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GOCC commission freezes industrial estate’s power to engage in contracts

FIRST CAVITE INDUSTRIAL ESTATE FB PAGE

THE “deactivation” of First Cavite Industrial Estate, Inc. (FCIEI) moved forward with a freeze on its power to enter into contracts or conduct other transactions in preparation for its eventual abolition, the Governance Commission for Government-owned or -controlled corporations (GCG) said.

In Memorandum Order 2021-14 signed Dec. 21, the GCG said the government-run industrial estate has officially entered the “deactivation” stage of its winding-down process.

“In accordance with the declared policy of the state that government assets and resources are used efficiently, the GCG has determined it is in the best interest of the state to deactivate FCIEI in the interim, pending its formal abolition,” according to the order.

In 2015, President Benigno S. Aquino III approved in principle the abolition of the industrial estate provided that it settles liabilities with the Philippine Economic Zone Authority (PEZA).

The GCG in 2016 filed with the Office of the President the agreement between the industrial estate and PEZA to settle payables.

The deactivated organization’s governing board is tasked with preserving the organization’s assets before the estate is finally shut down.

It will no longer be allowed to hire and receive benefits as a government-owned or -controlled corporation. — Jenina P. Ibañez

Taxation of separation pay

The COVID-19 pandemic brought with it an unprecedented and drastic change in how business was conducted. Businesses in many places were deeply affected, and the Philippines were no exception. Some companies managed to survive; others struggled, resorting to cutting costs or laying off employees in order to stay afloat and compete in the new normal. As a result, many employees were involuntarily separated from their employers.

On the other hand, in order to adapt to the new normal, some businesses implemented a work-from-home setup to help ensure business continuity, on top of securing the safety of their employees from contracting the virus. However, not all staff have the capacity to adapt with ease. For some, working in isolation means putting their mental health at stake, all the while finding it difficult to cope with anxiety in the virtual workplace, with many employees admitting that working from home has made their jobs monotonous. As a result, burnout became a problem, leading to resignations by employees concerned for their mental well-being.

Separation involves the payment of separation pay or final pay, depending on whether the employee’s departure was involuntary or voluntary. The most common questions arise in such situations involve the taxability of the payments received and the tax treatment of these payments.

INVOLUNTARY SEPARATION DUE TO RETRENCHMENT
The Supreme Court defined retrenchment as the termination of employment initiated by the employer through no fault of and without prejudice to the employees — dismissing them because of losses in business operations during times of recession, industrial depression, or seasonal fluctuations.

What can a retrenched employee expect from an employer? The Labor Code states that separation pay should be provided if the termination of the employee is due to closure or cessation of the business, installation of labor-saving devices, redundancy, retrenchment, and if the employee has been found suffering from any disease and whose continued employment is prohibited by law or is prejudicial to the employee’s health as well as the health of co-workers.

Is a retrenched employee’s separation pay subject to tax? The Tax Code, as amended, provides that any amount received by employees or their heirs from the employer due to separation because of death, sickness or other physical disability, or for any cause beyond the control of the employee, shall be exempt from tax. However, only the monetized value of unutilized vacation leave credits of 10 days or less is not subject to income tax. Conversely, the cash equivalent of vacation leave credits exceeding 10 days is subject to income tax or fringe benefits tax.

However, since tax exemptions are construed strictly against the taxpayer and liberally in favor of the government, retrenched employees are not automatically entitled to income tax exemptions on the separation pay received. To prove the eligibility for tax exemption of the separation pay, the employer or the employee must secure a Certificate of Tax Exemption (CTE) from Income Tax and Withholding Tax. To facilitate the processing of requests for tax exemption due to retrenchment, the following documents, as prescribed in Revenue Memorandum Order (RMO) No. 66-2016 must be submitted to the Revenue District Office or appropriate Large Taxpayers Office where the employer is registered:

1. Letter request from the Official/Employee (or by the heirs) or the Employer for the exemption of separation benefits from income tax and withholding tax.

2. Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment at least 30 days before the effectivity of termination, specifying the grounds for termination.

3. Board Resolution, in case of a juridical entity, or affidavit to be executed by the owner, in case of a sole proprietor, stating the following:

a. That the retrenchment is reasonably necessary and likely to prevent business losses;

b. That the losses, if already incurred, are not merely de minimis, but substantial, serious, actual, and real, or if only expected, are reasonably imminent with appropriate supporting evidence of said losses;

c. That the retrenchment is made in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and

d. That the selection of employees to be terminated has been made in accordance with fair and reasonable criteria.

VOLUNTARY RESIGNATIONS
We have heard many stories from family and friends about employee resignations due to mental health issues, which raise some concerns on the taxability of the final salary of the resigning employees.

Resigning employees are not entitled to separation pay unless provided for by their employment contracts or as stipulated in the Collective Bargaining Agreement for companies with existing labor unions.

To date, the Bureau of Internal Revenue (BIR) has not yet released issuances clarifying the tax implications of resignations due to mental health. However, since it is the employee who initiates the termination of employment, existing BIR rulings state that the payment of the final salary is still subject to tax since what will be paid to the employees is “earned” over the course of the employment.

