Opinion No. 14-29 RE: Title to Real Properties; Liquidation

Securities and Exchange Commission SEC Building, EDSA, Greenhills, Mandaluyong City Republic of the Philippines Department of Finance

Office of the General Counsel

22 October 2014 SEC-OGC Opinion No. 14-29 Re: Title to Real Properties; Liquidation

Ms. Theresita M. Ceralde Blk 20 Lot l1 Turquoise St.. Soidiers Hills III Subd., Tala, Caloocan City

Dear Madam:

an opinion on the following: This refers to your letter received by our Office on 14 September 2012 requesting for

1. Whether the title to real properties (subdivision lots) owned by a corporation whose term has expired but which applied for re-registration with the Commission under the same name and is composed by majority of the directors and officers of the expired corporation shall automatically vest upon the new re-registered corporation, without the need of liquidation, distribution and re-assignment of said

real properties to the new corporation;

2. Whether the new corporation can continue the same line of business of the expired

corporation (developing and selling subdivision lots under the mane of the expired corporation) without the expired corporation reassigning the said properties to the new cgrporation;

3. The effect on a third party purchaser of the subdivision lots buying from the new

corporation in the event that the directors and stockholders of the revoked corporation question the sale;

4. The ta liabilities and legal implications on ownership of the subdivision lots in

the sale of the said real properties by the new corporation.

provides as follows: The first paragraph of Section 122 of the Corporation Code of the Philippines

"Sec. 122 Corporate liquidation. - Every corporation whose charter expires by its own limitation or is"annulled by forfeiture or otherwise, or whose corporate existence for other pu!rposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would

against it and enabling it to settle and close its affairs, to dispose of and convey its have been so dissolved, for the purpose of prosecuting and defending suits by or

property and to distribute its assets, but not for the purpose of continuing the business fpr which it was established."

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At the onset, it should be noted that once a corporation's term has expired, the said corporate entity ceases to exist except insofar as its liquidation or the winding down of its business affairs and the settlement of claims of its creditors is concerned.

liquidation, the Supreme Court in the case of Clemente, et al. v. CA' and as quoted in SEC- As regards the individuals who can act as trustees in relation to a corporation's

OGC Opinion No. 06-10,3 stated that:

"If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) itself, following the rationale of the Supreme Court's decision in Gelano vs. Court of Appeals (103 SCRA 90) may be permittedto continue as "trustees" by legal implication to complete the corporate liquidation. (emphasis ours) xxx

In our jurisdiction, the statutes and jurisprudence are silent regarding the consequences of the death of a director, acting as trustee in liquidation, during the liquidation or winding up period. In some American jurisdictions, directors who become trustees of the corporation on dissolution hold on as joint tenants with right of sufvivorship incident to their tenancy. In other words, when one or more directors die, the surviving trustees take the whole title subject to the trust, and the latter may exercise the powers and duties of the deceased director- trustee. However, it is also provided that in case of the death, resignation. inability or refusal to act, of the directors as trustees, or the survivors, the court may appoint trustees to fill the vacancy, upon the application of any person interested.

Adopting these legal principles from American corporation law, from which our corporation law was patterned, we opine that Mr. Victor U. Lopez may act as trustee in liquidation. However, this is without prejudice to the right of a person in interest to petition the courts for the appointment of a different trustee in liquidation on account of Mr. Victor U. Lopez's refusal or inability to wind up the affairs of the dissolved corporation within a reasonable period."

During liquidation, the remaining properties of the expired corporation are considered as held in trust by either the court appointed receiver or, in the event that there is none, the directors and trustees of the corporation at the time of the expiration of the corporate term.

Once all claims of creditors are settled, the remaining assets of the corporation should be divided between and among the stockholders of the defunct corporation depending on their interest in the corporation and other contractual agreements they may have entered into.

2 SEC-OGC Opinioh No. 06-10 dated 29 January 2010 issued to Atty. Wilfredo M. Chato. G.R.No.82407,2h7 March 1995

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dissolved corporation to commence a proceeding for liquidation of its assets and liabilities within three (3) years after its corporate term has elapsed3, which period may be extended depending on the successful distribution and disposal of the corporation's assets.4 Accordingly, we answer your first query in the negative. It is mandatory for a

and there are numerous real properties still under its name. The obligation to dispose of the the sale or assignment of the properties shall be divided accordingly among all those with said real propertie$, through sale or other mode of assignment, in order to fully liquidate the corporation falls upon the directors of the said expired corporation so that all proceeds from In your case, it appears that the expired corporation has not completed its liquidation

remaining interest in the said expired corporation.

registered corporation, as the new corporation is a different and distinct entity from the whose corporate term has expired cannot be automatically transferred to the new or re- Thus, in the absence of corporate liquidation, the real properties of a corporation

expired corporation.

dissolved corporation only in the event that a liquidation proceeding can be carried out by the The new corporation can succeed over ownership of the real properties owned by the

directors acting as trustees of the dissolved corporation, and real properties distributed as liquidation dividends shall be assigned by the co-owners (i.e. stockholders of the old corporation) to the new corporation in exchange of new shares of stock to be issued by the new corporations .

As to your second query, the new corporation can continue the same line of business of the expired corporation and sell the real properties of the latter, provided the procedure outlined in our answer to your first query is followed.

As to the third and fourth query, the Commission must refrain from issuing any opinion on the legal effects of the sale of real property by the new corporation while the said properties remain registered under the name of the expired corporation anchored on the following provisions of SEC Memorandum Circular No. 15, Series of 2003:

"5. As amatter of "policy, the Commission shall refrain from rendering opinion in the following:

5.1 xxX

5.2 Matters which involve the substantive and contractual rights of private

parties who would, in all probability, contest the same in court if the opinion turns out to be adverse to their interest;

No. 09-31 dated 09 December 2009.addressed to Ms. Liza G. Bautista. 3 SEC Opinion No. 06-33 dated 03:October 2006 addressed to Atty. Emilio A. Gancay 4 SEC Opinion No.[23-05 dated 23 December 2005 issued to Ms. Stella Marts R. Pelino; SEC-OGC Opinion Supra, SEC Opinion No. 06-33.

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5.3 Matters which: would necessarily require a review and interpretation of of contract is justiciable in nature and contract review calls for legal contracts or an opinion on the validity of contracts since interpretation examination of contract on a general basis and not on specific legal issues; xxx"

kindly direct the same to the Bureau of Internal Revenue (BIR) as the agency best equipped to provide information on tax matterst. Further, as to your query on tax implications of the above-mentioned sale of property.

of directors of the expired corporation at the time of the expiration of its corporate term of the necessity to complete the liquidation of the said corporation's remaining assets. At this point, it may be prudent to exert all efforts to notify the members of the board

the facts and circumstances disclosed and relevant solely to the particular issue raised therein and? 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.7 It shall be understood, however, that the foregoing opinion is rendered based solely on If, upon further inquiry and investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered void.

Please be guided accordingly.

Very truly yours.

CMLUSAORREA General Counsel

opinion on " Requests which involve interpretation of administrative rules and issuances of other government agencies considering that it is the promulgating agencies which are competent to undertake such construction by reason of their knowledge of the specific intent and extent of application of the subject issuances; xxx 6 Section 5.6 of SEC|MC No. 15, Series of 2003 provides that the Commission shall refrain from rendering Paragraph 7, SEC Memorandum Circular No. 15, Series of 2003.