February 1, 2013
associations
PD 902-A - Securities Regulation Code.
Securities Regulation Code used to be Revised Securities
Act. Revised Securities Act used to be Securities Act.
PD 902-A came into law 1976, barely four years after the
declaration of Martial Law. It is entitled SEC
Reorganization Decree. It reorganized the SEC but its
main purpose is to put the SEC under the office of the
President. Now, it is no longer under the office of the
President. It is now aligned with Finance.
Now, what you have to remember with Securities
Reorganization Decree (PD 902-A) is the transfer of
jurisdiction of the cases that are enumerated in Section 5
of the Decree. These cases have been now transferred to
the regular corporate court. This court was not created by
the Securities Regulation Code. This court is only a
designation by the Supreme Court on one of the salas of
the Regional Trial Court.
What are those cases?
They are enumerated in Section 5 of PD 902-A.
1. DEVISES & SCHEMES - Devises or schemes
employed by/or any act of BOD, business associates,
or partners amounting to fraud or misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners or members of
any corporation, partnership or association.
➢ Included in this category is the so-called
pyramiding schemes.
➢ “Ponzi Scheme” – named after a notorious Italian
who started an investment scheme in New York.
➢ Why is it called “pyramiding scheme”?
➢ It is called such because the scheme only works
for as long as there is a progression of a pyramid
being constructed.
➢ Once the pyramid stops being developed, then
the whole scheme collapses.
➢ What is his business? Actually there is no
business. In order to pay the investment, one
has to get more investors to pay the previous
investor, and so on. That is why it is
“pyramiding.”
➢ SEC has come up with a circular differentiating
the so-called pyramiding scheme from
networking (direct marketing schemes).
➢ In networking, there is a thing of value or of
commercial value. (i.e. Amway, etc.) unlike in
pyramiding where there is no thing of value
involved.
➢ Why can networking afford tier of commissions?
The claim is they do not have indirect cost of
selling.
➢ Laws designed to regulate the sale of securities
are called “Blue Sky Laws” as protection from
con artists who sell but a few feet of the blue sky.
➢ The public has to be protected from con artists,
people without conscience xxx promising you
nothing but a few feet of the blue sky.
➢ Who has jurisdiction? You have to file it with the
SC-designated sala that is an Intra-Corporate
Court.
2. INTRA-CORPORATE CONTROVERSIES -
Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members or associates, and
between, any or all of them and the corporation,
partnership or association of which they are
stockholders, members or associates, respectively.
3. ELECTION CONTROVERSIES - Controversies in the
election or appointment of directors, trustees, officers,
TSN Fr. Agustin Nazareno | 2013
or managers of corporations, partnerships or
➢ Landmark case: GSIS vs. CA and Rosete (April
16, 2009)
➢ We will later on see the so-called proxy rules in
the Securities Regulation Code. There is a
chapter there that covers proxies; on what you
need to solicit proxies with respect to
corporations that are listed with the stock market.
All these controversies, according to that
particular chapter, it is the SEC which has
determines the sufficiency of proxies.
➢ (Relating to the GSIS vs. CA case) That is why
Winston Garcia, president and general manager
of the GSIS, tried to stop the annual meeting of
the stockholders of Meralco. He says that the
Lopez’ has less than 1/20 of the controlling stock
and that they should not be controlling Meralco.
Lopez, on the other hand, says that he has the
proxies. So, Garcia wanted to question and
examine the proxies.
➢ Lopez said that the deadline is already finished;
there was a cut-off date for examination of
proxies, thus, waiving his right to question the
proxies.
➢ Garcia says how can he waive such when he is
representing the government, GSIS.
➢ Lopez, together with the corporate secretary,
Rosete, decided to go ahead with the election.
➢ Garcia left and came back with a restraining
order issued by the SEC stopping the annual
meeting on the issue of the sufficiency of proxies.
Now, the TRO is signed by one of the
Commissioners.
➢ So, Rosete together with the legal counsels
argued that the TRO is fatally defective as it was
signed by only one of the Commissioners.