We are all paddling in the same ocean, but we are not in the same boat; some are in yachts, some in canoes, some barely swimming, and some need help to stay afloat.  Layoffs and resignations were prevalent this year. Here’s hoping that as the calendar flips, employees get to retain their jobs and businesses will thrive again. Everyone’s health — physical, financial, and mental — matters above all.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

Runell Alvyn V. Sarmiento is a senior in charge from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

Deaths, damage from typhoon continue to climb

NDRRMC.GOV.PH

MORE than a week after typhoon Odette, with international name Rai, swept through central and southern parts of the Philippines, the estimated toll on lives, livelihood and infrastructure continues to climb with reported deaths at 389 and at least P22 billion worth of damage, based on government data as of Monday.

The number of those who died increased by 11 from 378 on Sunday, while 64 were reported missing and 1,146 injured, according to the Dec. 27 update from the National Disaster Risk Reduction and Management Council (NDRRMC).

Displaced persons reached almost 571,000, with more than 50% staying in 1,179 evacuation centers across the affected areas. There were 167,077 totally destroyed houses while almost 340,000 were partially damaged, with an estimated cost of about P28 million.

NDRRMC’s running tally of public infrastructure damage hit P16.7 billion, including roads and bridges, government buildings, schools, and utility service facilities.

President Rodrigo R. Duterte last week declared a state of calamity in six regions affected, namely: Mimaropa, composed of the provinces of Mindoro, Marinduque, Romblon, and Palawan; Western, Central, and Eastern Visayas; Northern Mindanao; and Caraga, which covers the hard-hit areas of Siargao, Dinagat Islands, and Surigao City.

More than 330 affected cities and municipalities have also made localized state of calamity declarations, paving the way for the release of emergency funds under the annual budget.

Government and humanitarian agencies have been working to deliver emergency needs, but officials say the transport and distribution of relief goods, repairs, and restoration of utility and communication services are hampered by logistical challenges, especially in the islands and remote areas.

AGRICULTURE
Agricultural damage stood at P5.32 billion, based on the NDRRMC tally, but the Agriculture department still had a lower count at P4.3 billion as of Monday.

The typhoon, the 15th and strongest to hit the country this year, affected over 70,177 hectares of farmland and 61,581 farmers and fishermen, according to data from the Department of Agriculture (DA).

Production volume loss was estimated at 104,561 metric tons (MT).

“Farmers and fisherfolk are the most vulnerable sector during calamities. It is worth mentioning however that they are the most resilient also. With the right interventions from the government, we will see them back on their feet again,” Bureau of Fisheries and Aquatic Resources National Director Eduardo B. Gongona said in a Viber message.

Of the total, 19,701 fisherfolk were affected, with losses estimated at P1.8 billion, including production, fishing boats and gears, and fishnets.

“Right after the onslaught of the typhoon, we have activated our Operation Bangon: DA-BFAR Relief and Rehab Efforts for the Typhoon-Odette Fishing Communities. We have deployed our floating assets to deliver relief goods and initial boat building materials. The recovery of the affected fishing communities is our utmost priority,” Mr. Gongona said.

Farm losses were reported in the regions of Calabarzon, Mimaropa, Bicol, Western Visayas, Central Visayas, Eastern Visayas, Zamboanga Peninsula, Northern Mindanao, Davao, SOCCSKSARGEN, and the Caraga region.

“We expect to have the comprehensive damage report once the assessment is fully completed. Right now our teams are on the ground trying to cover the affected fishing communities including those with transportation challenges. Good thing we have our floating assets that allow us to reach those areas,” Mr. Gongona said.

For future programs, BFAR is looking into distributing bigger boats that can better withstand inclement weather and allow municipal fisherfolk to go further offshore. 

“We are already heading towards the direction of capacitating our fisherfolk to become more resilient in facing the negative effects of calamities and extreme weather condition,” he said.

BFAR has also collaborated with partner agencies for a more effective alert system during typhoons.

POWER
On power supply, NDRRMC said service has been restored in 154 out of the 284 affected cities and municipalities.

The Department of Energy said they are looking into restoring 50% of power in Bohol by Dec. 31.

As of Dec. 27, the Bohol power barge 104 can provide 32 megawatts (MW) of supply and is expected to add 22 MW more this week, reaching a total 54% power capacity for the province’s 90MW daily demand.

“Please take note that it is a target, not a promise,” Energy Undersecretary Felix William B. Fuentebella said during a virtual press conference.

In Cebu, Aboitiz Power Corp.’s Visayan Electric Co. said on Monday that it is targeting to restore 80% of power to over 98,000 customers within its franchise, mainly in the Metro Cebu area in the central part of the province, by Jan. 10, 2022.

“As of noon on Dec. 27, 21% or 98,321 of the 474,182 affected customers in its franchise service area were already reenergized,” the company said in a statement on Monday.

