A ray of (corporate) hope
Sometimes, companies with expiring corporate terms fail to timely apply for an extension with the Securities and Exchange Commission (SEC). In some instances, they do initiate the process of extension by getting the requisite board and stockholders’ approval for amendment of their articles of incorporation but for one reason or another, they fail to go to the SEC before the deadline.
A case in point is Company Registration and Monitoring Department (CRMD) and SEC vs. Ching Bee Trading Corporation (CBTC), G.R. No. 205921, dated Nov. 12, 2014. In this case, CBTC asked the SEC to extend its corporate term by submitting the required documents to the CRMD a day before the expiration, or on Jan. 22, 2010.
The SEC, through the CRMD, refused to accept the application because the required directors’ certificate was defective. The firm did not state that stockholders, representing at least two-thirds of the outstanding capital stock, approved the amendment of the articles extending the corporate term.
Instead of telling CBTC to cure the defect within the remaining one-day period, the CRMD advised the company to request for an extension to submit the requirement. The request was filed on the last day of CBTC’s corporate term, or on Jan. 23, 2010.
On Jan. 6, 2011, the SEC dismissed the request, citing its 2008 policy that it can deny applications to extend a company’s term of existence that are filed after the expiration of the original term.
Acting “on the matter with liberality,” the Supreme Court held: “[w]hat the SEC should have done was to give formal notice to CBTC that the latter had one day to cure any defect before CBTC’s life would expire. That one day, which was lost because of miscommunication, would have been enough to complete the process of filing the application within the period provided for by the Code and would have sufficed for the approval of the corporate extension requested. Therefore, CBTC remains entitled to a day to submit all the requirements prescribed by the Code.”
In support of its ruling, the high court cited section 17 of the Corporation Code that said SEC must give the applicant “reasonable time within which to correct or modify any objectionable portions of the articles or amendments thereof.”
The liberal approach espoused in the CBTC case was recently adopted by the SEC in Resolution No. 222, series of 2017.
In the resolution, corporations similarly situated as CBTC may apply to extend their corporate lives. Of course, the SEC will still have to process the application in due course.
To merit approval, the concerned company must show compliance with the following: (1) intent to continue operations is supported by approvals given by the board of directors and stockholders prior to the expiration of the term, as certified in a written document; (2) the application is filed before the CRMD and all the requirements of the latter are satisfied; and (3) all appropriate filing fees are paid.
This liberal approach is not unexpected. It is consistent with the SEC’s thrust to adopt policies that promote ease of doing business in the country.
Toward this end, the SEC has even proposed perpetual terms for corporations as part of its effort to modernize the Corporation Code.
This business-friendly approach is welcome news to the business community. After all, businesses are the engines of the economy and they deserve support from our government agencies like the SEC.
The new SEC policy is also a step in the right direction toward a more proinvestor environment. At the very least, I hope that it will earn for the country positive points in global surveys on investor protection.