➢ Garcia: TRO is signed by one Commissioner in a
double capacity. He has special power from the
other Commissioners, therefore, the majority.
So, he signed for and in his behalf and with the
power of attorney of two more Commissioners.
➢ But Lopez group still continued with the election
➢ SC Ruling: The issue of proxy is subordinate to
the issue of the election. This is actually an
election controversy of which proxies are a sub-
issue. It is true that the SEC now, under the
Securities Regulation Code, has the power and
prerogative to determine the sufficiency of
proxies if the issue is only proxies. But if it is an
election controversy, it falls under Section 5(c) of
PD 902-A which has since been transferred to
the jurisdiction of the regular courts by Section
5.2 RA 8799, the Securities Regulation Code.
➢ If the issue of proxy is part of the over-all issue of
election controversies, the one which has
jurisdiction is the Intra-Corporate Court.
➢ If the issue is solely on the validity of proxies,
then it is the SEC which has jurisdiction.
4. SUSPENSION OF PAYMENTS, PETITIONS OF
CORPORATIONS - (d) Petitions of corporations,
partnerships or associations to be declared in a state
of suspension of payments in cases the corporations,
partnerships or associations which has sufficient
assets to cover all its debts but foresees the
impossibility of meeting them when they respectively
fall due.
➢ It is submitted that the passage of FRIA of 2010
(Financial Rehabilitation and Insolvency Act of
2010) – these kinds of petitions are heard now by
the Insolvency Court / FRIA Court.
5. Finally you have this provision for those cases
involving intra-corporate disputes submitted for final
decision which should be resolved in one year.
These are covered by the Transitory Provisions.
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6. Derivative suits and controversies involving the
inspection of corporate books were also placed under
the jurisdiction of the RTC – Intra-Corporate Court.
You know of course, there is a set of rules involving intra-
corporate controversies and there is a set of rules to come
out involving financial rehabilitation and insolvency.
Now, in the intra-corporate court, the question of
withdrawal of the corporate franchise, that is also where it
is filed. That is a quo warranto proceeding and that is on
the basis or the grounds provided in Section 6 of PD 902-
A – grounds for suspension or revocation xxx
1. Fraud in procuring the certificate of registration
2. Serious misrepresentation as to what the corporation
can do or is doing
3. Refusal to comply or defiance of any lawful order of
the SEC
4. Continuous inoperation for a period of at least five
years
5. Failure to file its by-laws within one month from
receipt of official notice
6. Failure to file required reports on appropriate forms as
determined by the SEC within the prescribed period
So, those are the important parts of PD 902-A.
Read American case SEC vs. WJ Howey Co. 328 US 293
(1946). This is a landmark case as to the definition of
what constitutes a security.
The Securities Regulation Code does not define what
securities are. It illustrates and enumerates what
securities are.
This case, at least with respect to investment contracts,
defines securities. This has been called the Howey Test.
Howey case:
➢ Happened in Florida.
➢ This farmer owner decides to subdivide his farm. He
sell he would sell a portion of the farm to individual
buyers.
➢ Incentive to the buyers: You will buy this because I
will rent it from you – Guaranteed rental plus a share
in the harvest of the oranges (farm product).
➢ So, he advertised it to newspapers, flyers, registered
mail etc.
➢ He was stopped because he was selling, according to
the authorities, securities. And you cannot sell by the
telegraph or the post office without registering it with
the SEC, because of the Commerce clause of the US
Constitution.
➢ Issue: Is he selling security or not?
February 6, 2013
SEC vs. Howey Co.
- The essence of an investment contract as a security
is there is an investment of money or an expectation
of profits arising from a common enterprise which
depends solely on the efforts of a third party.
- In other words, the one who is placing money has no
effort at all in generating the recurring profits of a
particular business.
- Take note that there must be some commercial
undertaking, some creation of value. There must be
something of value that is involved.
If you have a pyramiding scheme, there is nothing of
value.
Before you can sell securities to the public, selling
securities to the public means you sell to at least 20
people.
