SEC En Banc Case No. 03-18-440Philippine Carpet Manufacturing Corporation, Appellant vs. Company Registration and Monitoring Department, Appellee

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines Department of Finance

PHILIPPINE CARPET MANUFACTURING CORPORATION, Appellant,

-versus- SEC En Banc Case No.03-18-440|

COMPANY REGISTRATION AND MONITORING DEPARMENT, Appellee.

DECISION

Before this Commission is the Memorandum of Appeal dated and filed

Corporation (PCMC) assailing the Letter-Decision dated 05 January 2018 on 09 March 2018 by Appellant Philippine Carpet Manufacturing

the Assailed Decision issued by theCompany Registration and Monitoring Department CRMD denying PCMC's Application for amendment of its Articles of Incorporation (Aol) to extend its corporate term.

RELEVANT FACTS

Commission under Company Registration No. 27254 for a term of fifty (50) On 25 May 1965, Appellant PCMC was registered with the

years or until 25 May 2015.

On 28 January 2015,PCMC filed with the Commission, through the CRMD, an Application to amend its Aol to reflect its specific principal office address. However, upon initial evaluation, the CRMD found that there was a need for PCMC to indicate in its 2014 GIS the shareholdings of Lionel T.

2 and total paid-up in page 61.Hence, the application documents of PCMC Gopez and James Howard Kaplan, and toclarify capital structure GIS page

were returned to enable it to address the initial findings of, and comply with the requirements pointed out by CRMD.

On 12 February 2015,PCMC resubmitted its application which was again found to be deficient after the CRMD noted that there was an excess of its total paid up capital vis-a-vis the total subscribed capital.

1 Par. 3 (page 6) of the Appeal

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To reconcile the discrepancies, a complete audit was carried out by the PCMC's Finance Department which took several months to complete.

While the audit was ongoing, a meeting was held on 08 April 2015 where the Board of Directors and stockholders of PCMC approved the extension of its corporate term for another fifty (50) years reckoned from 25 May 2015.2

In view of the unresolved discrepancies in PCMC's 2014 GIS and the ongoing audit,PCMC was thus precluded from filing its application to amend its Aol to extend its corporate term.

On July 2015,PCMC submitted a revised list of stockholders and their respective shareholdings which the CRMD refused to receive on the ground that its corporate term had already expired on 25 May 2015.3

On 6 November 2017,PCMC sent a letter to the CRMD requesting for the approval of its application for amendment of Aol to effect the change of its principal address and the extension of its corporate term for another fifty (50) years.

Assailed Decision denying PCMC's application for amendment of its Aol On 5 January 2018,Dir. Ferdinand B. Sales of CRMD issued the

extending its corporate term for fifty (50) years.

Hence, the instant Appeal.

ISSUE

Did the CRMD commit reversible error in denying PCMC's application

expired? for the amendment of its Aol to extend its corporate term which has already

RULING

The issue presented in the instant case is not novel. PCMC comes to this Commission seeking confirmation of, and securing a categorical

term, consistent with the intent of the Corporation Code (now, the Revised Corporation Code). interpretation/ruling on the right of corporations to extend their corporate

2 Minutes of Meeting of BOD(Annex F of the Memorandum of Appeal); Minutes of Meeting of Stockholders 4 BP Blg. 68 5 R.A. No. 11232 Annex G;Certificate of Amendment of AolAnnex H CRMD Monitoring Sheet

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In its Appeal, PCMC maintained that the CRMD committed reversible error denying its application for amendment of its Aol to extend its corporate term, arguing that the Assailed Decision was contrary to SEC Resolution No. 222, Series of 2017 (Resolution No.222) which adopted a policy of liberality in acting on applications involving the extension of corporate term. In support thereof, PCMC argued that while its application was filed after its corporate term had expired, it has already opted and decided to extend its term and its efforts in addressing the monitoring requirements relative to its 2014 GIS caused the delay in filing the said application. PCMC thus argued that consistent with the policy embodying the liberal approach which was also adopted by the Supreme Court in a number of cases, the Assailed Decision should be reversed and it should be allowed to file its application to amend is Aol to extend its corporate term.

