Revocation of corporations (2)

Previously, I discussed the first scope of SEC Memorandum Circular No. 19, series of 2023, focusing on the guidelines on declaration of revocation of certificate of registration of corporations due to the non-use of corporate charter. In this second part of the article, I will tackle the two remaining scopes of the Circular.

Under the second scope — continuous inoperation — a show cause letter shall be sent by the Commission via registered mail to corporations that have commenced their business but subsequently became inoperative for a period of at least five consecutive years.

According to the Circular, a corporation shall be in continuous inoperation for at least five years when it has ceased to perform acts or works or exercise its functions, rights, and/or objectives necessary or incidental to and in progressive pursuit of the purpose/s for which it was organized.

The show cause letter shall direct the corporation to appear before the Commission at a hearing. Failure to appear thereat and failure to submit any justification why its status should not be delinquent shall cause the Commission to enter a “Delinquent Status” in said corporation’s records after the lapse of such 30-day period. The corporation will also be directed to show cause within 30 days from receipt of the show cause order why its status should not be delinquent, and failure to submit the justification shall, after the lapse of such period, cause the Commission to enter a “Delinquent Status” in the corporation’s records.

A corporation with a delinquent status because of its continuous inoperation for five years may resume operations within two years from receipt of the Order of Delinquency and file a Petition to Lift the Order of Delinquency. The proof of operation within two years from the issuance of the Order of Delinquency, up to the filing of the petition, shall be submitted as one of the requirements.

If the petition is meritorious, the Commission will issue an order lifting the delinquent status. However, if the corporation fails to submit proof of resumption of its operations, the Commission shall enter a “Revoked Status” in its records and issue an order of revocation.

Lastly, under non-filing of reportorial requirements, corporations that have failed to file any of its AFS or GIS three times, consecutively or intermittently, within a period of five years, or corporations vested with public interest which failed to file a director or trustee compensation report, or a director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee for the same period shall be tagged by the Commission in its database with a “Delinquent Status.”

Corporations with Delinquent Status due to non-filing of reportorial requirements shall have a period of six months from receipt of the Order of Delinquency to file a Petition to Lift the Order of Delinquency and to submit, as applicable, its AFS, GIS, director, or trustee compensation report, and director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee. Failure to comply with the requirements within such period, the Commission shall enter a “Revoked Status” in the corporation’s records and issue an order of revocation.

Similar to the first two scopes, a corporation that files a Petition to Lift the Order of Delinquency shall simultaneously undergo monitoring and will be required to pay the corresponding fines and filing fees before its petition is received. The Commission shall issue an order lifting the delinquent status if the petition is meritorious.

Indeed, through the grant of amnesty and the issuance of the aforementioned guidelines, the Commission continues to enhance and organize its database as part of its continuing efforts to nurture a healthy and vibrant corporate sector.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.