TSN Fr. Agustin Nazareno | 2013
If you form a corporation and you start naming more than
20, they will ask you right away to file a registration
statement because under the Securities Regulation Code,
you are selling securities to the public. How else do you
gather these 20 or more investors?
Before you can do that, for the protection of the public, you
have to have a registration of that of which you sell.
Example:
Q: Here is this farmer who goes to the city to sell 25
carabaos. Does he need to register with the SEC
before he can sell these carabaos?
A:
Do you have to register the cattle before you can sell
them?
Why all of a sudden must a security be registered?
Because of the nature of the beast that which you are
selling is not like a tangible product that you can examine
and what it is worth is easily verifiable.
If you sell a horse, you can examine it.
But when you buy shares of stock, how do you know? It’s
very difficult to know how much shares of stock our worth.
You have to go to financial statements which are valid only
for a certain date. Usually, the date there is historical.
There are therefore warranties in the selling of securities
that are much more complex, broader in scope than when
you sell tangible property.
When does caveat emptor (buyer beware) apply?
- It is applicable when what you will buy is readily open
to examination.
- Open to inspection and readily verifiable at the point
of sale.
- But if you order by mail and it is sent to you, and you
have no chance to examine it. That is why they tell
you that you have a certain number of days to return
it. That is an exception to the principle of caveat
emptor.
But what about shares of stock?
- There are built-in warranties that you can call the
seller to ask if there are so-called fraudulent xxx that
are part of the built-in warranties of securities.
- That is when the state pre-checks the securities.
- The file a registration statement.
- They describe who the issuer is
- Who make up the issuer
- Who are the officers
- Are they trustworthy
- Describe the business
- How long has it been in operation
- What are its plans and so on…
Now, once the state is satisfied then it issues an order that
the security is now in effect, then the sale can be began
until there is a contrary order. Because if there are
complaints, the state may withdraw its go-signal for the
sale of the securities. And all the orders of the SEC with
respect to a particular security becomes part and parcel of
the registration statement.
Later on, we will find out that the SEC can order the
stopping of the trading of securities in the stock market for
a period of 30 days. And then it says, the President of the
Republic can order the suspension of trading of securities
for more than 30 days but not exceeding 90 days.
If there are some irregularities behind a particular security,
now, not all securities will be registered.
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Exempt securities need not be registered. Usually, these
exempt securities, the issuer is already supervised by
some oversight government agency.
For instance, securities issued by banks need not be
registered except the bank’s own shares of stock.
Securities issued by the government itself. Example:
treasury bills. It is the BSP that is the agent for the
issuance of treasury bills.
Land Bank bonds, they are issued by the GOCC pursuant
to a particular law – Comprehensive Agrarian Reform Law,
and so on.
Exempt transactions
- The issuance of securities (stock dividends, shares of
stock) by way of dividends of stockholders and to no
one else but to stockholders.
- And so on…
Registration of a security
- The action that the state, the SEC, takes with respect
to a registration statement is Section 12.6.
Section 12.6 – Within 45 days after the date of filing of the
registration statement, or by such later date to which the
issuer has consented, the Commission shall declare the
registration statement effective or rejected, unless the
applicant is allowed to amend the registration statement
as provided in Section 14 hereof. The Commission shall
enter an order declaring the registration statement to be
effective if it finds that the registration statement together
with all the other papers and documents attached thereto,
is on its face complete and that the requirements have
been complied with. The Commission may impose such
terms and conditions as may be necessary or appropriate
for the protection of the investors.
As I told you, the SEC does not approve securities
because it may be misunderstood as indorsing particular
securities.
So, that is one way the state can help protect the public by
way of registration.
Take note, the securities are registered. Second, the
actors involved must be registered.
Where do you find the actors? You will find the actors in
the beginning part of the Securities Regulation Code,
definitions.
