Company Registration and Monitoring Department and SEC En Banc v.

Ching Bee Trading Corporation

G.R. No. 205291 | November 12, 2014 (Resolution) | JLD
Doctrine: The SEC must give reasonable time within which to make necessary corrections should there
be objectionable portions in the amendment.
Summary:
Ching Bee Trading Corporation (CBTC) sought an extension of its corporate life by filing amended
articles of incorporation with the CRMD, 1 day before its corporate life expired. The CRMD rejected this
because of the lack of one requirement - Director’s Certificate that the stockholders, owning and
representing at least 2/3 of its capital stock, voted and approved the amendment. CBTC’s letter
requesting an extension to submit this was denied by the SEC. The court held (DOCTRINE).
FACTS:
• Ching Bee Trading Corporation (CBTC) was registered with the SEC on Dec. 23, 1960, and expired
on Dec. 23, 2010. (50-year period of corporate existence)
• 1 day before the last day of its corporate existence, CBTC filed with the Company Registration and
Monitoring Department (CRMD) an application seeking approval of its amended articles of
incorporation, to extend its term for another 50 years.
• CRMD refused to accept the application because there was no Director’s Certificate that the
stockholders, owning and representing at least 2/3 of its capital stock, voted and approved the
amendment. o The CRMD processor however advised CBTC to submit a letter requesting an extension
to file the requirements.
• On Dec. 23, hours before CBTC’s corporate life expired, a letter was filed pursuant to the CRMD
processor’s suggestion.
• The request was denied. SEC cited SEC Reso No. 394 (Nov. 13, 2008) which stated SEC’s policy of
denying filing of amended articles of incorporation extending the corporate life of a corporation whose
original term has already expired. SEC en banc also denied.
• CA reversed, and ordered SEC to admit CBTC’s amended articles of incorporation. It stated that
CBTC should have been given reasonable time to correct or modify any portion in the article pursuant
to Sec. 17 of the Corporation Code. Sec. 17. Grounds when articles of incorporation or amendment
may be rejected or disapproved – The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not compliance with the
requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable
time within which to correct or modify the objectionable portions of the articles or amendment.
• The SEC maintains that a corporation seeking to extend its life must take all the necessary steps
before its life expires at the end of the 50-year period.
ISSUE:
W/n CBTC is entitled to additional time to file its amended article of incorporation extending its
corporate life, despite its attempt to file it before the original term expired.
RULING - YES.
• A corporation ceases to exist upon the expiration of the corporate term indicated in its articles of
incorporation.
• After this time, all acts are invalid or ultra vires
• Nevertheless, a corporation may avoid death by perpetuation (extension) of the life of a corporation
thru Sec. 11 of the Code. Section 11. Corporate term. - A corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period
is extended. The corporate term as originally stated in the articles of incorporation may be extended for
periods not exceeding fifty (50) years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five
(5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an
earlier extension as · may be determined by the Securities and Exchange Commission.
• While CBTC should have probably filed the amended articles of incorporation earlier (within the 5
years period), there is nothing which prohibits the application of extension on the last day of its
existence.
• Unfortunately, CRMD processor refused to receive the application on the ground that there was a
substantial in accordance with the form prescribed, which is allowed by Sec. 17 – The following are
grounds for such rejection or disapproval: 1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form prescribed herein…
• However, also under Sec. 17, the SEC must give reasonable time within which to make necessary
corrections should there be objectionable portions in the amendment. o Reasonable time is defined as
so much time as is necessary under the circumstances for a reasonably prudent man and diligent man
to do, conveniently, what the contract or duty requires that should be done, having regard for the rights
and possibility of loss, if any to the other.
• ITCAB, CRMD did not give CBTC reasonable time to comply with the requirements o SEC should
have given formal notice to CBTC that the latter had 1 day to cure any defect before CBTC’s life would
expire.
• SEC’s position that the extension should be secured within the life of the corporation places the
burden on the corporation to make sure that SEC will approve the extension. This is wrong, because
this burden falls on both the corporation and the State (acting thru the SEC) o The corporation submit
the application before the end of its life. o Then, the burden falls on the SEC to review, approve, or
disapprove the same before the life ends. o If no approval is secured within the limited time, the fault is
the SEC’s.
• Court believes that despite that rightful rejection, CBTC was deprived of its right to a reasonable 1
period to complete the requirements in view of the suggestion made by the processor to instead submit
a letter requesting for extension. That suggestion caused a misunderstanding as to the proper recourse
that CBTC should have taken. Had the processor notified CBTC about the urgency of fulfilling the
requirements prior to the expiration of the corporate term, it would have been likely that the
requirements for the filing would have been completed.
DISPOSITION: PETITION DENIED.