MAP Insights
By Teresita J. Herbosa
Promoting Corporate Governance under the Revised Corporation Code — 3
(Third of three parts)
This is an abridged version of the talk I recently gave to the MAP Corporate Governance Committee officers and members on the Revised Corporation Code which was enacted into law on Feb. 20, 2019.
MORE TRANSPARENCY
There are many new provisions in the Code that are for more transparency, a component of good corporate governance. Sec. 73 specifies the books and records that must be kept at the principal office:
1. Articles and by laws and amendments;
2. Current ownership structure and voting rights of the corporation, lists of stockholders or members, group structures, intra-group relations, ownership data and beneficial ownership;
3. Names and addresses of all the members of the board of directors and trustees and executive officers;
4. A record of all business transactions;
5. A record of the resolutions of the board of directors or trustees and of the stockholders or members;
6. Copies of the latest reportorial requirements submitted to the SEC;
7. Minutes of all meetings of the stockholders or members, directors or trustees reiterating the contents as were set forth in Sec. 74 of the old Code: a.) time and place of meeting, b.) how it was authorized, c.) notice given, d.) the agenda, e.) whether it was regular or special, f.) its object if special, g.) those present and absent, h.) every act done or ordered done at the meeting, i.) upon demand of a director, trustee, stockholder or member, when any director, officer stockholder or member entered or left the meeting, j.) upon similar demand, the yeas and nays on any motion or proposition and a record thereof carefully made, k.) the protests of a director, trust, stockholder or member on any action or proposed action must be recorded in full upon their demand.
Moreover, Sec. 49 enumerates in detail what every board shall endeavor to present to stockholders or members at each regular meeting:
a.) Minutes of the most recent regular meeting including among others: voting and vote tabulation procedures; questions from the floor; matters discussed and resolutions reached; record of voting results for each agenda item; list of directors, officers and stockholders who attended meeting; other items SEC may require in compliance with corporate governance standards [note: these are matters added to those required in Sec. 73 or in paragraph (7) above];
b.) Members’ list for nonstock corporations, and for stock corporations the material information on current stockholders and voting rights;
c.) Detailed, descriptive, balanced and comprehensible assessments of the corporation’s performance, which shall include information on any material change in the corporation’s business, strategy, and other affairs;
d.) Financial report; adequacy of internal controls or risk management systems and statement of all external audit and non-audit fees;
e.) Dividend policy, why not given;
f.) Directors or trustees profiles which shall include qualification, relevant experience, length or service in the corporations trainings and continuing education attended and their board representation in other corporations;
g.) A director or trustee attendance report in committee meetings or stockholders and board meetings;
h.) Appraisals and performance reports for the board and criteria and procedure for assessment;
i.) A director or trustee compensation prepared in accordance with code and rules SEC may prescribe;
j.) Director disclosures on self-dealings and related party transactions; and, or,
k.) The profiles of directors nominated or seeking election or reelection.
One of a stockholder’s important rights is the right of inspection, and Sec. 73 has important changes:
1. A representative of the director, trustee, stockholder or members may exercise the right;
2. The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws, such as the rules on trade secrets or processes under RA 8293 IP Code, RA 10173 Data Privacy Act of 2012, RA 8799 SRC and the Rules of Court;
3. Further, a requesting party should be a non-stockholder (or member) of record;
4. A competitor, director or officer, controlling stockholder or otherwise represents the interests of a competitor shall have no right to inspect or demand reproduction;
5. The requesting stockholder, if rejected without cause, may avail of a summary procedure whereby within five days from receipt of a report from the stockholder concerned, the SEC shall conduct a summary investigation and order forthwith the inspection or reproduction.
INVOLUNTARY DISSOLUTION AND FORFEITURE OF CORPORATE ASSETS
Sec. 138 on Involuntary Dissolution now provides the specific grounds for dissolution motu proprio by the SEC or upon verified complaint by any interested party. Sec. 138 (e) is the particular portion which is intended to prevent the corporate vehicle from being used relative to certain criminal activities and impose criminal liability on the corporation itself in accordance with the UNCAC model. A corporation may thus be subject to involuntary dissolution proceeding before the SEC:
a. Upon finding by final judgment that the corporation: 1. was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices act; 2. committed or aided in commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices and its stockholders knew of the same; and, 3. repeated and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers or employees.
Take note — if the corporation is ordered dissolved by final judgment under paragraph (e), its assets, after payment of its liabilities, shall, upon petition by SEC with the appropriate court, be forfeited in favor of the national government without prejudice to the rights of innocent stockholders and employees for services rendered and to the application of other penalty or sanction under the Code or other laws.