Section 3:
❖ Issuer – is the originator, maker, obligor or creator of
the security
❖ Broker – any person engaged in the buying and
selling securities for account of others
❖ Dealers – any person who buys and sells securities
for his/her own account in the ordinary course of
business
- i.e. SSS – it buys securities for itself as a form of
investment of the bonds of the SSS
- GSIS – it can bid for treasury bills. Although the
GSIS does not have a seat in the PSE, so they
will have to employ a broker to buy for them, but
they buy for their own account
- Stock exchange, or any exchange.
• The only problem is the definition in the law is
antiquated. Why? It says, Section 3.7
• Exchange – is an organized marketplace or facility
that brings together buyers and sellers and executes
trades of securities and/or commodities
• An exchange has a facility.
• Now, that is no longer true. You can have an
exchange without a physical place.
TSN Fr. Agustin Nazareno | 2013
• I.e. NASDAQ does not have a facility. It exists in the
internet.
• So, more properly, an exchange is just a mechanism
or facility for the buying and selling of securities.
• The money market is an exchange and yet there is no
location.
• So, exchanges are registered.
• What you trade there are registered
• The people who trade there are registered
• I.e. underwriters, promoters, sales persons,
associates of sales persons,
Now, if you are registered with the SEC as a broker, can
you immediately buy and sell shares of stock from PSE?
- No, because you still have to be member of the PSE.
Over and above your license as a broker, you have to
have a seat. And there are a given number of seats.
- And when you are inside there, you have personnel.
You have sales person, associates, and they have to
be registered.
- You also pay for the seat.
- And the seat fluctuates in value.
Now that the stock market is up, the seat in the PSE is
very expensive.
When the stock market has no activity, the seat is very
cheap.
But the broker makes money on commissions. So, for as
long as there are transactions, purchases, sales, he can
pay for his rent because he will always get a commission.
He does not earn by the amount of profits that a client
makes. He earns by the transactions. The broker’s
commission is very small.
So, that is one way that the law protects the investing
public.
The other way is so-called DISCLOSURE
REQUIREMENT.
These are the rules. Look it up in the Securities
Regulation Code.
➢ The moment you purchase at least 5% of the OCS of
a publicly-traded corporation in the PSE, you must
make a disclosure.
➢ What is the disclosure? As to who is the beneficial
owner of the shares of stock
Now, recall the basic principle you learned in property
under the Civil Code.
The owner in the title is presumed to be the one who will
be benefited to the use of the property.
Now, in securities, the titular owner is NOT presumed to
be the beneficial owner. That is why by the time you
acquire 5% of the OCS, you must make a disclosure.
When you are the beneficial owner and at the same time
the titular owner, then you say so.
Again, under Section 19, if you are a person who intends
to acquire 15% or more of the shares of a publicly traded
company pursuant to an agreement made between or
among persons of the one or more sellers (?) you must
disclose that.
The moment you disclose, you make a tender offer.
Meaning, you announce to the general public that you are
buying 15%.
So, if you are an owner of shares of stock, you can sell to
him to the extent of your proportionate ownership of the
OCS.
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Example:
- You want to buy 15% of Tanduay. You have already
contacted 2 or more clients to sell to you.
- You cannot just buy from them.
- You must announce to the other stockholders that you
are buying 15%.
- Anybody there can sell to you.
- In other words, nobody is left out of the room.
- If you are 20% owner of OCS and you want to tender
your shares to be bought by the one seeking to buy
15% and there are others who want to sell, how much
can you sell to that tender offer?
- You multiply 20% by 15. That is the number of
shares that you can tender to him.
- Now, what will happen to the person whom you have
contacted?
- That is why some people, they buy 14.99%.
Next is 30%.
Still under Section 19 – when a person intends to acquire
30% or more of the equity shares of a public company
within a period of 12 months – you must disclose that, and
then tender offer.
The TENDER OFFER RULE.
This is the way to understand tender offer.
- I want to buy 30% of San Miguel.
- I announce it through the San Miguel disclosure
statement.
- Other stockholders make a tender their shares.
So, 30%. You make the disclosure and then the tender
offer rule applies.
Finally, there is the 50%.