Aboitiz Power is also targeting 100% completion of service for hospitals and 80% of water pumping stations by Dec. 31.

The Cebu provincial government said four electric utilities have restored service mostly in the northern and central parts of the island. “Much of the south, which was considered the worst hit, continues to have no electricity,” it said.

In a related development, Bayan Muna Rep. Carlos Isagani T. Zarate warned that the government might use a recently-signed executive order to take control of electric cooperatives in typhoon-affected areas.

Executive Order 156, signed by the President on Dec. 10, requires the Energy department to identify inadequately served areas within the franchise areas of distribution utilities.

The lawmaker noted that although the mandate seems harmless and is meant to help unserved or underserved remote areas, it could just be used to take advantage of electric co-ops.

“It may just be a disguised scheme to take over then sell to private power players the electric cooperatives especially with the devastation caused by Odette,” Mr. Zarate said in a statement.

The DoE brushed off such claim. “The statement of Cong. Zarate is speculative,” Energy Assistant Secretary Gerardo D. Erguiza, Jr. told BusinessWorld in a Viber message. “It is not aligned with the rationale and intent of EO 156.”— Marifi S. Jara, Luisa Maria Jacinta C. Jocson, Marielle C. Lucenio, and Jaspearl Emerald G. Tan

Philippines’ 4th case of Omicron variant is passenger from US

PHILIPPINE STAR/ MIGUEL DE GUZMAN

THE PHILIPPINES has detected its fourth case of the heavily mutated Omicron coronavirus variant in a passenger who arrived from the United States, the Health department announced Monday.

A 38-year-old female arrived from the US on Dec. 10 via Philippine Airlines and was quarantined upon arrival, Health Undersecretary Maria Rosario S. Vergeire said an online media briefing.

Three days later, she had throat itchiness and a cold. Specimen was collected on Dec. 14 and was reported positive a day after. She was then placed in an isolation facility and declared asymptomatic after 10 days. She is currently under home quarantine and is scheduled for retesting on Tuesday.

“Detected Omicron cases remain to be among international arrivals but its entry is inevitable,” said Mr. Vergeire. “We want to further delay its entry to ensure that local health systems are ready.”

The Department of Health (DoH) is coordinating with the Bureau of Quarantine and the Department of Transportation to monitor the passenger’s close contacts on the flight, she said.

She also assured the public that all passengers had undergone the required quarantine protocols and followed standard health procedures.

The negative impact of the new variant can be lowered by “vaccinating as fast as we can,” she added, since this will lessen the transmission of the disease.

She also noted that case increases can be prevented through immediate detection, isolation, and contact tracing.

Meanwhile, the second phase of the government’s national vaccination program had exceeded its seven million target by half a million, Cabinet Secretary and Acting Presidential Spokesperson Karlo Alexei B. Nograles said in a statement on Monday.

The government is aiming to have 54 million fully vaccinated individuals by the end of the year. Latest data show there were 47.1 million who have received two doses.

National Task Force Against COVID-19 Chief Implementer Secretary Carlito G. Galvez, Jr., meanwhile, assured that there are enough vaccine supplies to achieve the government’s target to fully vaccinate 77 million Filipinos by the first quarter of 2022.

The DoH reported 318 coronavirus infections on Monday, bringing the total to 2.84 million.

The death toll hit 51,211 after 11 more patients died, while recoveries increased by 255 to 2.78 million, it said in a bulletin.

There were 9,579 active cases, 445 of which did not show symptoms, 3,644 were mild, 3,339 were moderate, 1,777 were severe and 374 were critical.

The agency said 99% of the reported cases occurred from Dec. 14 to 27. The top regions with cases in the past two weeks were Metro Manila with 130, Calabarzon with 51, and Central Luzon with 28.

It added that 82% of the reported deaths occurred in December, and 18% in October. DoH said 166 cases had been removed from the tally, which were reclassified as recoveries.

It added that five cases previously tagged as recoveries were relisted as deaths. Two laboratories did not operate on Dec. 25, while 26 failed to submit data. — Alyssa Nicole O. Tan

19 fireworks-related injuries reported over Christmas holiday

PHILSTAR FILE PHOTO

THE HEALTH department on Monday reported 19 fireworks-related injuries over the Christmas holiday, with 84% involving illegal pyrotechnics or firecrackers. 

The total was 54% higher compared to the 12 cases in 2020, but 67% lower than the five-year average of 58 cases in the same period. 

Fireworks-related injuries are usually higher during the New Year’s Eve celebration.  

All cases were due to injuries inflicted by fireworks. There were no reports of fireworks ingestion, or stray bullet injury or death. 

Fifty out of 61 designated sentinel hospitals submitted a zero-injury report.  

Several local governments already have an existing prohibition on the individual use of fireworks and firecrackers. Some localities affected by the recent typhoon have issued orders for a ban this year to avoid fires and hospitalization while communities are grappling with limited water supply and damaged health facilities.  

Health Undersecretary Maria Rosario S. Vergeire reminded the public in a briefing that the holiday season can be celebrated safely. 

