COMMERCIAL LAW REVIEW MARCH 13, 2018

LIQUIDATION
The cash would be used to pay the obligations of obligations

Q: How if there are assets that cannot be distributed because the stockholders cannot be found, to whom
the assets shall go? Assuming there are many assets after paying the creditors.
A: To the city or municipality where the principal office are located

FRIA
Q: What are the modes of liquidation?
A: Voluntary liquidation and involuntary liquidation

Q: What is voluntary liquidation?

A: It is the corporation that files the petition for liquidation before Special Commercial Court designated
by the SC – RTC

Q: Required vote
A: Majority of BOD, ratified by 2/3 of OCS

Q: What is involuntary liquidation?

A: It is the creditors who filed the petition for liquidation

Q: What is the quantitative threshold before creditors may file

A: Claim at least 1Mn or 25% of subscribed capital stock whichever is higher

Q: Grounds for involuntary liquidation or must be alleged?

A: No genuine issue for facts and law regarding the claims – that there is no issue on the claims
That the claim is not paid within 180 days

Q:What the court do after filing the liquidation?

1. The judge will determine if the application is sufficient in form and substance
2. Assuming that it is sufficient, there would be an issuance of order for publication – notify all
creditors and to acquire jurisdiction because it is an in rem proceedings
3. Issue Liquidation Order

Q: Effects of Liquidation Order

1. The corporation is actually dissolved – it is already dead, cannot transact only for liquidation and
winding –up
2. All the contracts are deemed terminated, no personality to enter into business
3. Legal title of assets of the corporation will be vested to the creditor or trustee (usually petitioning
creditor)
4. Foreclosure proceedings are prohibited
5. Start of the enforcement of fully secured creditors – cannot file a separate proceeding in another
court

Liquidation Proper, what the judge will order?

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  The judge will ask to prepare schedule of inventory of the all the assets and and schedule and
classification of liabilities
- Assets and capital are considered trust fund for the payment of liabilities of creditors
- Under Trust Fund Doctrine: Pay first creditor before stockholders

If liabilities is greater than asset: Stockholders will get none - insolvency

If assets are greater than liabilities: Stockholders will receive book value per share after payment of
creditors

Kinds of creditors:
1. Fully secured creditors
2 options:
 Participate in liquidation proceeding but it would result to waiver of the rem
 Ask for the foreclosure

Land: 15Mn
BDO Loan: 10Mn
Excess of asset: 5Mn
Pinakamaswerte!!!

2. Partially secured creditors

If personal property- chattel mortgage – formal contract because it needs to be registered to the
Chattel Mortgage Contract to be valid
REM – consensual contract: only notarized and register in Register of Deeds to bind 3 rd person
Pledge – Real contract: it is perfected by the delivery of the thing pledged

BPI Loan: 5Mn

Car: 2Mn ( initially ito ang mabibigay)
Excess of Loan: 3Mn
Bukod sa 2Mn, makakatanggap pa sya sa free assets

3. Unsecured creditors with priority (sunod-sunod)

a. Liquidation expense of RTC – docket fees + salaries of liquidators
100K
b. Employee benefits 2.9Mn
c. Civil liability for corporate crimes including fines
1Mn
d. Assessments due to 500K
i. National
ii. Province
iii. City or municipality
e. Civil liability for quasi-delict or corporate tort 300k
f. Notarized debts or judgement debts (bago ang liquidation may ruling na) – by date
200k

4. Unsecured creditors without priority

a. AP of supplier : 2Mn

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 b. Utilities payable : 5Mn

Assets:
Cash 2Mn
Building 1Mn
Equipment 1Mn
Excess of Asset 5Mn
Total Free Assets 9Mn

 Pay Creditors of Unsecured Creditor with priorities

If 2 Mn lang natira – items 3.a and 3.b lang mababayaran

If 9mn lang natira
- Lahat ng unsecured creditor with priorities mababayaran
- May tira na 4Mn
 Pay Creditors of Unsecured Creditors without priorities

