Opinion No. 24-08Re: Liquidation Beyond the Three (3) Year Winding Up Period

Exchanas Commission Securities and

DHLIAINAS

OFFICe OF tHe GeNerAl COuNSeL

SEC OGC Opinion No.1:08 Re: Liquidation Beyond The Three (3) Year Winding Up Period

(8_April 2024

8th Floor STI Holdings Center, 6764 Ayala Avenue Makati City THE MERCHANT'S HOTEL CORPORATION merchanthotel@yahoo.com

Attention: Ms. Rina Pauline T. Abadiano

Dear Ms. Abadiano:

and winding up of The Merchant's Hotel Corporation ("TMHC"). This pertains to your letter dated 23 February 20241 requesting for an opinion on the liquidation

the lapse of its charter almost eight (8) years ago. TMHC ceased its operations in 2009 and did not file for the extension of its corporate term, hence the same ended on 2 June 2016. Two (2) of its five (5) directors are deceased and the vacancies resulting from their passing were not filled up. TMHC has not commenced the liquidation and winding up of its affairs despite You stated that TMHC was incorporated on 2 June 1966 with a corporate term of fifty (50) years.

You raised the following queries:

In liquidating its assets, may TMHC use the alternative method of assigning the property of the Since the corporate term of TMHC has expired, is it necessary for it to request for a Certificate of winding up its affairs? If yes, does he/she need to be authorized by the other two through a corporation to a "trustee" by legal implication considering that no such trustee was appointed during the three-year period provided in Section 139 of the Revised Corporation Code? If yes. must the 3 remaining directors execute a Deed of Assignment or other conveyance document in favor of the trustees? If a document needs to be signed by any one or all of the remaining directors, how will TMHC To simplify TMHC's liquidation, may only one of the three (3) remaining directors take charge Special Power of Attorney? If not, where will he/she derive his/her authority from? be described in the identification of parties? Is the description below acceptable? of Dissolution from the Commission?

process of liquidating its assets and winding up its affairs, with address at (*) "THE MERCHANTS' HOTEL CORPORATION, a corporation which is currently in the

Received by this Office on 26 February 2024

14/F The SEC Headquarters,7907 Makati Avenue (+63 2) 818 82260 or (+63 2) 8818-5348 l www.sec.gov.phl ogc_picc@sec.gov.ph alcedo Village, Bel-air,Makati City

Page 2 of 5

represented herein by the Trustee-in- Liguidation and Director, (*) hereinafter to aS "TMHC".

Section 139 of the Revised Corporation Code of the Philippines ("RCCP") provides:

roisions "SEc. 139. Corporate Liquidation. - Except for hanks, which shall be covered by the applicable of Republic Act No. 7653, otherwise known as the "New Central Bank Act", as amended, and amended, every corporation whose charter expires "pursuant to its articles of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in any other manner, shall the purpose of prosecuting and defending suits by or agains Republic Act No. 3591, otherwise known as the Philippine Deposit Insurance Corporation Charter, as dispose of and convey its property, and distribute its assets, but not for the purpose of continuing the business for which it was established nevertheless reuainas a hodv c Orate for three (3) years after the effective date of dissolution, for it and enabling it to settle and close its affairs.

interest in the stockholders. members. creditors or other persons-in-interest. convey all of its property_to.trustees for the benefit of stockholders. members creditors and other benefit of its stockholders, members, creditors and others in interest, all interest which the Corporation had in the property terminates. the legal interest vests in the trustees. and the heneficial persons_in_interest. After any such conveyance by the corporation of its property in trust for the At any time during said three (3) years, the corporation is authorized and empowered to

Corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated in favor of the national government. Ixcept as otherwis provided for in Section s 93 and 94 of this Code, upon winding up oi

liabilities." (Emphasis supplied) distribute any of Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shal s assets or property except upon lawful dissolution and after payment of all its debts and

limited period of three (3) years from the effective date of its dissolution considering that Section 139 of the RCCP specifically applies to corporations "whose corporate existence is terminated in any other manner." However, this limited corporate existence is limited only for the following purposes: b)Disposing of and conveying its property; and A corporation whose registration expires or is revoked may continue as a body corporate for a C) } Prosecuting and defending suits by or against it and enabling it to settle and close its affairs: Distributing its assets.2

the said corporate entity ceases to exist except insofar as its liquidation or winding down of its business affairs and the settlement of the claim of its creditors is concerned. As to your first query, we answer the same in the negative. Once a corporation's term has expired,

The Commission previously stated in an opinion, thus:

corporation to enable it to settle and close its affairs."3 (Emphasis supplied) purposes of winding up and liquidation. Thus, while the corporation is automatically dissolved afte the purposes of enabling it to settle and close its affairs. Accordingly, it may hold an election but only for winding up and liquidation purposes, eg. for the purpose of prosecuting and defending suits by or against the corporation ceases to exist and disso purposes for which it was organized. Ho expiration of its term, neverthele is clear from Bs it may be continued after the time when it would have been dissolved for olved ipso facto..Hence, it can no longer continue wever, it may be continued as a corporate body for 3 years only for provis Fhe e the busir erm. the . th. 0

trustee or receiver being appointed, the board of directors, as the controlling body of the corporation, by legal implication, acts a As to your second query, after the expiration of the three (3) year winding up period without a es to take charge of the liquidation.