She stressed that accidents can be avoided by using safer alternatives to firecrackers and pyrotechnics such as noise and light-producing devices, and just participating in community fireworks displays usually organized by local governments.  

Ms. Vergeire also advised to avoid the use of horns and whistles to minimize the spread of airborne viruses.  

The health official also reiterated the importance of observing minimum health standards such as wearing of face mask and distancing amid the continued threat of the coronavirus. — Alyssa Nicole O. Tan 

Senators oppose DoH decision to halt social media posting of daily COVID case bulletin 

SENATORS on Monday opposed the Department of Health’s (DoH) decision to stop the posting of daily coronavirus case bulletin in social media cards and situation reports through PDF files starting Jan. 1, in an attempt to streamline public communication. 

DoH, in a statement on Monday, said it will only be posting daily case updates through the coronavirus tracker found on its website, which is updated at 4 p.m. every day. “This public tracker, which has been operational since the start of the pandemic, contains all information being provided in the case bulletin and the daily situation report.” 

The department also assured that it will continue to provide the public with the latest information regarding the coronavirus disease 2019 (COVID-19) situation along with other equally valuable health programs. 

“I think that it’s a mistake that the DoH will stop announcing bulletins as it’s a tool for us, the public, to know the positivity rate of infections in the country,” said Majority Leader Juan Miguel Zubiri in a Viber message to reporters. 

“I respectfully urge the DoH to continue these announcements, so that we may be guided accordingly. Now more than ever, with the Omicron variant, we should be more on guard for the public’s safety,” he added. 

Senator Emmanuel Joel J. Villanueva said the daily bulletins are important in keeping vigilance up. “These daily COVID bulletins are a reminder to the public that the problem is not yet over and that we must continue to be careful and practice safety protocols,” he told reporters in a Viber message. 

Senator Francis N. Pangilinan, who is running for vice president next year, noted the importance of daily bulletins in informing the general public. 

“Accurate information in the spread of the disease is crucial in knowing whether or not the spread of the virus is being effectively addressed or not,” he said in a Viber message. — Alyssa Nicole O. Tan

Teams deployed to help address rising illnesses due to water contamination in Caraga, Cebu

A MOTHER holds her newborn after giving birth at a temporary field hospital set up in the island province of Dinagat in the aftermath of Typhoon Odette (international name: Rai) in December 2021. — DINAGAT ISLAND PIO

THE HEALTH department has deployed teams to help address the rising number of illnesses due to water contamination in some areas hit by typhoon Odette (international name: Rai). 

Health Undersecretary Maria Rosario S. Vergeire on Monday told an online media briefing that 80 cases of acute gastroenteritis have been reported in Dinagat Islands, 54 diarrhea cases in Siargao, and 16 diarrhea cases in Cebu. 

She said epidemiology teams are already in these areas to identify the sources and causes of the disease. 

“We need to clearly identify the source to provide the appropriate medications,” Ms. Vergeire said.  

She said there is no verified number of deaths yet caused by these water-borne diseases.  

Other water and food-borne illnesses recorded include influenza, leptospirosis, and dengue. 

“We know that these areas have been affected by typhoon Odette… We also know that there have been water interruptions in their areas,” she said in a mix of English and Filipino.  

While some areas have flowing water, she added, the connecting pipes underground could have been damaged, causing a point of contamination. 

Acute gastroenteritis is caused by consuming food or water contaminated with pathogenic microorganisms or toxins. 

The health emergency arising from the typhoon’s aftermath has been aggravated by damaged health facilities.  

Ms. Vergeire said there are 141 damaged health facilities across the regions of Mimaropa; Western, Central, and Eastern Visayas; and Caraga, where Dinagat and Siargao are located. The estimated damage cost is over P190 million. 

“Thirty of these are still functional while the status of the rest is still to be determined,” she said. “If one facility is down, we can refer or redirect our patients to another facility which is functional within that specific area.” 

“We are utilizing our networks right now so that all patients needing access to services for health will be entertained, accommodated, and managed accordingly,” she added. — Alyssa Nicole O. Tan

Leader of militant Islamist group BIFF killed in Maguindanao 

WESTMINCOM

A LEADER and known bomb-maker of the local terrorist group Bangsamoro Islamic Freedom Fighters (BIFF) was killed in an encounter with government forces in Maguindanao on Dec. 26, the military reported late Sunday.  

“The neutralization of one of the pillars of the BIFF is a positive development in the anti-terror campaign of the government in Central Mindanao. It also disrupted the bombing activities in the area,” said Lt. Gen. Alfredo V. Rosario, Jr., commander of the military’s Western Mindanao Command. 

The fatality was identified as Zukarno Guilil, known as the head of one unit of the BIFF and had several standing warrants of arrest for murder, destructive arson, and violation of the Anti-Terrorism Act of 2020. 

Guilil’s body was recovered along with two fragmentation grenades. 

The BIFF is a breakaway group from the Moro Islamic Liberation Front, which signed a peace deal with the government in 2014 that paved the way for the creation of the now Bangsamoro Autonomous Region in Muslim Mindanao.  