Excess of Loan : 3Mn

Without Priority: 7Mn
Total 10Mn
Free Asset 4Mn (40%)

Matatanggap
AP of supplier : 2Mn 800K
Utilities payable : 5Mn 2Mn
Excess of Loan : 3Mn 1.2Mn

Magkano total na natanggap ng BPI : 3.2Mn (2Mn + 1.2Mn)

FOREIGN INVESTMENT ACT

- Encourage foreign investors to venture or engage businesses in the Philippines

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How to encourage investors from investing here in the Philippines if the law provided limitations:
- By enumerating the limited industry, we are impliedly telling that in other industries, there
are no limilations

Foreign investments
- Those made by non-Filipino national:

Filipino national:
1. Domestic corporation – organized under the Corporation Code of the Philippines
2. 60% voting stocks are owned by Filipino national
3. Filipino citizens
4. Partnership created by the Philippine Law

Pag wala sa enumeration = Foreign investors

May a non-Filipino national engaged in the business in the Philippines?

Yes. Requirement: Secure a license from SEC if a corporation, DTI if a sole proprietor
- Requirement to gain a license: have a resident agent
- Purpose: to have jurisdiction

Acts considered Engaging Business in the Philippines:

1. Soliciting orders, service contracts
2. Opening offices, whether called “liaison” offices or branches
3. Appointing representatives or distributors domicilied in the Philippines or who in any calendar
year stay in the country for a period of at least 180 days (Tax Code 181 days)
4. Participating in the management, supervision or control of any domestic business firm, entity or
corporation in the Philippines
5. Any other acts that imply a continuity in commercial dealings

NOT considered in engaging business:

1. Isolated transaction – isang contract lang or advertisement
2. Engagement of an independent contractor who must have a personality separate and distinct from
a foreign corporation
3. Having nominate director or mere exercise of right as a stockholder

Under Constitution:
Foreign(Maximum) Filipinos (Minimum)
Mass Media 0% 100% eg. Rappler
Advertising 30 70
Exploitation of NR 40 60
Public Utilities 40 60
Educational Institution 40 60 except organized Missionary boards – no limits
Ownership of Land 0 100

What stock to use in computation: Common or Preferred

PLDT Case

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 Filipino Indonesian
Common 20 80
Preferred (NonVoting) 100 0
120 :80
60 :40

PLDT complied?
Common stock only – intention is to preserve the controlling power which is in the common stock

Problem: It is Globe who filed the petition – will the petition prosper? No
Globe has no legal standing but the State thru OSG – Petition for Quo Warranto
- Namimili ang OSG, yung kaya lang nila

Public Utility
Filipino Indonesian
Common 70 30
Preferred (NonVoting) 40 60
110 :90
55 :45

2017 Amendment: 2 tier test

1st : Common Lang – Pumasa (70% Filipino owned)
2nd : Total – Hindi pumasa (55% Filipino owned)
- Including preferred either voting or nonvoting – nakikinabang pa din kasi may dividend pa
din

SECURITIES REGULATION CODE

Government Agency: SEC

Does SEC have the jurisdiction to entertain intra-corporate dispute?

No. Transferred to RTC – Commercial Court

Requirement for Securities be offered or sold to the public:

1. Register the securities to SEC
- To protect the public because unsecured securities may have fraudulent acts

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Types of securities that must be registered:
1. Shares of stock of any contract
2. Investment contract
3. Fractional interest in oil and gas businesses
4. Derivatives and forward contracts
5. Certificate of assignments / participation
6. Other instruments as made in the future

Exempted securities:
1. Securities issued by the Republic of the Philippines
- Safe, low risk – ibabayad sayo ay chocolate hills – sosyal di ba
2. Issued any foreign countries Philippines has reciprocity
3. Issued by receiver or trustee in bank – under the rehabilitation court issued by judge eh di safe
yun
4. Under regulation of BIR, HLURB and IC- it would be duplicated only
5. Any security issued by a bank except its own shares of stock meaning lahat ng deposit

