SEC Opinion No. 22-06: Liquidation

On 10 May 2022, the Securities and Exchange Commission (“SEC”) issued SEC-OGC Opinion No. 22-06, in response to the request for opinion on various issues on the liquidation of the lone asset of Ngo Lok Foundry, Inc. (“NLFI”), whose corporate charter was revoked by the SEC for failure to comply with reportorial requirements.

NLFI claimed that it has no creditor, and its lone asset is a parcel of land. Out of the nine (9) directors of NLFI, only six (6) are still living. The opinion of the SEC was sought on the following matters:

1. Whether or not NLFI may still liquidate and dispose of its lone asset despite the lapse of more than three (3) years since the revocation of its corporate charter;
2. Whether or not the Board of Director of NLFI or persons appointed by the Board in a family constituted meeting may act as trustees by implication and liquidate the lone asset of NLFI;
3. Whether or not the presence of 5 or 6 living directors of NLFI is sufficient to form a quorum in a meeting convened for the purpose of liquidation;
4. Whether or not the vote of majority of directors in a meeting with quorum is sufficient to settle all matters involving the liquidation of the lone asset of NLFI.

The SEC cited Section 139 of the Revised Corporation Code, which provides, in part, that every corporation whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless remain as a body corporate for 3 years after the effective date of dissolution, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, dispose of and convey its property, and distribute its assets.  

The SEC has previously opined that this section means that after the expiration of the three (3) year winding-up period, pending actions by or against the dissolved corporation are abated. However, it should not be construed to prevent a corporation from pursuing activities which would complete the final liquidation of a dissolved corporation. Such corporation should thus be allowed to continue liquidation but only to complete the process of dissolution. Thus, NLFI can still liquidate and suppose its lone asset despite more than three (3) years since revocation of its corporate charter.
As to the remaining issues, the SEC remarked that the Commission does not, as a matter of settled policy, render categorical opinions on issues which may potentially be litigated in the future in an intra-corporate and or civil case. However, for purposes of information only, the SEC cited a previous opinion which states that if the three (3) year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) itself may be permitted to continue as “trustees” by implication to complete corporate liquidation. It was also declared that when one or more directors die, the surviving trustees take the whole title subject to the trust, and the latter may exercise the powers and futures of the deceased director-trustee. However, in case of death, resignation, inability or refusal to act, of the directors or trustees, or the survivors, the court may appoint trustees to fill the vacancy, upon the application of any person interested.