VOLUNTARY DISSOLUTION

Which has jurisdiction over dissolution of corporations? SEC or the Courts?

Under the doctrine of primary jurisdiction, if a case is such that its determination
requires the expertise, specialized training and knowledge of the proper administrative
bodies, relief must first be obtained in an administrative proceeding before a remedy is
supplied by the courts even if the matter may well be within their proper jurisdiction.

The question on jurisdiction was also answered in the case of CONSUELO

METAL CORPORATION vs. PLANTERS DEVELOPMENT BANK G.R. No. 152580,
June 26, 2008. The Supreme Court ruled that a SEC has jurisdiction to order the
dissolution of a corporation but does not include jurisdiction over the liquidation of the
corporation now pertains to the appropriate regional trial courts.

Under the Corporation Code of the Philippines, dissolution of a corporation could

be involuntary upon Securities and Exchange Commissions (SEC) complaint coupled
with a prescribed process of notice and hearing or voluntary based on application of the
corporation with the SEC.

Voluntary dissolution is an action taken by shareholders, incorporators or initial

directors to dissolve a corporation. The manner of voluntary dissolution of corporation in
the Philippines comes in a number of ways as follows:

1. Voluntary dissolution where no creditors are affected;

2. Voluntary dissolution where creditors are affected;
3. Dissolution by shortening corporate term.

Voluntary Dissolution where no creditors are affected

Under section 118 of the Corporation Code, if dissolution of a corporation does

not prejudice the rights of any creditor having a claim against it, dissolution may be
effected by:

a. Majority vote of the board of directors or trustees; and

b.1 A resolution duly adopted by the affirmative vote of the stockholders owning
at least two thirds (2/3) of the outstanding capital stock or

b.2 At least two thirds (2/3) of the members of a meeting to be held upon call of
the directors or trustees after publication of the notice of time, place and
object of the meeting for three (3) consecutive weeks in a newspaper
published in the place where the principal office of the said corporation is
located. If no newspaper is published in such place, then in a newspaper of
general circulation in the Philippines, after sending such notice to each
stockholder or member either by registered mail or by personal delivery at
least thirty (30) days prior to said meeting. 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. The Securities
and Exchange Commission shall thereupon issue the certificate of
dissolution.

Take note that a mere resolution by the board of directors or trustees and
by the stockholders or members of a corporation to dissolve the same does not
have the effect of dissolution. (Daguhoy Enterprises, Inc. vs. Ponce, 96 Phil. 15)
There must be strict compliance with the requirements provided by law because
corporations are only deemed dissolved based on the circumstances under
sections 115, 118, 119 and 120:

a. Under section 115, upon approval of the verified declaration of the

dissolution;
b. Under section 118, upon issuance of the certificate of dissolution;
c. Under section 119, when a judgment is rendered dissolving;
d. Under section 120, upon the expiration of the shortened term.

The intent of the stockholders voting for dissolution is immaterial.

However, the right of the stockholders to voluntarily dissolve the corporation by
vote of a prescribed percentage is not absolute. The minority stockholders have
the right to oppose the dissolution if it clearly appears that the action of the
stockholders in voting for dissolution is in bad faith, or that the resolution for
dissolution has been superinduced by fraud or undue influence, or it is clearly
established that the resolution was not taken for the benefit of the stockholders or
any of them and causing a destruction or sacrifice of their pecuniary interests or
holdings, giving a clear indication of a breach of trust, such dissolution may be
restrained.

Voluntary Dissolution where creditors are affected

This situation happens when the consent of the creditors to dissolve the
corporation cannot be obtained. In such case, the petition for dissolution now must be
filed with the SEC which shall render judgment after due notice and hearing in
accordance with the law. Under section 119 of the Corporation code, there must be:

a. Petition for dissolution to be filed with the Securities and Exchange

Commission (SEC).
- The petition shall be signed by a majority of the Board or other officers
having management, verified by President, Secretary or one of its
directors or trustees.

b. The petition will set forth: (a) all claims and demands against it (b) that
dissolution was resolved upon the affirmative vote of 2/3 of outstanding capital
stock or members at a duly called meeting. If the SEC finds the petition to be
in proper form, an order will be issued fixing date on or before which
 objections may be made, which date shall not be less than 30 days nor more
than 60 days after the entry of the order. Publication will also required once a
week for 3 weeks and posted in 3 public places. 5 days after the date fixed,
the SEC will try all issues, objections and if all material allegations are true.

c. The dissolution takes effect upon judgment directing disposition of assets and
payment of debts, and if required, appoint a receiver.

Dissolution by shortening corporate term

Shortening the corporate term is the most common way of dissolving a domestic
corporation in the Philippines. It is initiated by a majority vote of the Board and subject
to the affirmative vote of 2/3 of the outstanding capital stock or members, followed by
the submission to the SEC of the amended articles duly certified by the secretary and a
majority of the Board together with an affidavit of publication. Upon approval of the SEC
of the amended articles of the incorporation with the shortened corporate term, the
corporation shall be deemed dissolved without any further proceedings.