Opinion No. 19-01 Re: Assignment of All or Substantially All of the Assets of a Corporation.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE oF tHe GeNeRAL COuNSeL

31 January 2019

SEC-OGC Opinion No. 19-01 Re: Assignment of Al O Substantially All of the Assets of a Corporation

JOSELITO P. GALICIA Purok Galingan, Mankilam, Tagum City Director, Wisecable

Gentlemen:

A") of the assets of one of its branches to another entity. an opinion regarding a proposed assignment by a corporation ("Corporation This is in response to your letter dated 1 December 2018 requesting

more or less about the same size, subscriber base and cable set up. registered with this Commission whose primary purpose is to provide cable TV services. Corporation A maintains five (5) branches in different areas of the Philippines. It intends to assign all assets of one of its branches (Davao del Norte) to a single proprietorship. The assets of the five branches are You stated in your letter that Corporation A is a domestic corporation

assignment is considered a sale of all or substantially all of the assets of Corporation A that would require stockholders' approval. Thus, you are requesting for an opinion on whether the proposed

Section 40 of the Corporation Code ("Code") provides:

expedient, when authorized by the vote of the stockholders the provisions of existing laws on illegal combinations and directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem monopolies, a corporation may, by a majority vote of its board of "Section 40. Sale or other disposition of assets. - Subject to

SEC-OGC Opinion No. 19-01 Re: Assignment of All or Substantially All of the Assets of a Corporation Page 2 of 3

two-thirds (2/3) of the members, in a stockholders' or members) meeting duly called for the purpose. x x x representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote of at least

substantially all the corporate property and assets if thereby the incorporated. x x x" (Emphasis ours) corporation wouid be rendered incapable of continuing the business or accomplishing the purpose for which it was A sale or other disposition shall be deemed to cover

Section 4o would be the capacity of the corporation to continue its business after the sale of all or substantially all its assets.2 which it was incorporated. Any disposition short of this will not need stockholders' action.1 Thus, the litmus test to determine the applicability of substantially all the assets' as one which will render the corporation incapable of continuing the business or accomplishing the purposes for Section 40 of the Code defines the term 'sale or disposition of all or

Same Section provides:

remaining business." (Emphasis ours) in the usuai and regular course of business of said corporation any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the same is necessary or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its 1. X. X Nothing in this section is intended to restrict the power of

faith, may dispose the same without the approval of the stockholders.3 To not the amount involved but the nature of the transaction.4 and the sale thereof will not render the corporation incapable of continuing its business or if the disposition is necessary in the usual and regular course of business, the Board of Directors as it may deem expedient and in good determine if the sale is made in the ordinary course of business, the test is Thus, if the property to be sold constitutes merely a part of the assets

Comments, Notes and Selected Cases, 1981 Ed) 2 Y-I Leisure Philippines, INC., YATS International Ltd. AND Y-I Clubs and Resorts, Inc., v. James Yu, G.R. 3 SEC Opinion dated August 21, 1995, RP Enterprises, Inc. 4 SEC-0GC Opinion No. 13-13, Mr. Jeric Hechanova 1 SEC Opinion dated December 4, 1990, Dr. Raul D. Jara, M.D. citing Campos, Corporation Code. No. 207161, September 08, 2015

SEC-OGC Opinion No. 19-o1 Re: Assignment of All or Substantially All of the Assets of a Corporation Page 3 of 3

You wrote in your letter:

a third or even a quarter of its total assets, the same constitute sale, accomplishing the purpose for which it was incorporated." pertaining to only one (1) of its branch offices with roughly less than disposition or assignment of only a part of Corporation's assets which only requires approval of the majority of the Board because it will not render Corporation A incapable of continuing its business or "Considering that Corporation A will dispose the assets

proposed assignment can be made by a mere majority vote of its Board of Directors. contained in an agreement5 or in the by-laws or other documents, the Accordingly, in the absence of any self-imposed condition as

inquiry or investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void. rendered based solely on the facts and circumstances disclosed and relevant solely to the particular issue raised 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.6 If, upon further It shall be understood, however, that the foregoing opinion is

Please be guided accordingly.

GAMIL SYCORREA

General Counsel

5 SEC Opinion dated March 14, 1991, Mr. Rodolfo B. Valdez, Wack Wack Golf and Country Club 6 SEC Memorandum Circular 2003-15, No.7