Maj. Gen. Juvymax R. Uy, head of the joint military-police task force in the encounter area, said community members and the local government in Shariff Saydona Mustapha town in Maguindanao provided government troops with leads on the presence of the BIFF faction.  

Mr. Uy said operations are continuing to track down the rest of the group, but at the same time called on the remaining members of the BIFF “to return to the folds of the law and live a peaceful life with their families.” 

Apart from the BIFF, other extremist groups that continue to be active in parts of southern Philippines include the Daulah Islamiyah Philippines, whose leader was killed in October, and the Abu Sayyaf known for kidnap-for-ransom operations. — MSJ

Gov’t executive branch workers to get P10K incentive 

NDRRMC.GOV.PH

PRESIDENT RODRIGO R. Duterte on Monday signed an administrative order granting incentives to government employees under the executive branch in recognition of their “hardwork, commitment and dedication” to public service amid the coronavirus pandemic and the aftermath of typhoon Odette. 

Under Administrative Order 45, each personnel will get P10,000, including workers in national government agencies, military personnel, and uniformed police force, among others. 

Eligible civilian personnel are those occupying a regular, contractual, or casual position as of end-November, rendering at least four months of satisfactory service. Those who have provided services for less than four months will receive a prorated share. 

“The government continues to acknowledge all public servants for their collective and unceasing participation in and invaluable contribution to the establishment of streamlined government processes and responsive delivery of services to the public,” reads the order, “especially in the midst of the prevailing public health emergency due to the COVID-19 (coronavirus disease 2019) pandemic.” 

The incentive may also be granted in local government units and local water districts. 

The budget department will issue supplemental guidelines for implementation. — Alyssa Nicole O. Tan

Comelec to hold mock elections in 6 areas on Dec. 29 

A MOCK election in preparation for the May 2022 local and national polls will be held in six areas across the country on Dec. 29, the election commission announced Monday.  

Commission on Elections (Comelec) Spokesperson James B. Jimenez said in a press briefing that the sites will be in Pasay City in Metro Manila, Albay, Negros Oriental, Leyte, Isabela, and Lanao del Sur.  

Each of the clustered precincts will be able to accommodate an average of 500 to 600 people and will be open from 5 a.m. to 7 p.m., he said.  

Voters who will participate in the mock elections will be required to present a vaccination card or an RT-PCR test result showing they are COVID negative. 

The 30-inch test ballot that will be used in the simulations would contain false names and not the tentative list of candidates for the 2022 elections, Mr. Jimenez said.  

Presidential and local candidates will be placed on the front of the ballot while the party lists will be placed on the back. 

Meanwhile, the Comelec spokesperson also clarified that the tentative list of candidates released last week included those with pending motions for considerations. 

“We expect that those cases will be resolved around the first week of January,” Mr. Jimenez said in Filipino. 

The Comelec estimates that cases relating to the cancellation of candidacy and nuisance candidates will be decided upon by Jan. 7, in time for the printing of the ballots starting start on Jan. 15. — Jaspearl Emerald G. Tan

The legal implications of the imposition of fiduciary duty of diligence of the highest degree

(Part 1)

The enforcement of the doctrine that the degree of diligence required of corporations vested with public interest is of the highest degree (i.e., extraordinary diligence) has legal implications on: (i) the burden of proof to make the corporation directly liable to the injured stakeholder; and (ii) the personally liability of the directors, trustees, or officers acting for and in behalf of the corporation.

Under the old Corporation Code, where there was as yet no recognition of the special category of corporations vested with public interest, the burden to show that the corporation, acting through its Board of Directors or duly authorized officers, acted negligently in breach of the contract (culpa contractual) or to cause damage to others not bound by any contractual relations (culpa aquiliana) was on the part of the plaintiff seeking relief from the corporation. In other words, it was a proper defense for the corporation to avoid liability from its acts, contracts and transactions to show that it has exercised the diligence of a prudent person or a good father of a family.

On the other hand, the director, trustee, or officer acting in behalf of the corporation could be held personally liable for such corporate act, contract, or transaction only when it was shown that he had breached his duties of diligence and loyalty encapsulated in the first paragraph of then Section 31, thus: “Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.” Note that while the corporation could be held liable to a third party for simple negligence committed by an acting director, trustee, or officer in its behalf, the latter could only be made liable personally when he acted with fraud or gross negligence.

The rule embodied under Section 31 of the old Corporation Code carried the second branch of the Business Judgment Rule to the effect that directors, trustees, or officers who act in the name of the corporation in the lawful pursuit of its business affairs do not become liable for the losses sustained by the corporation, or damages incurred, unless it is shown that they have breached their fiduciary duties of diligence or loyalty. Properly understood, Section 31 provided for the exception to the general rule in the Law on Agency that directors, trustees, or officers (i.e., agents) acting in behalf, and in pursuit of the business affairs, of the corporation (i.e., principal) are not personally liable for the damages sustained by parties dealing with the corporation, or those adversely affected by the pursuit of the corporate business enterprise.