The Commission finds merit in the Appeal and hereby grants the same.

Under Batas Pambansa Blg.68(the Corporation Code) which was the law applicable when the instant case was filed, matters relating to corporate term and its extension(s) are provided in Section 11 which states:

"A corporation shall exist for a period not exceeding fifty (50) years from incorporation may be extended for periods not exceeding fifty (50)years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of

by the Securities and Exchange Commission." than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined

A careful reading of the afore-quoted provision will reveal a clear intent and policy of the law to recognize and allow the perpetual existence of corporations by successive renewal of their corporate term.

issued Resolution No. 35, Series of 2000 implementing a policy recognizing and allowing perpetual existence of corporations, consistent with the spirit and It should be emphasized that as early as 2000, the Commission already

intent of Section 11 of the Corporation Code. In the said Resolution, the

incorporation extending the corporate term duly filed with it, even if the Commission considered an application for amendment of the articles of

same was made after the corporate term has expired,provided that board approvals covering the same were done prior to the expiration.

pronouncement in the case of Company Registration and Monitoring Department v. Ching Bee Trading Corp. (the Ching Bee Case that The Supreme Court would eventually come up with a categorical

6 G.R. No. 205291 (Notice), November 12, 2014

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perpetual existence of corporations is recognized and allowed under Section 11 of the Corporation Code, and that all that is required of corporations that

and shareholders' approvals prior to the expiration of the corporate term, to are intent of extending their corporate terms is to secure the necessary board

Wit:

"Nevertheless, corporate death may be avoided as the State practically allows the unlimited perpetuation of a corporation by operation of Section I1 of the Code."

XXX XXX XXX

is still alive and during the period allowed by the Code, that is, the filing of or disapprove the same before the corporation breathes its last. If no the part of the SEC." (Emphasis ours) Accordingly, for as long as the corporation opts to extend its term while it the necessary requirements, the burden shifts to the SEC to review, approve approval is secured within that limited time, the fault would have to be on

To ensure that the intent of,and principle embodied in Section l1 of the Corporation Code is implemented, Section 17 of the Corporation Code categorically mandated the Commission provide corporations a reasonable time within which to rectify amendment documents to ensure that they comply with existing laws, rules and regulations, thus:

incorporation or disapprove any amendment thereto if the same is not in correct or modify the objectionable portions of the articles or amendment. "The Securities and Exchange Commission may reject the articles of (Emphasis ours) compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to

of a statute must be interpreted with reference to the other parts thereof to implement the general intent of the law, this Commission holds that the intent of Section 11 in relation to Section 17 of the Corporation Code is to Applying the fundamental rule in statutory construction that every part

grant perpetual existence to corporations that clearly show intent to extend their corporate terms. The foregoing finds support in the Ching Bee Case where the Court ruled that:

there be objectionable portions in the amendment. As cited by the CA, a circumstances for a reasonably prudent and diligent man to do,conveniently time to an applicant within which to make the necessary corrections should reasonable time is defined as so much time as is necessary under the rights and possibility of loss, if any to the other." "Under Section 17 of the Code, however, the SEC must give a reasonable what the contract or duty requires that should be done, having regard for the

8 See PHILIPPINE INTERNATIONAL TRADING CORPORATION vs Commission on Audit, G.R. No 183517, June 22, 2010 now Section 16 of the Revised Corporation Code

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In the instant case, the records show that on 08 April 2015,PCMC called for and conducted a board and stockholders' meeting where the matter relating to the proposed amendment of its Aol extending its corporate term was presented, deliberated upon and approved. PCMC was thus clearly aware that its corporate term is about to expire, hence, it approved and carried out a corporate act required under the Corporation Code to extend its corporate term i.e. approve the amendment of its Aol extending its corporate term.