Shares of stock of BDO, is it required to be registered? Yes with SEC

Shares of stock of BitCoin – nagkakagulo pa kung san ireregister per okay Reg eh sa SEC muna kasi
kasama sya sa any other securities

Transactions exempted:
1. Any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in
insolvency or bankruptcy
- It is protected or safe because it was ordered by RTC although the securities involve are
registrable but transaction is not registrable
2. Sale of pledged or mortgaged security to liquidate a bona fide debt – by a pledgee or mortagee
- Bakit ba binebenta ang securities – there will be payment of claims
- Di investment
3. Isolated transactions
- Benta ng 5 transactions
4. Distribution of the corporation of your own stock to stockholders
- Stock dividend: Majority of BOD +2/3 of OCS
- May preferred non voting vote? No – wala sa IIAM SAD
5. Sale of capital stock exclusively to stockholders where no commission is paid
- Sa una nireregister
6. Issuance of bonds or notes secured by mortgage upon real estate or tangible personal property,
where the entire mortgage are sold to a single purchaser at a single sale
- Eg. SM nag issue ng bonds payable tapos may collateral, yung collateral di na kailangang
iregister sa SEC. Pag unsecured yun ang nireregister. Kalimitan ang bonds unsecured yan,
pag nag-issue ng bonds ang corporations, nangungutang yan at walang collateral – kawawa
ang creditors kaya nireregister
7. Issuance of security in exchange for any other security of the same issuer pursuant to a right of
conversion
- Preferred stock kinonvert sa ordinary share, papalitan – di na need iregister

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 8. Broker’s transactions, executed upon customers’ orders on any registered Exchange or other
trading market
- Broker ang dami alangan naming araw-araw magregister
9. Sale to less than 20 persons during any 12-month period (private placements)

Fraudulent or Unlawful Transactions:

1. Obtain money or property by means of any untrue statement fact
2. Manipulation of price
- Create false or misleading appearance of activity for trading
- Eg. Tayong lahat ang corporation. Ikaw ang holding company, si net ang bdo , ako ang SM
Price. Alin stock ang pagagandahin? SM Holding, assuming ikaw ang interlocking director or
CFO ng 4. Under the law of supply and demand – bibili ng treasury shares, kalat. Bibenta sa
BDo, SMDC, Holdings. Araw-araw ganun, TF nataas ang demand, nadami ang nasama. Yan
na trading yan. Obvious yun makikita sa SEC
3. Insider Trading
- Illegal? Yes
- When: director, employer or officer of a corporation discloses a non-public information
which is not generally disclosed to the public
- Eg. How you make an investment decision? Information should be non-public
o SM nagpublish ng audited FS. P30/share. So nag invest ako. Binili ko ko ng P20
pesos tapos nagging P25. = NOT Insider trading kasi published information na ang
ginamit eh
o Example of Non-public information: Director kita ang trial balance, kita ang CFO.
You get information from chief accountant of the projected revenue. Ngaun ay bumili
ako P10 at ng lumabas ang FS, nagging P50.

Tender Offer
- Publicly announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company or publicly-listed company
- San Miguel (Ramon Ang) wants to acquire share of PDI. Prieto family is contemplating of
selling the majority or controlling stocks of PDI. PDI is publicly traded. Requirement to San
Miguel – publicly announce the intention to buy the shares to ALL. Other stockholders shall
be informed. Kaya sila nasa PDI kasi may tiwala sila sa Prieto, tapos magiging San Miguel eh
baka mamaya mabigla sa meeting iba na ang President. Minority interest will be protected.
o Pag nag offer sila sa San Miguel P50 per share. Pag nag offer sa iba dapat P50per
share din ang offer

Memorize Mandatory Tender Offer

- 35% or more
- If unti unti pero labas na ay 51% na ang ownership
o Meralco from Lopez to First Philippine