2 SEC-OGC Opinion No. 23-06 addressed to Atty. Jonathan Bagadiong dated 27 March 2023. 3 SEC OGC opinion dated 12 April 1993 addressed to Mr. Juvencio L."Ocampo.

14/F The SEC Headquarters, 7907 Makati Avenue www.sec.gov.phl ogc_picc@sec.gov.ph (+63 2) 818 82260 or (+63 2) 8818-5348 Salcedo Village. Bel-air, Makati City De

Page 3 of 5

The Supreme Court in the case of Clemente v. Court of Appeals,4 held that:

designated by the corporation within that period, the board of directors (or trustees the a etiree-vearexten 01, i, 04E Court'sdecision in Gel Ytee ehasexoir bylegalimp 1t W.Lo 11 of Appeas. 103 atiuu SCRA 90} m following Y be 4i H

hsence of a woard of. irectors or trustees, those having any pecuniary interest in the assets

behalf, migh and sufficiently broad jurisdi concerns." (Emphasis and underscoring supplied) I nake proper representations with the Securities and Exchange coi Iv the sharehol liction in matters of this nature, for working out a final settlement of the corporate the credit f+ ae corporation, acting for and in its sso.Wg has primary

Can still be convened. then they should take care of the winding up of the corporation without the need for any proceeding.s In a previous opinion, the Commission opined that ifthe Board of Directors or quorum thereof

conveyance to the trustee of the corporate assets for purposes of liquidation must be made within three [3lyears from the effective date of dissolution As to your third query, we answer the same in the negative. Under Section 139 of the RCCP,6 the

The Supreme Court has held that:

Liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 now Sec. 1227]) thatthe conveyance being sued (7 R.C.L., Corps., par." 750): but trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the liquidation." (Emphasis and underscoring supplied) 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 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. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or "It is to be noted that the time during which the corporation, through its own officers, may conduct

designating a trustee, (e.g. Special Power of Attorney and Deed of Assignment), please be informed that as gathering of legal materials or writing abstract essay for the requesting party since the Commission should not function or resemble as legal counsel of private firms.9 a matter of policy, the Commission refrains from rendering opinions on matters which will entail As to your fourth query and the next steps to be undertaken by the board of directors in

However, for purposes of information only, we impart the following:

the Supreme Court interpreted the three-year period under Section i22 of the Corporation Code, now Section 139 of the RCCP, vis-a-vis the corporation's capacity to sue, viz.: In Alabang Development Corporation vs. Alabang Hills Village Association and Rafael Tinio1o,

5 SEC OGC Opinion No.14-22 dated 8 August 2014 addressed to Manuel T. Hing citing SEC-OGC Opinion No. 07-02 dated 15 4 242 SCRA 717 (1995) February 2007 addreessed to Atty. Eliseo A. Fernandez. BY.CorporateLiauidatior

XXX

8 Reburiano v. Court of Appeals, 361 Phil. 294, 307 (1999), citing Sumera v. Valencia, 67 Phil. 721, 726 (1939) 9 Section 5.10, SEC Memorandum Circular No. 15-03 dated 16 December 2003. Now Section 139 of the RCCP o G.R. No. 187456, 02 June 2014 At any time during said three (3) years, the corporation is authorized and em trustees for the benefit of stockholders, members. creditors and other persons in interest. After any such conveyan by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest, all interest in the stockholders, members, creditors or other persons-in-interest. nteres which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial owered to convey all of its property to

1 14/F The SEC Headquarters, 7907 Makati Avenue (+63 2) 818 82260 or (+63 2) 8818-5348 . www.sec.gov.phl oge_picc@sec.gov.ph Salcedo Village, Bel-air, Makati City BO B

Page 4 of 5

XXX

hands. Itis provided only that the conveyance to the trustees must be made within the three-year period. It may to be an entity capable of suing or being sued; but trustees to whom the corporate assets have been commences; but there is no time limit within whic be found impossible to complete the work of liquidation within the three-year period or to reduce disputec claims to judgment The authorities are to the effect that suits by or against a corporation abate when it ceasec of its asset$ and sue and be sued as acorp thatth e during which the corpor ch the trustees must complete a liquidation placed in thei limited to three years from the time the period of dissol hroughitsownolficers , may condud iouida convevec lutior

pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the fiaudation

XXX In the instant case, there is no dispute that petitioner's corporate registration was revoked on May 26, 2003 Based on the above-quoted provision of law, it had three years, or until May 26, 2006, to prosecute or defend any suit by or against it. The subject complaint, however, was filed only on October 19, 2006, more than three years after s iuch revocatior