If you buy that would result to more than 50% of the equity
shares of a public company, then it is not just a tender
offer, it is a GENERAL OFFER. You have to tell
everybody else that you are willing to buy them at the
same price or at the last price xxx
That is now a general offer.
So remember, 5%, 15%, 30% and 50%. TENDER
OFFER RULE
Illustration:
Holding Company (JG Summit)
Universal Robina
Digitel
Now this is the subsidiary, this is the holding company.
Now, these are traded in the stock market. And the law of
disclosure applies.
But normally, the structure of a holding company, there is
an intermediate company here that is owned 100% by
holding company. And the intermediate company owns
the controlling shares of the subsidiaries.
Let us say the controlling shares is 60%.
Why is there an intermediate company?
- Because of the troubles if you unload the shares from
here because it is consolidated with the holding
company
Now, instead of buying all the shares here, you buy all the
shares here…
SC: the effect is the same.
- So when you purchase the intermediate corporation,
you must make an offer. You must make a tender.
TSN Fr. Agustin Nazareno | 2013
There is another purpose for the intermediate
corporations. All the secondary franchises here remain
the same. There is no change.
PLDT bought Digitel. It bought the holding company here.
Digitel did not change its ownership structure.
Example:
Now, a corporation owns a land. And you own 99.99%
OCS of the corporation. Instead of selling the land, you
sell 99.99% shares of stock.
The register of deeds will have no idea that there is
already a change of ownership. Capital gains will not
apply. Here capital gains will be based on par value.
You buy the vehicle that owns the real property.
Instead of buying the corporation, you buy the owner.
But SC has already made a ruling that you still make a
disclosure. Because the law says if you buy shares and
end up owning directly or indirectly 50%
February 13, 2013
So, have a copy of the case of Sempco Holdings Inc. vs.
National Life Insurance 529 SCRA 355 (2007). This is the
case where the SC ruled that even if you do not buy
directly the shares of a corporation listed in the stock
market, if you buy the holding corporation, you must still
make a tender offer. Xxx
Have a copy of the outline of the salient features of the
Financial Rehabilitation and Insolvency Act. This is the
last special legislation that we will take up. This is not a
substitute for not reading the law itself (Referring to the
outline). Once again, it is a very dry law. And you must
make love with this law so that you will not resist learning
it.
So, you follow the law on the basis of this outline because
this takes the place of the Insolvency Act, it takes the
place of the rehabilitation provision of PD 902-A, and also
with some of the ancillary proceedings in the special
proceedings in the special proceedings for receivership,
etc.
This is now the latest law. Republic Act 10142.
Now, before we go into the FRIA Law, we have to take up
a few of the special laws.
We have taken up SRC, PD 902-A and we should take up
some of the provisions of the special rule in the SC
covering intra-corporate controversies. Because you must
be aware that there is a special rule. Of course, this rule
is just used in the special sala of each judicial district that
has been designated as an intra-corporate court.
So, this is the Interim Rules of Procedure for Intra-
Corporate Controversies. This became effective April 1,
2001.
Now, Rule 1 Section 1 reiterates the kinds of cases that
are covered by the SRC, the special intra-corporate
controversies. What are they? They are mostly cases
covered by Section 5 of the SRC.
a. DEVICES OR SCHEMES - Devices or schemes
employed by or any act of the BOD, business
associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders,
partners or members of any corporation, partnership,
or association.
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b. INTRA-CORPORATE CONTROVERSIES -
Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members or associates and
between, any or all of them and the corporation,
partnership or association of which they are
stockholders, members or associates, respectively.
- If it is a fight or controversy within the corporation
by actors, complainants or respondents that are
constituents of the corporation (corporators,
incorporators, directors, officers, etc), then it is
intra-corporate.
c. ELECTION CONTROVERSIES - Controversies in the
election or appointment of directors, trustees, officers,
or managers of corporations, partnerships, or
associations.
d. DERIVATIVE SUITS.
- If you file a derivative suit, it must be with the
intra-corporate court.
- If its an intra-corporate controversy, there is no
more raffle. There is only one sala designated as
an intra-corporate court.
