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Dissolution of a Corporation | Manila Legal - Philippines Largest Legal Network

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How To Dissolve A Corporation


            Dissolution of a corporation signifies the extinguishment of its franchise and the termination of its corporate existence.
A corporation formed or organized under the provisions of the Corporation Code of the Philippines may be dissolved voluntarily or involuntarily.

  1. VOLUNTARY DISSOLUTION

There are three modes of Voluntary Dissolution:

  1. Where no creditors are affected by the dissolution by the dissolution, by an administrative application for dissolution filed with the Securities and Exchange Commission (SEC);
  2. Where creditors are affected by dissolution filed with the SEC, with due notice and hearing to be duly conducted; and
  3. Shortening of a corporate term by the amendment of the articles of incorporation.

Voluntary dissolution where no creditors are affected

When no creditors are involved, only a SEC application for dissolution is required. The process is equivalent to the application for the amendment of the articles of incorporation, except that in addition, publication of the notice of dissolution must also be complied with.

Under Section 118 of the Corporation Code, in case the dissolution of a corporation does not prejudice the rights of any creditor having a claim against such a corporation, the dissolution may be effected by complying with the following procedural requirements:

  1. Majority vote of the board of directors or trustees adopting a resolution for the dissolution of the corporation;
  2. Sending notices to each stockholder or member either by registered mail or by personal delivery, of the time, place and object of the meeting calling for the approval of the dissolution of the corporation, at least thirty (30) days prior to said meeting;
  3. Publication of such notice of meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if none, in a newspaper of general circulation in the Philippines; and
  4. The resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock, or of at least two-thirds (2/3) of the members, at a meeting held on the call of the directors or trustees.

 A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation and filed with the SEC. The SEC shall thereupon issue the certificate of dissolution.

The SEC will not deny an application for dissolution when there are no creditors involved because of the constitutional prohibition against involuntary servitude or the constitutional guarantee of association, and the right to refuse to continue an association.
Voluntary dissolution where creditors are affected
If there are no creditors involved, there is a need to file a formal petition for dissolution with the SEC. The proceedings are quasi-judicial in nature and conducted to ensure that the rights of the creditors are fully protected. In such proceedings, the SEC is not mandated to dissolve a corporation, especially when it would be detrimental to the interests of the creditors, who may wish to rehabilitate the operations of the corporation to ensure that it would be able to pay-off all of its debt.
Under Section 119 of the Corporation Code, where the dissolution may prejudice the rights of any creditor, the following procedure shall be complied with:

  1. A petition for dissolution shall be filed with the SEC, signed by a majority of its board of directors or trustees or other officers having the management of its affairs, verified by its president or secretary or one of its directors or trustees, and shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members at a meeting of its stockholders or members called for that purpose.
  2. If the petition is sufficient in form and substance, the SEC, by an order reciting the purpose of the petition, shall fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order.
  3. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city.
  4. Upon five (5) day’s notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.

 Dissolution by shortening corporate term
A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term. A copy of the amended articles of incorporation shall be submitted to the SEC in accordance with the Corporation Code. Upon approval of the amended articles of incorporation of the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions for corporate liquidation.
The following requirements must be submitted to the SEC:

  1. Notice of the dissolution of the corporation by shortening its corporate term be published in a newspaper of general circulation for three (3) consecutive weeks;
  2. List of corporate creditors, with their consent to the shortening of corporate term;
  3. Submission by the majority stockholders or principal officers of the corporation of an undertaking  under oath that they shall be personally answer for any outstanding obligations of the corporation; and
  4. Latest audited financial statements of the corporation which must not be earlier than the date of the stockholders’ or membership meeting approving the amendment to the articles of incorporation;
  5. BIR Tax Clearance
  6. Directors' Certificate - A Notarized document signed by majority of the directors and corporate secretary certifying the amendment of the articles of incorporation shortening the corporate term, the votes of the directors and stockholders thereto, and the date and place of the stockholders meeting
  7. Indorsements/clearances from other government agencies, if applicable.

Dissolution by expiration of corporate term
This is another mode of voluntary dissolution, when the corporate life of the corporation as stated in its articles of incorporation is allowed to expire, without extension, then the corporation is deemed dissolved by such expiration without the need of further action on the part of the corporation or the State. (Section 11).

 

  1. INVOLUNTARY DISSOLUTION

Involuntary dissolution
A corporation may be dissolved by the SEC upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws, rules and regulations. (Section 121)
The following are the grounds for involuntary dissolution:

  1. If the corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, its corporate power ceases and the corporation shall be deemed dissolved;
  2. If the corporation has commenced the transaction of its business, but subsequently becomes continuously inoperative for a period of five (5) years, the same shall be a ground for the suspension and revocation of its corporate franchise or certificate of incorporation;
  3. When the corporation fails to adopt and file a code of by-laws in the manner provided by law;
  4. When the corporation has offended against a provision of a law for its creation or renewal;
  5. When it has committed or omitted an act which amounts to a surrender of its corporate rights, privileges,, or franchises;
  6. When it has misused a right, privilege, or franchise conferred it upon by law, such as commission by the corporation of ultra vires or illegal acts;
  7. When on the basis of findings and recommendations of a duly appointed management committee or rehabilitation receiver, or based on the SEC’s own findings, the continuance of the business of the corporation would not be feasible or profitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the general public;
  8. When the corporation is guilty of fraud in procuring its certificate of registrations;
  9. When the corporation is guilty of serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public;
  10. Refusal of the corporation to comply or defiance of any lawful order of the SEC restraining commission of acts which would amount to a grave violation of its franchise; and
  11. Failure of the corporation to file required reports in appropriate forms as determined by the SEC within the prescribed period.

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