Petitioner, nonetheless, insists that a corporation may still sue, even after it has been dissolved and the three- year liquidation period provided under Section 122 of the Corporation Code has passed. Petitioner cites the cases of Gelano v. Court of Appeals, Knecht v. United Cigarette Corporation, and Pepsi-Cola Products Philippines. It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its "Ipllaintiff is a duly organized and existing corporation under the laws of the Philippines, with capacity te In other words, they already had pending actions at the time that their corporate existence was terminated. directors or trustees. In fact, it is even averred albeit wronglv, in the first paragraph of the Complaint_that sue and be sued... Inc. v. Court of Appeals, as authority to support its position. The Court, however, agrees with the CA that in the above-cited cases, the corporations involved filed their respecti ive complaints while they were still in existence.

final judgment Corporation Code. The ir. ornocr onsJtaffor is Court's ruling in the cases cited by petitio owever. there is nof such judgment is rendered beyond the thre nenced by the corporation within three years from its dissolutic e lapse of the said three-year period. On the contrary, the factual circumstances in Iin the saidcase ner is that the trustee of tich allows an already defunct corporation year period allowed hy Section 122 of the corporat n until rendition of the nay continue

he above-cited cases would show that the corporati ear period. In fact, as stated above, the actions were already pending at the time that involved therein did not initiate anycompiaint.after

n0 loctthoircarnorato ovictanr

discussed liquidation, to wit: Additionally, in Reyes and Pastor vs. Bancom Development Corporation,12 the Supreme Court to initiate the subject complaint and pursue it until final judgment, on the ground that such complaint was filed Corporation Code [now Section 139, RCCP].11 (Emphasis and underscoring supplied) In the p for the sole purpose of liquidating its assets, would be to circumvent the provisions of Section 122 of the beyond the three-year period allowed by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity tg sue gs a corporation. To allow petitioner resent case, petitioner filed its complaint not only after its corporate existence w inated but alsc

years, but only for certain specific purposes enumerated by law. These include the prosecution and defense of "Section 122 of the Corporation Code13 provides that a corporation whose charter is annulled, or whose corporate existence is otherwise terminated, may continue as a body corporate for a limited period of three affairs uits by or against the corporation, and other objectives relating to the settlement and closure of corporate

Based on the provision, a defunct corporation loses the right to sue and be sued in its name upon th the three-year period provided by law. Jurisprudence, however, has carved out an exce cases, this Court has ruled that an appointed receiver, an assignee, or a trustee may institute suits or continue pending actions on behalf of the corporation, even after the winding-up period. xxx eption to this rule. In severa xniration o

In subsequent cases, the Court further clarified that a receiver or an assignee need not even be appointed for the purpose of bringing suits or continuing those that are pending. In Gelano v. Court of Appeals, we declared that ir for a particular matter, such as a lawyer representing the corporation in a certain case. We also ruled in Clemente for the purpose of winding up its affairs." xxx (Emphasis and underscoring) the absence of a receiver or an assignee, suits may be instituted or continued by a trustee specifically designated v. Court of Appeals that the board of directors of the corporation may be considered trustees by legal implication

11 Alabang Development Corporation vs. Alabang Hills Village Association and Rafael Tinio, supra. 12 Ramon Reyes and Clara Pastor vs. Bancom Development Corporation, G.R. No. 190286, 11 January 2018 13 Supra note 7

14/F The SEC Headquarters, 7907 Makati Avenue L www.sec.gov.phl ogc_picc@sec.gov.ph {+63 2) 818 82260 or (+63 2) 8818-5348 Salcedo Village, Bel-air, Makati City Ftho A0

Page 5 of 5

therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances.14 if, upon further inquiry or investigation it will be disclosed that the facts relied upon are different, this opinion shall be rendered void. circumstances, and documents disclosed/submitted and relevant solely to the particular issue raised It shall be understood that the foregoing opinion is rendered based solely on the facts,

Please be guided accordingly.

I truly yours,

mwE ROMUALD C.PADILLA General Counsel

14 Section 7, SEC MC No. 15 Series of 2003, 16 December 2003

14/F he SEC He ad quarfes, 7 907 Makati Ave nue tm www.sec.gov.phi ogc_picc@sec.gov.ph t (+63 2) 818 82260 or (+63'2) 8818-5348 Salcedo Viltage, Bel-air, Makati City D To