- That is the difference when you file this.
- Why is derivative suit not included in the intra-
corporate controversies?
- Because the real party-in-interest is the
corporation itself, and the stockholder who files it
is filing in a representative capacity.
- So, it is not intra-corporate.
- The basis for the filing of the suit is betrayal of
trust.
- The officers, directors, principal stockholders of
the corporation, who are supposed to be the
main agents to act for the good of the
corporation, are the ones harming the
corporation.
- So, secondarily, the ordinary stockholder is given
the prerogative to file a complaint in the name of
the corporation who is helpless.
- So, the stockholder is granted the derivative right
to file the action for and in behalf of the
corporation.
- That is a distinct class of suit.
e. Cases involving controversies of inspection of
corporate books.
- You know, it is not easy to charge a corporation
of defrauding its stockholders.
- Why? Because you are not in possession of all
the documents and records.
- So, preliminary to such an action, necessarily,
you will file an action to inspect the books of the
corporation, if you are not granted the opportunity
to inspect the books.
- Needless to say, before you can file an action to
compel the corporation to open its books to you,
you must first exhaust the internal remedies.
- You must allow the corporation the opportunity to
grant you the time and place to inspect its books.
- Now, if they deny your right, you are a
stockholder, that is the time that you can go to
court and ask a corporal order to compel the
corporation to open its books to you.
- Normally, what will happen is you file a
mandamus suit asking for the court to command
the corporation to open its books to you, after the
corporation gives an accounting of certain
matters.
TSN Fr. Agustin Nazareno | 2013
Now, Section 5 of Rule 1, what is the venue of these
cases?
- It is tried in the RTC which has jurisdiction over the
principal office of the corporation, partnership or
association concerned. Where the principal office of
the corporation, partnership, or association is
registered in the SEC as Metro Manila, the action
must be filed in the city or municipality where the
head office is located.
So, normally if it’s a national corporation, the address is in
Makati or Pasig. So, it is in those RTCs, intra-corporate
courts, that it is lodged.
Now, principles of construction as to the rules as
enunciated in Section 3.
- The rules are to e liberally construed in order to
promote their objective of securing a just, summary,
speedy and inexpensive determination of every action
or proceeding.
How is this taken?
➢ First, all decisions and orders issued by the court
under the rules are IMMEDIATELY EXECUTORY.
o And a petition for review or appeal shall not stay
the enforcement or implementation of the
decision or order unless restrained by an
appellate court.
➢ Second. Pleadings and documents may be filed with
the court / served on the other parties when so
authorized by the court by facsimile transmission or
electronic mail.
o Your exhibits, especially when they are
voluminous, you can put it in electronic disc or
flash drive, and that is what you serve. That is
allowed. Or when you say facsimile, you fax the
pleadings and documents. That is now allowed.
➢ Third. Motions to dismiss, for bills of particulars, for
new trial or for reconsideration are prohibited.
o These are considered dilatory in this kind of
proceeding.
o But, in some cases, the SC has allowed motion
to dismiss if it is grounded on lack of jurisdiction.
o But, if it is some other ground, improper venue,
the court will just ignore it but will resolve it
together with the resolution of the case on the
merits.
➢ Fourth. The pleadings allowed to be filed under the
rules are:
o Complaint
o Answer
o Compulsory counterclaim or cross-claims
pleaded in the complaint
o And the answer to the counterclaim or cross-
claim
Now, Election Contest, Rule 6, Section 2.
➢ An election contest refers to any controversy or
dispute involving title or claim to any elective office in
a stock or non-stock corporation, the validation of
proxies, the manner and validity of elections, and the
qualification of candidates, including the proclamation
of winners, to the office of director, trustee or other
officer directly elected by the stockholders in a close
corporation or by members of a non-stock corporation
where the articles of incorporation or by-laws so
provide.
FAC FORTIA ET PATERE 5
What disputes are covered by Rule 7? INSPECTION OF
CORPORATE BOOKS AND RECORDS.
