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DISSOLUTION OF A CORPORATION MAIN MODES OF DISSOLUTION

1.VOLUNTARY
Publication is needed and SEC will require to get a tax clearance
from the BIR and the stockholders will be required to sign an BY FILING THE PROPER PAPERS W/ SEC .NO HEARING IS REQUIRED IF
undertaking that they will answer for the claim of the creditors to THERE ARE NO CREDITORS AFFECTED.
the extent of the liquidating dividends they will receive.

Once dissolution is approved, the Board of Directors is dissolved a.where no creditors are affected
and so the corporation have either an assignee dissolution or a In all the methods of voluntary dissolution, you need a resolution
receiver dissolution. approved by a majority of directors and a resolution approved by at
least 2/3 of the stockholders In Section 118, where no creditors are
Effect of dissolution is that there is a transfer of legal titles of affected the directors and the stockholders pass the resolution
property to stockholder, and corporation exist for 3yr period for it dissolving the corporation and that will be filed in the SEC for
to liquidate (it is not anymore conducting business since no Board approval. In a case where a suit was filed and the corporation said,
of Directors anymore) however, with regard cases filed by we have already been dissolved and they submitted a board
Corporation for sum of money, it would still goes on and if it goes resolution, the SC held that it is not enough to dissolve a
beyond 3 years, the lawyer of corporation becomes the assignee corporation.
for the successful recovery of the money.
b.where creditors are affected
Then you can have a voluntary dissolution. This could be done by Here the board and the stockholders will approve the dissolution
filing a quo warranto case under rule 66 of the ROC on the ground but a petition will be filed signed by the majority of the directors
mentioned there or a corporation can be dissolved for certain and verified by the president, secretary or one of the directors
violation of the corporation code as mentioned in the Corporation which will indicate the claims of creditors. That will be set for
Code or PD 902-A and also a minority stockholder may file a hearing and not less than thirty (30) days nor more than sixty (60)
petition to dissolve the corporation where the majority is days after the entry of the issuance of the order and a copy of the
mismanaging the assets of the corporation, dissipating its assets, order will be published once a week for 3 consecutive weeks in a
and fraudulently disposing of its properties and a receiver may be newspaper of general circulation and that will also be posted for
appointed in an action for involuntary dissolution. three weeks in three public places like the bulletin board of a
municipal hall, post office, the plaza and then the SEC will set that
for hearing and determine w/n the corporation should be dissolved

c.by shortening corporate term


this is the simplest and fastest way of dissolving the corporation
voluntarily like when Ford Philippines decided to close its
subsidiary they simply amended the articles of corporation that the
corporation will exist until December 31, 1978.

Board of Directors cannot pass a resolution to extend


corporate life after the corporation was dissolved since:

1.corporate life terminates , so there is no more life to extend


2.INVOLUNTARY
2.if board is given 3 years grace period after its dissolution to wind Upon verified complaint filed w/ SEC
up and liquidate, that grace period can be utilized for nothing more
than a liquidation. Board cannot pass resolution not germane to Grounds:
the liquidation process. a.continuous inactivity of the corporation for a period of at
least 5 years.
3.even if extension was done by the board before its dissolution, b.commission by the corporation of ultra vires/illegal acts
the extension and filing of an amendment to the articles of c.corporation was illegally organized
incorporation need the approval of stockholders holding atleast 2/3 d.serious dissension in the corporation
of the outstanding capital stock of the corporation.
The Court said the employees of a railroad are required to wear
uniform indicating their positions in their nameplate, now you
mean tell me if one employee did not have such a nameplate you
are going to dissolve a corporation because that is a legal
requirement, it has to be a serious violation.

2006 NOTES:FULL LIQUIDATION CAN BE EFFECTED ONLY AFTER 3 But in one case, the SC dissolved a corporation which was
YEARS. engaging in banking without authorization from the monetary
board, it was accepting deposits from the public, the court
considered that as a serious violation.

When a minority stockholder files a case and asks to dissolve the


corporation, the court said that that is a harsh remedy unless the
situation is really beyond redemption you should not impose that
remedy.
WINDING UP OR LIQUIDATION Partition of Properties:

1.physical division or partition based on the proportion of values of


Liquidation means the winding up of the affairs of the corporation their stockholdings
by getting in the assets,settling with creditors and debtors and
apportioning the amount of profit and loss. 2.selling the property to a third person and dividing the proceeds
among themselves in proportion to their stockholdings.
Liquidation ,in corporation law, connotes a winding up or settling
with creditors and debtors. It is the winding up of a corporation so 3.after determination of value of property, by assigning or
that assets are distributed to those entitled to receive them. It is the transferring the property to one stockholder with the obligation on
process of reducing assets to cash, discharging liabilities and the part of said stockholder to pay the other stockholders the
dividing surplus or loss. amounts in proportion to value of their stockholdings.

2005 notes: On the opposite end of the spectrum, it is rehabilitation


which connoted a reopening or reorganization .Rehabilitation
contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position
of successful operation and solvency.