an application to amend its Aol for the purpose of specifying its principal No. 6, s. 2014. This application should be considered in the context of PCMC's intent to extend its corporate term, with the view of filing the office address which was required under SEC Memorandum Circular (MC) Moreover, the Commission notes that on 28 January 2015, PCMC filed

appropriate application to that effect.Otherwise, it makes no sense for PCMC to comply with SEC MC No.6,s.2014 by amending its Aol to specifying its office address if it is not intent on continuing its business as a corporate entity Unfortunately for PCMC,its earlier application which encountered challenges

the extension of its corporate term. effectively prevented it from filing the more important application to effect

Given the circumstances attendant in the instant case, this Commission holds that PCMC has complied with all the requirements prescribed under the

application for amendment of its Aol extending its corporate term. More Corporation Code and applicable regulations that warrants the approval of its

importantly, the approval by the Board and the shareholders of the amendment of PCMC's Aol extending its corporate term prior to its expiration warrants the application of the policy of liberality which is sanctioned in the Ching Bee Case and the resolutions of this Commission.

Relative thereto, the doctrine in the case of Hotel Enterprises of the

sustained the ruling of the Court of Appeals, is instructive, thus: Philippines, Inc. vs. Hon. Teresita Herbosa et al.,where the Supreme Court

liquidate. Rather, it continues to operate xxx. "We deem that the circumstances of the instant case allow for the relaxation of the strict application of law, in the interest of substantial justice. For one the extension of its corporate term was already passed and agreed upon by all the directors and stockholders during the February 24, 2012 expiration of its corporate term, HEPI has not shown any intention to meeting prior to its expiration on July 30,2012.xxx.Moreover,despite the

Furthermore, this Court is not blind to the economic implications were We

Midas employs hundreds of employees which stand to lose their gainful employment should it cease to operate. to disallow the continuation of HEPI's corporate existence. Currently

9 CA-G.R. SP No. 132339, December 2, 2014

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public if the petitioner is allowed to continue as a going concern. It being employees and creditors. xxx" (Emphasis supplied) a legitimate business operating a hotel and casino. On the other hand, the cessation of its significant stakeholders such as its stockholders, xxx, the Court cannot see any prejudice to the State or the general

Moreover, it bears emphasis that in Resolution No. 222, the Commission reaffirmed the intent of Section 11 of the Corporation Code recognizing and allowing perpetual existence of corporations, and implemented the policy of liberality consistent with the doctrine in the Ching Bee Case, thus:

Industries versus Northern Islands Company, Inc.(G.R. No. 194891, 9 January 2017). The En Banc is aware that the very recent 2017 decision is that promote ease of doing business i.e. the Corporation Coded similarly espouses the liberal approach adopted by the Supreme Court. All previous pronouncements, policies or rules inconsistent with this latest policy shall be deemed repealed, revoked, or amended. terms, the liberal approach adopted by the Supreme Court in its latest decisions in the cases of: CRMD and SEC En Banc versus Ching Bee Trading Corporation (G.R.No.205291,12 November 2014 and 3-D not yet final. However, considering that the legal principle enunciated amendment on perpetual corporate term pending in Congress), the En Banc "RESOLVED,To ADOPT as policy,in cases for extensions of corporate therein is consistent with the current Commission's thrust to adopt policies

CRMD and all requirements of the latter are satisfied; and (3) all appropriate filling fees paid for." (Emphasis supplied) RESOLVED FURTHER,That based on aforementioned cases,and subject to compliance with the pertinent Corporation Code provisions, all corporations similarly situated in relation to the matter of the expiration of its term of existence, shall be ALLOWED to FILE their applications to the Company Registration and Monitoring Department, which shall present it for approval of the Commission En Banc so as to continue as going concern, provided that (1) The intent to continue operations is supported by approvals given by the Board of Stockholders prior to the expiration of the term, as certified in written document; (2) the application is filed before the amend their articles of incorporation to extend their corporate term before

the application for amendment of PCMC's Aol to extend its corporate term situated contemplated in Resolution No. 222, as PCMC did not present its Application for amendment to extend its term before the expiration of its on the ground that the latter cannot be considered as "corporations similarly In the Assailed Decision, the CRMD denied the request for approval of

corporate existence.