➢ Disputes exclusively involving the rights of
stockholders or members to inspect the books and
records and/or to be furnished with the financial
statements of a corporation under Sections 74 and 75
of BP 68, otherwise known as the Corporation Code
of the Philippines.
Requisites for the filing of DERIVATIVE SUIT. This is
found in Rule 8 Section 1.
1. He was a stockholder or member at the time the acts
or transactions subject of the action occurred and at
the time the action was filed;
➢ So, you have to be a stockholder in these two
times. When the act was committed and up to
the time when the case was filed.
➢ Can you lose your being a stockholder in
between? Yes, provided you are stockholder
during these two times.
2. He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all
remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
➢ So, exhaustion of internal remedies.
➢ You must prove that. You must allege that and
show proof of that in the complaint.
3. No appraisal rights are available for the act or
acts complained of; and
➢ Why do you have to allege that there is no
appraisal right? Because an appraisal right is
one of the remedies of a stockholder who is
dissatisfied with the corporation.
4. The suit is not a nuisance or harassment suit.
Now, PD 902-A provides for the appointment of either a
receiver or a management committee when a corporation
is in financial distress.
Now, this is also taken up in FRIA.
Rule 9 Section 1 provides for the circumstances and the
grounds that would justify the appointment of a
management committee.
What are they?
1. When you allege and show proof that dissipation,
loss, wastage or destruction of assets or other
properties; or
2. Paralyzation of its business operations which may be
prejudicial to the interest of the minority stockholders,
parties-litigants or the general public.
You have to show that in order to provide for the grounds
for the appointment of a management committee.
Powers and functions of a management committee. Rule
9 Section 5 of the rule.
➢ It has the power to take custody and control assets
and properties owned or possessed by the entity
under management.
➢ It shall take the place of the management and the
BOD of the entity under management.
➢ It shall assume their rights and responsibilities and
preserve the entity’s assets and properties in
possession.
TSN Fr. Agustin Nazareno | 2013
➢ In addition, it may revoke resolutions passed by the
Executive Committee or BOD/BOT or any governing
body of the entity under management and pas
resolution in substitution of the same to enable it to
more effectively exercise its powers and functions.
➢ It may modify, nullify or revoke transactions coming to
its knowledge which it deems detrimental or
prejudicial to the interest of the entity under
management.
- So, with transaction, it can modify, nullify or
revoke, provided that it is detrimental
- That means he must prove injury, damage, loss
because these are transaction that have already
occurred.
- The first, you can revoke resolutions of the
Executive Committee or the Board. What do you
have to do? That it is grossly disadvantageous to
the corporation. You can do that by going to the
terms. So, in this case, you do not have to prove
actual damage yet. You can prove this by
comparison.
Now, what actions can be taken by the management
committee if it comes upon fraudulent transactions of the
previous management?
➢ Rule 9 Section 7. Transactions deemed to be in bad
faith – All transactions made by the previous
management and directors shall be deemed
fraudulent and are rescissible if made within 30 days
prior to the appointment of the receiver or
management committee or during their incumbency
as receiver or management committee.
Rule 9 Section 9 deals with immunity on the part of the
management committee
➢ So, they can act with speed and confidence, they are
immune from suit provided they act within the scope
of their duties.
➢ The receiver and members of the management
committee and the persons employed by them shall
not be subject to any action, claim or demand in
connection with any act done or omitted by them in
good faith in the exercise of their functions and
powers. All official acts and transactions of the
receiver or management committee duly approved or
ratified by the court shall render them immune from
any suit in connection with such act or transaction.
➢ So, if they go out of their scope of their duties as
receiver or as members of the management
committee, then they are not immune from suit.
➢ For as long as they stay within the bounds of their
duties, they are immune from suit.
So, those are the salient points that you have to remember
with respect to the Intra-Corporate Rule in the filing of
cases.
So, it is possible you file a pleading you do not have to
attach all the exhibits. You may send flash disk by courier,
and then upon receipt, the person who received it shall
sign, and that is proof of service. Attach that to your
pleading.
FAC FORTIA ET PATERE 6