it cannot be said

transactions. It has not done any pursuit of the purposes for CLA-RO, because of the world economic crisis, which also 2005, with reservation to re-open business [at] some future, which CLA-RO was organized.3 xxx better time. After it retired its business, CLA-RO stopped all business greatly affected the Philippines, retired its business in October business activities, laid-off transactions,and allemployees,conducted completely stopped its sales O

Since it does not do any activity xxx for which it was organized, CLA-RO xxx is not doing business. CLA-RO is, therefore, not

2 Reiterated in CRMD Letter-Orders dated 30 June 2014, 30 November 2014, and 25 March 2015. 3 Page 14 of Memorandum on Appeal filed 15 April 2015. 1 Annex H of CLA-RO Merchandising Corporation's Memorandum on Appeal filed 15 April 2015.

CLA-RO Merchandising Corp v. CRMD SEC En Banc Case No. 04-15-371 Page 2 of 3

covered by the requirement to file the annual audited financial statements under Section 141 of the Corporation Code.4 xxx

It is not logical or reasonable to require CLA-RO, which has suspended its operation and totally stopped business activities, to file yearly financial statements, audited by an independent certified public accountant.5

On the other hand, the CRMD contends that:

information sheets to the Commission and President who oversees its affairs. Suffice [it] to say, while Please do not be confused with the term "doing business" as mentioned in Section 141 of the Code as mere undertaking of term also connotes administrative operation of a corporation. As you even admitted, your corporation has submitted general commercially dormant, it is still in operation. commercial operations. It is worthwhile stressing that [the] maintains a

insofar as the Commission is concerned, the corporation is still Until a decree of revocation is issued by the Commission, registered and operating, requirements of the Commission.6 and therefore subject to the

Information Sheet (GIS) and has evidently resumed operations. Upon perusal of the Commission's records,7 the CLA-R0 filed a 2016 General

dispositive portion of which reads: On 5 February 2018, the En Banc issued an Order to Produce Documents, the

CORPORATION is directed to submit to the En Banc within five WHEREFORE, (5) days of receipt the following documents: appellant CLA-RO MERCHANDISING

(1) Affidavits of No Business Operations filed annually, with evidence of receipt by the BIR from 2006-2014 (total of 9 affidavits,and

(2) Income Tax Returns filed annually, with evidence of receipt by the BIR from 2006-2014 (total of 9 tax returns).

SO ORDERED.

dated 8 February 2018, signed by CLA-R0 President Glicerio S. Ferrer, addressed to SEC General Counsel Camilo S. Correa), accompanied by (1) Affidavits of No Business Operations from 2006- 2014, and (2) Income Tax Returns from 2006-2014 On 19 February 2018, CLA-RO submitted its COMPLIANCE (in the form of a Letter

Hence, this Appeal.

is still relied upon today: In a SEC Opinion dated 2 January 1973, the Commission laid-down this policy, which

has "ceased to operate xxx" You are inquiring about the liability of a corporation xxx to the Securities and Exchange Commission, where that corporation

5 Page 16 of Memorandum on Appeal filed 15 April 2015. Annex L of CLA-RO Merchandising Corporation's Memorandum on Appeal filed 15 April 2015. Page 15 of Memorandum on Appeal filed 15 April 2015. 7 SEC I-View last accessed on 13 January 2018

CLA-RO Merchandising Corp v. CRMD SEC En Banc Case No. 04-15-371 Page 3 of 3

XXX XXX XXX

[A]ny suspension of business operation xxx must be reported to the SEC by the corporation.

financial statements with this Commission, it should file in duplicate, an affidavit of its manager stating the fact of xxx [I]n order to exempt the corporation from filing its annual suspension of the corporate business and the cause thereof.8

as a condition sine qua non for the requirement of Annual Financial Statements. that CLA-RO has been furnishing the Commission. Although this policy is based on the repealed Section 19 of the Corporation Law, it is not inconsistent with the phrase "lawfully doing business" found in the present Section 141 of the Corporation Code, which may be construed This is clearly the justification for the annually-filed Affidavit of No Business Operations

capital of P50,000 or more."9 Thus, from 2012 onwards, even though exempt from filing the still file the annual Audited Financial Statements, containing its Balance Sheet. operations for the last two (2) years, the income statement need not be included in the audited financial statements." SRC Rule 68 covers, among others, "stock corporations with paid-up Income Statement, non-operating companies that are covered by SRC Rule 68 and FRB 005 must (FRB) 005, which mandates that, "If (a company covered by SRC Rule 68 as amended) has had no However, on 16 February 2012, the Commission released Financial Reporting Bulletin

Capital in the amount of P900,00Q and is thus covered by SRC Rule 68 and FRB 005. In its AFS dated 31 December 2005, just before its non-operation, CLA-R0 had Paid-up

WHEREFORE, premises considered, the En Banc rules as follows:

Operations to the Commission in the years prior to the release of FRB 005, CLA-RO is exempted from the requirement to file annual financial statements. For the years 2006-2011, since it was able to submit Affidavits of No Business

Income Statement and must still submit its annual Audited Financial Statements, containing its Balance Sheet. This matter is referred to CRMD for purposes of computing the appropriate penalty, reckoned from the time of non-compliance up to the present. For the years 2012-2014, however, CLA-R0 is only exempted from submitting the

SO ORDERED.

Pasay City, Philippines; 5 April 2018.

TERESITA J. HERBOSA Chairperson

irtwlo ANTONIETA F. IBE Commissioner MouN - EPHYRO LUIS B.AMATONG 3AWK Commissioner EMILIO B.AQUINO Commissigner Linn

U

De Leon, Corporation Code of the Philippines Annotated (2013), p. 834-835. 9 Part I(1)(A)(i)(a) of SRC Rule 68 as amended.