2005 notes: lawyer who handled the case in the trial court may be
considered as trustee for the dissolved corporation, with respect to
Methods of Winding Up: the matter in litigation only ,although no appointment as such was
extended to him.
1.upon voluntary dissolution of a corporation ,the court may direct
such disposition of its assets as justice requires and may appoint a
receiver to collect such assets and pay the debts of the corporation 2005 notes:trial court has jurisdiction to order a receiver of a
(Rule 104 of Rules of Court) corporation under receivership to do any act so as to protect and
preserve its properties and to that end it may order the secretary of
2.corporation whose corporate existence is terminated, shall the corporation to do an act within the internal affairs of the
nevertheless be continued as a body corporate for 3 years after the corporation aimed at protecting the interest of the
time when it would have been so dissolved for the purpose of stockholders(Hodges v Lezama)
prosecuting and defending suits by or against it and of enabling it
gradually to settle and close its affairs ,to dispose of and convey its 2005 notes: at any time during the said 3 years(for winding up)
property and to divide its capital stock but not for the purpose of said corporation is authorized and empowered to convey all of its
continuing the business for which it was established. properties to the trustee for the benefit of stockholders, creditors
and other interested persons.The trustee holds legal title to these
3.by vitue of which the corporation, within 3 year period just assets but beneficial interest remains with the stockholders and
mentioned, is authorized and empowered to convey all of its creditors.
property to a trustee for the benefit of members, stockholders
,creditors and others interested.

Take over of Assets of a Dissolved Corporation

The corporation has three years after it should have been dissolved Corporation taking over the assets of a dissolved corporation
for the purpose of winding up its affairs. The SEC has said the becomes liable for the obligations of the dissolved corporation
three year period should be counted from the time the dissolution ,even if the charter of a corporation taking over limits its liabilities
was approved by the SEC even if the directors and stockholders with respect to obligations of the dissolved corporation (Gonzales
pass a resolution dissolving the corporation that is not effective v SRA)
until it has been approved by the SEC.
How assets distributed:
For three years , the corporation will continue to exist it will no
longer be a going concern but only for the purpose of winding up 1.creditors starting with the preferred and continuing with all
that is why the SC has said that the corporation cannot for example common if the assets can pay all
renew its contract of lease because it is no longer a going concern.
During the three year period, it should devote its time prosecuting 2.refund of the par value of stocks of preferred stockholders
and defending law suits, winding up its affairs disposing its
properties so they can be used to pay off its creditors and to 3.refund of the par value to common stockholders
distribute balance to the stockholders.
4.if assets still remain, then they are proportionately distributed to
2005 notes:As such, cases can still be pursued even beyond the all stockholders ,common or preferred.
date when its corporate existence is terminated for a period of 3
years. As such ,prosecution of cases within the 3 year period of There can be no distribution of assets to stockholders without first
liquidation is allowed. paying the creditors.

Assets distributable to any creditor ,stockholder or member who is


unknown or who cannot be located shall be escheated to the city or
municipality where such assets are located (Sec 122)
Other Modes of Dissolution:

1.expiration of term (involuntary)

2.shortening of corporate term

3.failure to organize and commence business within 2 yrs from


date of issuance of certificate of incorporation

The effect of non use of corporate charter and continouos


inoperation of the corporation within 2 yrs from the date of its
incorporation, its corporate powers shall cease and the corporation
shall be deemed dissolved (not automatically since there should be
a notice and hearing)

However, if a corporation has commenced the transaction of its


business but subsequently becomes continouosly inoperative for a
period of at least 5 yrs, the same shall be a ground for the
suspension or revocation of its corporate franchise or certificate of
incorporation.

2006 notes:this is not applicable if failure to organize or commence


is due to causes beyond the control of the corporation as may be
determined by SEC.

4.legislative dissolution
INSOLVENCY, REHABILITATION & DISSOLUTION REHABILITATION

Objective is for the approval of the plan of rehabilitation and its


implementation.

If court finds it adequate that a plan of rehabilitation must be


carried out, then it orders that no creditors can touch property of
INSOLVENCY (BANKRUPTCY) the corporation (even those already foreclose by creditors and
applied shall be stop ,as such, even secured creditors are covered
Objective is to discharge a corporation from debt since there is still by suspension of payments---- so there is automatic stay)
intention that corporation can still continue its transactions
Once plan of rehabilitation is approved, it is subject to its
implementation / execution.

PROCEEDINGS INVOLVED:

End Result: Corporation continues to carry on its business.

1.suspension of payments 2006 notes: Aside from plan of rehabilitation, the corporation may
also propose for an interim plan.
Occurs when a corporation has sufficient assets but latter do not
mature at same time with the debt.
As such ,it operates whereby the amount of debt is not reduced,
only the payment is postponed

However, it must involved publication and authentication of debts


and that after debts are proven, the plan of repayment are approve
by the regular court.

2.voluntary insolvency or involuntary insolvency


DISSOLUTION

In this scenario, the corporation or the person do not have Objective is to liquidate since corporation is already dead(read the
sufficient assets to meets its obligation. corporation lectures by 4blue 95).

Since the liabilities are greater than assets, then the law followed is In voluntary dissolution ,it is the debtor who files it on grounds of
the concurrence and preference of credit. fraud or corporate officers mismanage the corporation resulting to
depletion of its assets.
But there must be publication for 60 days.
As such, if liabilities is greater than assets, it can be a ground for
insolvency or the creditors may propose for rehabilitation.

In voluntary insolvency, it is the debtor who filed, while in


involuntary insolvency, it is the creditiors who filed such
proceeding (since the debtor might abscond, or remove a security
from place where it should belike transferring a car from Manila
to Davao, or that debtor is out of country and no intention to
return).

After applying the payment in accordance with the concurrence of


credit, the natural debtor is discharge, however, if the debtor is a
corporation it is not discharge.

2006 notes:if after discharge, you win lotto, la na habol ang mga
creditors sa yo