Starting with its decision in Tramat Mercantile, Inc. v. Court of Appeals, the Supreme Court has interpreted the legal effect of Section 31 to mean that as a general rule directors, trustees, or officers do not become personally liable for acts, contracts, and transactions entered into in behalf of and in pursuit of the corporate business enterprise, thus:

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when: (a) He assents: (i) to a patently unlawful act of the corporation; (ii) for bad faith or gross negligence in directing its affairs; (iii) for conflict of interest, resulting in damages to the corporation, its shareholders or other persons (Sec. 31, Corporation Code); (b) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto (now Section 65, Corporation Code); (c) He agrees to hold himself personally and solidarily liable with the corporation (De Asis & Co., Inc. v. Court of Appeals, 136 SCRA 599 [1985]); (d) He is made, by a specific provision of law, to personally answer for his corporate action (Exemplified in what is now Section 170, Corporation Code; also Section 13, P.D. No. 115, or the Trust Receipts Law).

By the use of the phrase “may so validly attach, as a rule, only when,” it is clear that the Court emphasizes that the general rule is that directors, trustees, and other corporate officers are not personally liable for corporate debts, and that the only time they do become personally liable is on the specifically enumerated four areas indicated in the formula. The enumerative manner by which Tramat Mercantile, Inc. has effectively limited the cases when a director, trustee or officer may be held liable has been reiterated verbatim in a long line of subsequent decisions of the Supreme Court.

In the waning years of the old Corporation Code, the Supreme Court, in its decision in Virata v. Ng Wee, formally discussed the “fiduciary duty of directors to all stakeholders,” and firmed-up the legal basis in support of the doctrine that directors, trustees, and officers owe fiduciary duty of diligence to particular creditors of corporations, namely, investors in the corporation’s debt instrument.

Among the critical issues resolved in Virata v. Ng Wee was whether the Vice-President for Operations, not a member of the Board, and who signed in an official capacity the agreement extending a credit line to Power Merge under terms that defrauded some of the investors (Ng Wee) in debts instruments of Wincorp (an investment house) could be held personally liable for the loss sustained by the investors under what is now Section 30 of the Revised Corporation Code: “Petitioner Reyes relies on the black letter law in his bid for absolution. He claims that he is not a director of Wincorp, but its Vice-President for Operations. Thus, he can only be held liable under the second paragraph of the provision. As can be read, officers are only precluded from acquiring or attempting to acquire any interest in conflict with that of the company he is serving. There being no allegation of him being guilty of conflict of interest, Reyes argues that he cannot be held liable under the provision.”

In holding that the argument was bereft of merit, the Court held — ascribing liability to a corporate director, trustee, or officer by invoking [what is now Section 30 of the Revised Corporation Code] is distinct from the remedial concept of piercing the corporate veil. While [Section 30] expressly lays down specific instances wherein the mentioned personalities can be held liable in their personal capacities, the doctrine of piercing the corporate veil, on the other hand, is an equitable remedy resorted to only when the corporate fiction is used, among others, to defeat public convenience, justify wrong, protect fraud or defend a crime.

Applying the doctrine, petitioner cannot escape liability by claiming that he was merely performing his function as Vice-President for Operations and was duly authorized to sign the Side Agreements in Wincorp’s behalf. The Credit Line Agreement is patently contradictory if not irreconcilable with the Side Agreements, which he executed on the same day as the representative for Wincorp. The execution of the Side Agreements was the precursor to the fraud. Taken with Wincorp’s subsequent offer to its clients of the “sans recourse” transactions allegedly secured by the Promissory Notes, it is a clear indicium of fraud for which Reyes must be held accountable.

A careful reading of the foregoing portion of Virata v. Ng Wee clearly implies the doctrine that outside of fiduciary duties of diligence and loyalty contained in Section 30 of the Revised Corporation Code, directors, trustees, and officers can be held solidarily liable with the corporation for the damage suffered by creditors and other stakeholders in their dealings with the corporation by the application of the fraud piercing doctrine. In other words, the commission of fraud itself in the pursuit of corporate contracts and transactions by itself constitutes an actionable basis under tort laws to make acting directors, trustees or officers solidarily liable to creditors and other stakeholders suffering injury by reason thereof.

The other critical issue resolved in Virata v. Ng Wee was whether directors (Cua and the Cualopings) who approved the credit lines extended to Power Merge on the basis of the favorable recommendation of “the screening committee [who] found the application to be above board,” and without knowledge of the execution of the fraudulent Side Agreements, could be held personally liable under what is now Section 30 of the Revised Corporation Code, there being no showing that they acted with fraud. In defining the personal liability of said directors, the Court laid down the general principles of the Board of Directors being “primarily charged with protecting the assets of the corporation in behalf of its stakeholders,” thus:

“Petitioners Cua and the Cualopings bewail that the above-quoted statement is overarching, sweeping, and bereft of legal or factual basis. But as per the records, the totality of circumstances in this case proves that they are either complicit to the fraud, or at the very least guilty of gross negligence, as regards the “sans recourse” transactions from the Power Merge account.