MORE ENFORCEMENT POWERS FOR THE SEC
Some of the new enforcement powers of the SEC are also found in the Securities Regulation Code:
1. Conduct investigation and prosecute offenders;
2. Administer oaths;
3. Enjoin, prevent violations through the issuance of a cease and desist order (CDO): a. upon reasonable basis to believe a person has violated or about to violate the Code, rule, regulation or order of the SEC and; b. ex parte to enjoin an act or practice which is fraudulent, can be reasonably expected to cause significant, imminent and irreparable danger or injury to public safety or welfare;
4. Cite a person in contempt;
5. Exercise its visitorial power to examine and inspect records, regulate and supervise activities, enforce compliance and impose sanctions over all corporations.
Sec. 158 provides the administrative sanctions imposable by the SEC depending on extent of participation and seriousness of violation: a. fine from P5,000 to P2 million and not more than P1,000 for each day of continuing violation but in no case to exceed P2 million; b. permanent CDO; c. suspension or revocation of the certificate of incorporation; and, d. dissolution and forfeiture of assets under the conditions in Sec 138 (e).
The following new provisions refer to specific criminal violations and their corresponding penalties which the court, upon conviction, may impose these fines:
• Sec. 159, unauthorized use of corporate name, P10,000 to P200,000
• Sec. 160, violation of director’s (trustee’s, officer’s) disqualification provision, P10,000 to P200,000 at discretion of court and permanent disqualification. Where violation is injurious or detrimental to public, P20,000 to P400,000 plus the director, trustee or officer may be permanently disqualified.
• Sec. 161, violation of duty to maintain records, allow their inspection or reproduction, P10,000 to P200,000 if injurious or detrimental to public, P20,000 to P400,000 to be imposed on the corporation or those responsible.
• Sec. 162, willful certification of incomplete, inaccurate, false or misleading statements or reports, P20,000 to P200,000. When wrongful certification is injurious or detrimental to the public, the auditor or responsible person may also be punished with P40,000 to P400,000. Any person responsible is liable.
• Sec. 163, an independent auditor, in collusion with directors or representatives of the corporation, certifies financial statements despite its incompleteness or inaccuracy, failure to give a fair and accurate presentation of condition, despite containing false or misleading statements, P80,000 to P500,000. When the statement or report is fraudulent, has the effect of causing injury to the general public, the independent auditor or responsible officer, P100,000 to P600,000.
• Sec. 164, obtaining corporate registration through fraud, P200,000 to P2 million if injurious or detrimental to public, P400,000 to P5 million will be imposed on those responsible for the formation of the corporation and those who assisted directly or indirectly therein.
• Sec. 165, fraudulent conduct of business, P200,000 to P2 million, if injurious or detrimental to the public, P400,000 to P5 million will be imposed on the corporation.
• Sec. 166, acting as intermediaries for graft and corrupt practices makes the corporation liable for P100,000 to P5 million; if any director, officer, employee, agent or representative engaged in graft and corrupt practices, the corporation’s failure to install: (a) safeguards for the transparent and lawful delivery of services, and, (b) policies, code of ethics and procedures against graft and corruption shall be prima facie evidence of corporate liability.
• Sec. 167, engaging intermediaries for graft and corrupt practices, the corporation is liable P100,000 to P1,000,000
• Sec. 168, tolerating graft and corrupt practices — the director, trustee, or officer who knowingly fails to sanction, report or file the appropriate action with proper agencies, allows or tolerates the graft and corrupt practices or fraudulent acts by its directors, trustees, officers or employees, P500,000 to P1 million.
• Sec. 169, retaliation against whistleblowers — any person who knowingly and with intent to retaliate, commits acts detrimental to a whistleblower, P100,000 to P1,000,000
• Sec 170, other violations of the Code; separate liability of P10,000 to P1 million; if committed by the corporation, after notice and hearing may be dissolved in appropriate proceedings before SEC which dissolution will not preclude appropriate action against director, trustee or officer responsible
Liability for any of the foregoing offenses shall be separate from any other administrative, civil or criminal liability under the Code and other laws. While imprisonment is not a penalty, criminal charges may be brought for falsification, use of a falsified document and other penal offenses or statutory offenses like violation of the anti-graft and corrupt practices act, tax evasion, smuggling, money laundering, that have imprisonment as penalty.
While the foregoing provisions may single out the corporation as the person liable, directors, officers, employees, and even third persons may also be prosecuted and imposed the same fines as penalties under Sections 171 and 172.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP)
Atty. Teresita “Tess” J. Herbosa is of Counsel of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) and former Chair of the Securities and Exchange Commission (SEC).
