THE Securities and Exchange Commission (SEC) has drafted rules on the disqualification and removal of company directors, trustees, and officers to apply Sections 26 and 27 of Republic Act No. 11232 or the Revised Corporation Code (RCC) of the Philippines.
The commission released its draft Memorandum Circular on the Disqualifications of Directors, Trustees, and Officers of Corporations; and the Guidelines on the Procedure for their Removal last week. It is now calling on the public to comment on the proposed guidelines.
In a separate statement, the SEC said the rules and guidelines are “part of its efforts to promote good corporate governance.”
Under Section 26 of the RCC, a person will be disqualified from being a director, trustee, or officer of any corporation if within five years before they were elected or appointed, they were convicted by final judgment on an offense with an imprisonment period over six years.
Section 26 also applies if they were found violating the RCC and the Securities Regulation Code.
They will also be disqualified if they were “found administratively liable” for any fraudulent acts and if a foreign court or a foreign regulatory body holds them liable for misconduct or if they find they liable for violating similar rules.
Meanwhile, Section 27 allows the commission to order the removal of a director or a trustee who was elected despite being disqualified after going through the required procedure.
Under the guidelines, a company may independently remove a director, trustee, and/or officer upon the issuance of a verified complaint or through a formal charge issued by the SEC operating department, which will either be its Company Registration and Monitoring Department or the commission’s extension offices.
“The formal charge shall specify the grounds for removal of the company official, provide a statement of material or relevant facts, and direct the respondent to file a verified answer within 15 days from receipt,” the SEC said.
Meanwhile, a verified complaint may be filed by “a real party in interest” for the removal of any company official. The SEC’s operating department will have to determine if they have the authority to act on the complaint.
“Should the director of the operating department determine that they have authority to act over the complaint, a summons will be issued to the respondent/s,” the commission said.
“A clarificatory hearing may also be conducted for the purpose of ascertaining facts, issues, and other matters necessary for the resolution of the proceedings,” it added.
The SEC will decide if the complaint is worth looking into, conduct its investigation on the allegations against the official, and decide whether it merits a formal charge, or if it should be dismissed for noncompliance with requirements.
“The complaint may also be dismissed if there is a pending action or complaint involving the same subject matter or issues in any court, tribunal, or agency; or if there is insufficient evidence that could establish the factual allegations contained therein,” the commission said.
The proposed guidelines include sanctions for the board of directors or trustees who did not disqualify a member even if they knew about the company official’s grounds for removal or disqualification.
“The removal of a disqualified director shall be without prejudice to other sanctions that the commission may impose on the board of directors or trustees who, with knowledge of the disqualification, failed to remove such director or trustee,” the SEC said.
The rules provide proposed guidelines on pleadings, practice, and procedure before the SEC for the hearing and proceedings of independent administrative actions for removing directors, as well as proceedings leading to the removal of directors, trustees, and officers.
The SEC and the Philippine Competition Commission, under Section 26 of the RCC, are allowed to impose “other qualifications or disqualifications” and the two regulators can also impose new sanctions during its administrative proceedings.
“The decisions, resolutions, or final orders, as well as appeals and motions for reconsideration or execution, shall be rendered by the operating department pursuant to the 2016 SEC Rules of Procedure,” the SEC said.
The SEC may remove a company official as a sanction in its proceedings if it was established that there are grounds for their disqualification during their proceedings.
The commission will order the respondent to show cause why they should not be disqualified from their position or be administratively penalized. They will be given a chance to submit a verified response, which if they fail to do so, results in the imposition of the sanctions “as the evidence presented or established in the course of the proceedings may warrant.”
Aside from the removal company officials, the SEC may also issue a permanent cease-and-desist order and/or impose a fine worth P10,000 to P400,000 for each violation of the commission’s order or any other provision of the RCC.
“For one person corporations whose sole director has been removed, the nominee shall take the place of the single stockholder as director and manage the corporation’s affairs,” the SEC said. — Keren Concepcion G. Valmonte
