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MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY.

MELO L NOTES BLOCK2014A



BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 1

Who becomes liable for the debts when a corporation sells or
otherwise transfers its assets to another corporation?

General Rule

The transferee does not become liable for the debts of the transferor.

Exceptions

(a) Purchaser expressly or impliedly agrees to assume debts;
(b) Purchaser acted in collusion with transferring corporation;
(c) Purchasing corporation continues business of transferring
corporation in defraud of creditors;
(d) Transaction amounts to consolidation or merger of corporations.

Three-Levels of Corporate Acquisitions and Transfers
Business Enterprise (c) Purchasing
corporation continues
business of
transferring
corporation
GEN. transferee liable for
debts and liabilities of
transferor
Assets-Only

(a) Purchaser
expressly or impliedly
agrees to assume
debts
GEN. transferee not
liable for debts and
liabilities of transferor
EXCEPT when
1) express or
implied
agreement of
transferee
2) transfer was in
fraud of creditors
(b) Purchaser acted
in collusion with
transferring
corporation in defraud
of creditors
Equity (d) Transaction
amounts to
consolidation or
merger of corporation
GEN. transferee NOT
liable for debts and
liabilities of transferor
EXCEPT. transferee
expressly or impliedly
agrees to assume debts

BUSINESS ENTERPRISE

What is an business enterprise level transfer?
Covers the sale or transfer of all or substantially all of corporate
assets (Sec. 40, Corporation Code); what constitutes the ability
of the corporation to earn or realize business income.

Is the transferee obliged to retain the employees of the transferor?
NO. In a bona fide business enterprise transfer, the transferor is
liable to pay the separation pay of the employees and the
transferee is not liable to ay separation pay or obliged to retain
the employees for the business enterprise bought (CLV, p.711;
See San Felipe Neri School of Mandaluyong Inc. v. NLRC).
The most that they can do is give preference to the transferors
employees in hiring. Such employees, however, must pass the
requirements and screening process set out by the transferee.


ASSETS-ONLY

What is an assets-only level transfer?


EQUITY

What is an equity level transfer?

18 JUNE 2013

Refresher: What is the procedure for the merger or consolidation?
(1) PLAN
(2) APPROVAL OF STOCKHOLDERS/MEMBERS
(3) RIGHT OF APPRAISAL
(4) AMENDMENT OF PLAN OF MERGER/CONSOLIDATION
(5) ARTICLES OF MERGER OR CONSOLIDATION
(6) REQUIREMENTS ON SUBMISSION OF FINANCIAL
STATEMENTS
(7) APPROVAL OF SEC

What do you need to know about mergers and acquisitions?

1. Know what youre acquiring.
CORPORATIONS, ACQUISITIONS, MERGERS AND CONSOLIDATIONS
MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY. MELO L NOTES BLOCK2014A

BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 2
2. Ad

What does Sec. 80 of the Corp. Code provide?

It provides for the effects of mergers and acquisitions. There are
five (5) effects [SEPAR]:

1. The constituent corporations shall become a single
corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case
of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
2. The separate existence of the constituent corporations
shall cease, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation shall
possess all the rights, privileges, immunities and powers
and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all
receivables due on whatever account, including
subscriptions to shares and other choses in action, and all
and every other interest of, or belonging to, or due to each
constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation
without further act or deed; and
5. The surviving or consolidated corporation shall be
responsible and liable for all the liabilities and obligations
of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending
claim, action or proceeding brought by or against any of
such constituent corporations may be prosecuted by or
against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of such
constituent corporations shall not be impaired by such
merger or consolidation. (n)

What are the effects thereof?

1. Taxes. Specific exemption in tax code.


Exceptions to piercing the veil:
1) buyer expressly assumes
2) transfer was done in bad faith, done in order to evade liability

How do you show that there is no bad faith?
1) Pesi Cola case - clear break rule; if there is a clear break then there is
a defense; Tanduay [Yu case]

Type Advantages Disadvantages
1. Asset
Sale
Can isolate the asset Tax
Needs to comply with
bulk sales law
2. Business
Enterprise

More like an asset sale

If bought as a whole, you
buy something that can
hit the ground running

3. Equity
Sale
Tax based on value of
the asset
Easy to transfer since
sale of shares/movables
Lots of admin req

4. Mergers,
Consolidatio
ns

Continuation of the entity
[EVERYTHING
CONTINUES]



5. Spin-offs


MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY. MELO L NOTES BLOCK2014A

BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 3
DOCTRINES ON MERGERS AND CONSOLIDATION

1. EDWARD J. NELL COMPANY V. PACIFIC FARMS (1965)

Generally, where one corporation sells or otherwise transfers all of its
assets to another corporation, the latter does not become liable for debts
and liabilities of the transferor except:

1) where the purchaser expressly or impliedly
agrees to assume such debts;
2) the transaction amounts to a consolidation or
merger of the corporations;

3) where the purchasing corporation is merely a
continuation of the selling corporation and ;

4) where the transaction is entered into
fraudulently in order to escape liability for such
debts.

2. PNB V. ANDRADA ELECTRIC (2002) [GR 142936, 17 APRIL 2002]



3. MCLEOD V NLRC (2007) - DATION IN PAYMENT WITH LEASE


4. PEOPLE V WONG (50 O.G. 4867, CA CASE)

In People vs. Wong Szu Tung, CA-G.R. No. 9776-R, March 26, 1954, 50
0.G. 4867, the Court of Appeals held that the sale of a foundry shop was
not covered by the Bulk Sales Law, where what was sold was the shop
itself, together with the goodwill and credits, equipment, tools and
machinery, including a Dodge truck, because this did not constitute a
sale of a stock of merchandise, goods, wares, provisions or materials in
bulk.

5. GONZALES V SUGAR REGULATORY ADMINISTRATION (1989)

6. VILLA REY TRANSIT V FERRER (1968)

7. TAYAG V BENGUET CONSOLIDATED (1968)

8. ANG PUE V SECRETARY OF COMMERCE (1962)

9. STOCKHOLDERS OF F. GUANZON AND SONS V REGISTER OF DEEDS
(1962)

10. CALTEX V PNOC SHIPPING (2006)

11. RIVERA V LITAM (1962)

12. ERIKS PTE. LTD. V. CA (1997

13. A.D. SANTOS V VASQUEZ (1968) BUAN V ALCANTARA (1984)

14. QUIMSON V ALAMINOR (1941)

15. DETECTIVE AND PROTECTIVE BUREAU V UNITED EMPLOYEES WELFARE
(1956)

16. CAGAYAN VALLEY ENTERPRISES V CA (1989)

17. SAN TEODORO DEV. ENTERPRISES V SSS (1963)

18. OROMECA LUMBER V SSC (1962) LAGUNA TRANS V SSS (1960)