“The board of directors is expected to be more than mere rubber stamps of the corporation and its subordinate departments. It wields all corporate powers bestowed by the Corporation Code, including the control over its properties and the conduct of its business. Being stewards of the company, the board is primarily charged with protecting the assets of the corporation in behalf of its stakeholders.”

The Court then ruled on the personal liability of the directors to a creditor of the corporation, based on “fiduciary duty of diligence,” thus:

“Petitioners Cua and the Cualopings bewail that the above-quoted statement is overarching, sweeping, and bereft of legal or factual basis. But as per the records, the totality of circumstances in this case proves that they are either complicit to the fraud, or at the very least guilty of gross negligence, …

“Cua and the Cualopings failed to observe this fiduciary duty when they assented to extending a credit line facility to Power Merge. … the SEC discovered that Power Merge is actually Wincorp’s largest borrower at about 30% of the total borrowings. It was then incumbent upon the board of directors to have been more circumspect in approving its credit line facility, and should have made an independent evaluation of Power Merge’s application before agreeing to expose it to a P2,500,000,00.00 risk.

“Had it fulfilled its fiduciary duty, the obvious warning signs would have cautioned it from approving the loan in haste. To recapitulate: This only goes to show that even if Cua and the Cualopings are not guilty of fraud, they would nevertheless still be liable for gross negligence in managing the affairs of the company, to the prejudice of its clients and stakeholders.

“Under such circumstances, it becomes immaterial whether or not they approved of the Side Agreements or authorized Reyes to sign the same since this could have all been avoided if they were vigilant enough to disapprove the Power Merge credit application. Neither can the business judgment rule apply herein for it is elementary in corporation law that the doctrine admits exceptions: bad faith being one of them, gross negligence, another. The CA then correctly held petitioners Cua and the Cualopings liable to respondent Ng Wee in their personal capacity.”

The third critical issue resolved in Virata v. Ng Wee was whether a director (Estrella) who was merely a nominee in the Board on behalf of the Chairman, and who received no compensation or per diems in attending board meetings, could be held personally liable under what is now Section 30 of the Revised Corporation Code. In denying the defense, the Court referred to “a betrayal of the trust reposed by the corporate investors, clients, and stakeholders” upon the board and its individual members, thus:

“The practice of installing undiscerning directors cannot be tolerated, let alone allowed to perpetuate. This must be curbed by holding accountable those who fraudulently and negligently perform their duties as corporate directors, regardless of the accident by which they acquired their respective positions.

“In this case, the fact remains that petitioner Estrella accepted the directorship in the Wincorp board, along with the obligations attached to the position, without question or qualification. The fiduciary duty of a company director cannot conveniently be separated from the position he occupies on the trifling argument that no monetary benefit was being derived therefrom. The gratuitous performance of his duties and functions is not sufficient justification to do a poor job at steering the company away from foreseeable pitfalls and perils. The careless management of corporate affairs, in itself, amounts to a betrayal of the trust reposed by the corporate investors, clients, and stakeholders, regardless of whether or not the board or its individual members are being paid. The RTC and the CA, therefore, correctly disregarded the defense of Estrella that he is a mere nominee.” n

(To be continued.)

This 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. Cesar L. Villanueva is chair of MAP Corporate Governance Committee, trustee of the Institute of Corporate Directors (ICD), the first chair of the Governance Commission for GOCCs (GCG – August 2011 to June 2016), dean of the Ateneo Law School (April 2004 to September 2011), and founding partner of Villanueva Gabionza & Dy Law Offices.

map@map.org.ph

cvillanueva@vgslaw.com

http://map.org.ph

Archbishop Desmond Tutu: Father of South Africa’s ‘rainbow nation’

WORLD ECONOMIC FORUM

Archbishop Emeritus Desmond Mpilo Tutu has died at the age of 90.

Archbishop Tutu earned the respect and love of millions of South Africans and the world. He carved out a permanent place in their hearts and minds, becoming known affectionately as “The Arch.”

When South Africans woke up on the morning of April 7, 2017 to protest against then President Jacob Zuma’s removal of the respected Finance Minister Pravin Gordhan, Archbishop Tutu left his Hermanus retirement home to join the protests. He was 86 years old at the time, and his health was frail. But protest was in his blood. In his view, no government was legitimate unless it represented all its people well.

There was still that sharpness in his words when he said that: “We will pray for the downfall of a government that misrepresents us.”

These words echoed his stance of ethical and moral integrity as well as human dignity. It is on these principles that he had fought valiantly against the system of apartheid and became, as the Desmond Tutu Foundation rightly affirms, “an outspoken defender of human rights and campaigner for the oppressed.”

But Archbishop Tutu didn’t stop his fight for human rights once apartheid came to a formal end in 1994. He continued to speak critically against politicians who abused their power. He also added his weight to various causes, including HIV/AIDS, poverty, racism, homophobia, and transphobia.

