SEC relaxes policy against

delinquent corporations
Amicus
Curiae
Posted on October 21, 2015 Maria
Angeline L.
With the goal of promoting transparency and ensuring Tayag
accountability among companies, businesses are enjoined under the
Corporation Code to keep books and records of all their business transactions and
to file annual reports and audited financial statements with the Securities and
Exchange Commission (SEC). Any corporation who fails to submit these reportorial
requirements runs the risk of being subjected to penalties/fines and, eventually,
of losing its corporate registration.
Sections 26 and 141 of the Corporation Code enumerate some of the reports which Philippine
registered corporations are required to submit to the SEC. Section 26 mandates the filing of reports
involving the election of directors, trustees and officers within 30 days after the election which takes
the form of the General Information Sheet. On the other hand, Section 141 requires a corporation to
submit an annual report of its operations together with a financial statement of its assets and
liabilities.

In the past, the SEC has ordered the revocation of franchises or certificates of registration of
corporations which were delinquent in filing the required reports. The SEC finds basis on its authority
to suspend or revoke, after notice and hearing, the franchise or certificate of registration of
corporations which fail to file the required reports within the prescribed period from the express
powers granted to it under Presidential Decree No. 902-A.

In SEC-OGC Opinion No. 09-24, the SEC said that once a revocation order is issued, the subject
corporation’s existence is terminated at that very instance. Consequently, the subject corporation
immediately loses its corporate existence and can no longer operate as such. Following the
corporation’s dissolution, the SEC further explained that such corporation must undergo liquidation
and extinguish all legal relations existing in respect of its corporate enterprise.

Considering that the order of revocation affects the business operations and the properties held by the
subject corporation, the imposition of such order has been viewed by many as too stiff a penalty
especially when the non-compliance of a corporation is brought by mere inadvertence or the lack of
sufficient knowledge by the corporation’s officers of the need to comply with certain reportorial
requirements. To avoid the negative impact of such penalty, some covered corporations resorted to
applying for the re-registration of the same corporation which ultimately presented more problems
than solutions to the affected corporations.

In order to address the foregoing and to balance the effects of an order of revocation in harmony with
the SEC’s proposal to allow the perpetual term of corporations, the SEC En Banc deemed it proper to
relax its policy against these erring corporations by resorting to issuing an order of suspension instead
of an order of revocation. This policy gives delinquent corporations, which are willing to update their
reports and settle the corresponding penalties, sufficient opportunity to correct their mistakes or
omissions rather than immediately terminate the existence of such corporations. It can be said that
this move of the SEC is more consistent with its intention to promote ease of doing business in the
country and to create a more favorable environment for start-up companies.

Under the new policy, the SEC shall issue an order of suspension against a delinquent corporation
which failed to comply with the reportorial requirements for five consecutive years. The order of
suspension together with the list of delinquent corporations shall be published in a newspaper of
general circulation. Thereafter, the delinquent corporation is given 30 days from the date of
publication to comply with the reportorial requirements. However, if the delinquent corporation still
fails to comply with the reportorial requirements within the prescribed period, the SEC shall enter a
suspended status in said corporation’s records which can be viewed online through the SEC Web site.
The order of suspension shall remain effective until the submission by the corporation of its latest
reports and its payment of the corresponding fines and penalties.

If a corporation has a suspended status in the SEC’s database, such corporation shall not be issued a
Certificate of No Derogatory Information or what is commonly called a Certificate of Good Standing.
Moreover, any application for amendment filed by such corporation shall be stalled until the
suspension has been lifted. As a remedy, a delinquent corporation with suspended status may file a
petition to lift the order of suspension supported by the latest reports of the corporation. It must be
noted that such remedy cannot be availed of by a corporation whose franchise or certificate of
registration has already been revoked or whose corporate term has already expired.

While the SEC appears to have relaxed its policy against delinquent corporations, this development
should not be construed as leniency in enforcing the law. As the SEC clarified, the non-filing of reports
shall not be treated as petty infraction because these reports are necessary to maintain the integrity
of the country’s corporate database which is relied upon by the public in making investment decisions.

With this policy development, the SEC may impose sanctions against erring corporations, without
unduly burdening the same by an order of revocation. In this regard, the SEC hopes that the
corporations will be more diligent in complying with the reportorial requirements.

Maria Angeline L. Tayag is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices.