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DISSOLUTION

Methods of dissolution:
a. Expiration of corporate term
b. Voluntary dissolution
a) Where no creditors are affected
b) Where the creditors are affected
c) Shortening of corporate term
c. Involuntary dissolution

May a corporate term be extended earlier than 5 years?


General rule: No, it must not be earlier than 5 years
Exception: Yes, if there are justifiable reasons as may be determined by SEC (Sec. 11)

May a corporation exist even after its dissolution?


Yes, but only for 3 years for the purpose of:
a. Prosecuting and defending suits by or against it; and
b. Enabling it gradually to settle and close its affairs to dispose of and convey its property
and to divide its assets (PNB v. CFI)

Where no creditors are affected

Are the requirements under Sec. 118 mandatory?


Yes, compliance with the requirements and formalities prescribed above is mandatory such that
failure to comply therewith will have no effect on the legal existence of the corporation.

Will dissolution be effective and valid by a mere resolution of the Board of Directors and
stockholders?
No, a mere resolution by the stockholders or the Board of Directors of a corporation to dissolve
the same does not affect the dissolution but that some other steps, administrative or judicial, is
necessary (Daguhoy Enterprises v. Ponce)

How may a State dissolve a corporation?


Through a law providing for its term of existence. Since it is the State which grants its right to
exist, it is only though a State which can allow the termination of its existence; without the
States consent, it will not be dissolved.
Where the creditors are affected

Are the requirements under Sec. 119 also mandatory?


Yes

Is the appointment of a receiver mandatory?


No, it is merely permissive or discretionary on the part of the court. The Code uses the word
may hence, the law intended to let the shareholders have the control of the assets of the
corporation upon dissolution and winding up. The directors may also undertake liquidation and
winding up of its corporate affairs and sound business judgment on how they will wind up.

Shortening of corporate term

Since this is a special amendment, what are the requirements?


a. The vote must be cast at a duly constituted meeting, unlike an ordinary amendment which
allows written assent in determining voting requirement
b. There must be SEC approval hence, automatic approval if not acted upon by SEC within
6 months shall not apply

Involuntary dissolution

NOTE:
Since dissolution is tantamount to imposition of death penalty, relief of dissolution will only be
awarded if there is no other remedy available and it will not be allowed where the rights of the
stockholders can be, or are, protected in some other way (Republic v. Bisaya Land Trans. Co.
Inc.)

May a court initiate dissolution of a corporation on its own?


Yes, involuntary dissolution is commenced through (a) verified complaint or (b) motu proprio

What are the grounds for involuntary dissolution?


a. Those provided for in Sec. 6, PD 902-A
b. Those provided for in other special laws
c. Corporation Code:
a) Violation of any provision (Sec. 144)
b) In case of deadlock in a close corporation (Sec. 105)
c) In a close corporation, any acts of directors, officers or those in control of the
corporation which is illegal or fraudulent or dishonest or oppressive or unfairly
prejudicial to the corporation or any stockholder or whenever corporate assets are
being misapplied or wasted (supra.)
Who has jurisdiction to hear dissolution cases?
The courts and SEC have concurrent jurisdiction through the Special Commercial Courts (Sec.
5[m], RA 8799)

May a corporation ask for dissolution of the corporation when there is no prejudice to the
general public?
Yes, in a close corporation, a petition for the dissolution of the corporation may be instituted by
any one individual shareholder on the ground even by mere dishonesty

NOTE:
With the inclusion of the word "dishonest" in Sec. 105, it follows that mere dishonesty is a
ground in a close corporation.

Can minority stockholders dissolve a corporation?


General rule: No, they cannot use and demand its dissolution
Exception: Yes, if they were unable to obtain redress and protection of their rights within the
corporation (Financing Corp. of the Philippines v. Teodoro)

After dissolution, what's next?


Liquidation and winding up should follow

NOTE:
The 3-year period is not absolute

Methods of liquidation:
a. By the corporation itself through the Board of Directors
b. By a trustee appointed by the corporation
c. By appointment of a receiver

By the corporation itself through the Board of Directors

If this method is resorted to, the board will only have a period of 3 years to finish its task of
liquidation. Claims for or against the corporate entity not filed within the period will become
unenforceable as there exist no corporate entity against which they can be enforced. Actions
pending for or against the corporation when the 3 year period expires, are abated since after the
period, the corporation ceases for all intents and purposes and is no longer capable of suing or
being sued.
By a trustee appointed by the corporation

If this method is used, the three year period limitation imposed by section 122 will not apply
provided the designation of the trustee is made within that period.

Should the corporation, therefore, finds it difficult to finish its liquidation, it may, at any time
during the three year period, convey all its assets and receivables to a trustee to prosecute and
defend suits by or against the corporation begun before the expiration of said period (National
Abaca other Fibers Co. v. Pore)

The counsel who prosecuted and defended the interest of the corporation may be considered as a
trustee at least with respect to the matter in litigation only (Gelano v. CA)

By appointment of a receiver

A receiver may be appointed by the proper forum on petition or motu proprio upon the
dissolution of the corporation. If a receiver is appointed, the 3-year period fixed by law within
which to complete the task of liquidation will not likewise apply because the dissolved
corporation is substituted by the receiver who may sue or be sued even after that period.

When a corporation is dissolved and the liquidation of the assets is placed in the hands of
receiver or assignee, the period of 3 years prescribed by law is not applicable and the assignee
may institute all actions leading to the liquidation of the corporation even after the expiration of
3 years (Sumera v. Valencia)

If there is a trustee, assignee or liquidator, it can continue prosecuting suit even beyond the 3
year period fixed by law because he becomes the legal owner of the rights, assets and properties
conveyed to him (Board of Liquidators v. Kalaw)

May a corporation that is already dissolved, transfer and assign its assets and properties to
a new corporation which will continue the business of the dissolved one?
Yes, provided all the stockholders gave their consent (Chung Ka Bio v. IAC)

During the three year period granted to a corporation to liquidate or wind up its affairs, the BOD
is not normally permitted to undertake any activity outside the usual liquidation of the
corporation. There is, however, nothing to prevent the stockholders from conveying their
respective shareholdings toward the creation of a new corporation to continue the business of the
old. This is because winding up is the sole activity of the dissolved corporation that does not
intend to incorporate a new. If it does, however, it is not unlawful for the old board of directors
to negotiate and transfer the assets of the dissolved corporation to the new corporation intended
to be created as long as the stockholders have given their consent (Republic v. Marsman
Development Company). Winding up is the sole activity of a dissolved corporation that does not
intend to incorporate anew. If it does, however, it is not unlawful for the old board of directors to
negotiate and transfer the assets of the dissolved corporation to the new corporation intended to
be created as long as the stockholders have given their consent (Chung Ka Bio v. IAC)

REMINDERS:
1. Under the present set-up of law, any stockholder or member of a corporation can institute
a dissolution proceeding against his own corporation before the proper forum
2. Special Commercial Courts, shall hear and decide intra-corporate disputes
3. Actions pending for or against the corporation when the 3 year period expires, are abated
since after that period, the corporation ceases for all intents and purposes and is no longer
capable of suing or being sued (National Abaca other Fibers Co. v. Pore)