His fight for human rights wasn’t limited to South Africa. Through his peace foundation, which he formed in 2015, he extended his vision for a peaceful world “in which everyone values human dignity and our interconnectedness.”

He also became relentless in his support for the Dalai Lama, whom he considered his best friend. He condemned the South African government for refusing the exiled Tibetan spiritual leader a visa to deliver the “Desmond Tutu International Peace Lecture” in 2011.

EARLY YEARS
Archbishop Tutu came from humble beginnings. Born on Oct. 7, 1931 in Klerksdorp, in the North West Province of South Africa where his father, Zachariah was a headmaster of a high school. His mother, Aletha Matlare, was a domestic worker.

One of the most influential figures in his early years was Father Trevor Huddleston, a fierce campaigner against apartheid. Their friendship led to the young Tutu being introduced into the Anglican Church.

After completing his education, he had a brief stint teaching English and History at Madibane High School in Soweto; and then at Krugersdorp High School, west of Johannesburg; where his father was a headmaster. It was here that he met his future wife, Nomalizo Leah Shenxane.

It is interesting that he agreed to a Roman Catholic wedding ceremony, although he was Anglican. This ecumenical act at the very early stage in his life gives us a hint of his commitment to ecumenical work in later years.

He quit teaching in the wake of the introduction of the inferior “Bantu education” for black people in 1953. Under the Bantu Education Act, 1953, the education of the native African population was limited to producing an unskilled work force.

In 1955 Tutu entered the service of the church as a sub-deacon. He got married the same year. He enrolled for theological education in 1958 and, after completing his studies, was ordained as a deacon of Saint Mary’s Cathedral in Johannesburg in 1960, and became its first black dean in 1975.

In 1962 he went to London to pursue further theological education with funding from the World Council of Churches. He earned a Master of Theology degree, and after serving in various parishes in London, returned to South Africa in 1966 to teach at the Federal Theological Seminary at Alice, Eastern Cape.

One of the lesser-known facts is that he had special interest in the study of Islam. He had wanted to pursue this in his doctoral studies, but this was not to be.

The activities he was involved in the early 1970s were to lay the foundation for his political struggle against apartheid. These included teaching in Botswana, Lesotho, and Swaziland and, thereafter, a posting to London as the Associate Director for Africa at the Theological Education Fund, and his exposure to Black Theology. He also visited many African countries in the early 1970s.

He eventually returned to Johannesburg as the dean of Johannesburg and the rector of St. Mary’s Anglican Parish in 1976.

POLITICAL ACTIVISM
It was at St. Mary’s that Tutu first confronted the then apartheid Prime Minister John Vorster, writing him a letter in 1976 decrying the deplorable state in which black people had to live.

On June 16 Soweto went up in flames, when black high school pupils protested against the forced use of Afrikaans as a medium of instruction, and were mowed down by apartheid police.

Bishop Tutu was thrust deeper and deeper into the struggle. He delivered one of his most passionate and fiery orations following the death in detention of the black consciousness leader, Steve Biko in 1977.

His role as the General Secretary of the South African Council of Churches, and later as the rector of St. Augustine’s Church in Orlando West in Soweto, saw him become an ardent critic of the most egregious aspects of apartheid. This included the forced removals of black people from urban areas deemed to be white areas.

A TARGET
With his growing political activism in the 1980s, the Arch became a target of the apartheid government’s full-scale victimization and faced death threats as well as bomb scares. In March 1980 his passport was revoked. After much international outcry and intervention, he was given a “limited travel document” two years later to travel overseas.

His work was recognized globally, and he was awarded Nobel Prize for Peace in 1984 for being a unifying leader in the campaign to resolve the problem of apartheid in South Africa.

He went on to receive more distinguished awards. He became the Bishop of Johannesburg in 1984, and the Archbishop of Cape Town in 1986. In the following four years leading up to the release of Nelson Mandela after 27 years in prison, the Arch had his work cut out for him. This involved campaigning for international pressure to be brought on the apartheid through sanctions.

DEMOCRACY YEARS
After 1994, he headed the Truth and Reconciliation Commission. Its primary goal was to afford those who committed human rights abuses — for or against apartheid — the opportunity to come clean, offer legal amnesty to deserving ones, and to enable the perpetrators to make amends to their victims.

Two greatest moments in his personal life took his theological outlook beyond the confines of the Church. One was when his daughter Mpho declared she was gay and the church refused her same sex marriage. The Arch proclaimed: “If God, as they say, is homophobic, I wouldn’t worship that God.”

The second was when he declared his preference for assisted death.

South Africa is blessed to have had such a brave and courageous man as The Arch, who truly symbolized the idea of the country as a “rainbow nation.” South Africa will feel the loss of the moral direction of this brave soldier of God for generations to come. Hamba kahle (go well) Arch.

 

P. Pratap Kumar is emeritus professor, School of Religion, Philosophy and Classics, at the University of KwaZulu-Natal. He receives funding from the National Research Foundation of South Africa.

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