We do not agree with CRMD

The factual circumstances in the instant case militate against the decision of CRMD to refuse receipt of PCMC's amendment documents which on its face showed a clear intent to extend its corporate life.PCMC presented Resolutions showing that its Board and shareholders approved the extension

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of its corporate term way before it expired. Given the clear intent of Section 11 of the Corporation Code, and the applicable regulations, it behooves the CRMD to have considered the policy of the Commissioni to grant perpetual existence to corporations that clearly opts to do so. The CRMD should have acted on the matter with liberality and should have exercised its regulatory power to promote/further the continued existence of PCMC.The case of Isip v. Municipal Council of Cabiao,Nueva Ecijall is instructive, to wit:

a liberal and reasonable interpretation of the law,if we must choose between "If we must choose between a strict and literal interpretation of the law and the letter of the law which "killeth" and the spirit of the law which "giveth life", can anyone doubt what our decision will be? We adopt that construction which will produce the most beneficial results."

In February 2019, the policy under Section 11 of the Corporation Code

successive renewal of its corporate term) was made explicit in Section 11 of recognizing and allowing the perpetual existence of corporations (by

Republic Act No.11232 otherwise known as the Revised Corporation Code (RCC) which provides:

A corporation shall have perpetual existence unless its articles of incorporation provides otherwise.

corporate right of dissenting stockholders in accordance with the provisions Corporations with certificates of incorporation issued prior to the effectivity unless the corporation, upon a vote of its stockholders representing a majority of its articles of incorporation: Provided, That any change in the of this Code and which continue to exist shall have perpetual existence, of this Code.

With the enactment of the RCC,all doubts relating to the policy which recognized, sanctioned and granted perpetual existence to corporations under Section 11 of the Corporation Code were thus cleared and settled once and for al

Moreover, insofar as the afore-quoted provision is concerned, the RCC

notwithstanding presentation of documents which showed intent to extend Commission to carry out and recognize the policy and intent of giving of corporations have expired because of inadvertence, oversight or corporate term. Section 11 of the RCC has addressed this evil.The doctrine can be considered as a curative statute because it is intended to enable the perpetual existence to corporations sans the act of amending the articles of misapprehension of the law; these corporations were denied extension incorporation.12 Before the RCC was enacted, the corporate term of a number

12 Philippine Health Insurance Corp. v. Commission on Audit, G.R. No. 222710 (Resolution), [September 10 Embodied in Resolution 35-2000. 10, 2019]. 11 G.R. No. L-18947 April 29, 1922

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clearly manifested an intent to continue its business. in the Ching Bee Case should be applied to the instant case to implement the mandate of Section 11 i.e. to grant perpetual existence to PCMC which has

hereby directed to accept the Application for amendment of Philippine Carpet Manufacturing Corporation's Articles of Incorporation to extend its corporate PCMC is hereby GRANTED. The Letter-Ruling of the CRMD dated 05 January 2018 is hereby REVERSED AND SET ASIDE. The CRMD is term and change its principal office address and to act on the same based on applicable laws, rules and regulations. WHEREFORE, premises considered, the Memorandum of Appeal of

SO ORDERED.

Pasay City, Philippines; 9 November 2021

EMILIO B.AQUINO Chairperson

EPHYRO LUIS B.AMATONG *On official leave Commissioner JAVEY Commissioner PAUL D.FRANCISCO

KEVIN LESTER K.LEE Commissioner KARLO S. BELLO Commis$ioner L