SEC sets guidelines for purging delinquent, inactive corporations

The Securities and Exchange Commission (SEC) has released the guidelines for the placement of non-compliant corporations under delinquent status, and the revocation of the certificates of registration of inactive corporations.

The Commission on October 26 issued SEC Memorandum Circular No. 19, Series of 2023, providing the Guidelines on Declaration of Delinquent Status and Revocation of Certificate of Registration of Corporations under Sections 21 and 177 of the Revised Corporation Code.

The guidelines cover corporations which have failed to formally organize and commence their business within five years from the date of their incorporation; those which have commenced operations but became inoperative for at least five consecutive years; and corporations which have failed to file their reportorial requirements three times, consecutively or intermittently, within any five-year period.

The release of the guidelines follows the issuance of a list of 22,403 ordinary corporations in danger of having their certificates of incorporation revoked for failure to submit their general information sheets (GIS) within five years from the date of their incorporation.

Under Section 21 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines (RCC), a corporation that does not formally organize and commence its business within five years from the date of its incorporation shall have its Certificate of Incorporation be deemed revoked as of the day following the end of the five-year period.

The SEC also previously released a list of 298,335 ordinary corporations, which have failed to submit their GIS for three times consecutively or intermittently within a five-year period.

Section 177 of the RCC provides that the Commission may place a corporation under delinquent status should they fail to submit their reportorial requirements three times, consecutively or intermittently, within a period of five years.

“In line with our mandate of ensuring the integrity of the corporate sector and championing good corporate governance, we will strictly enforce the reportorial requirements of corporations provided under the Revised Corporation Code and other pertinent laws, rules and regulations,” SEC Chairperson Emilio B. Aquino said.

“Corporations are required to submit their annual financial statements, general information sheet, official contact details and other reports for good reasons. Among others, the pieces of information contained in these reports ensure transparency and accountability in a corporation’s dealings for the benefit of its stakeholders, particularly the investors, consumers and employees.”

Companies for revocation

The certificate of incorporation of a corporation that does not formally organize and commence its business within five years from incorporation shall be deemed revoked, subject to the monitoring of the SEC.

The Commission shall tag such corporation as having a “revoked status” on the day following the end of the five-year period, with the corresponding order of revocation to be issued to the corporation.

Corporations with revoked status may file their Petition to Lift Order of Revocation anytime, subject to existing rules and regulations.

If the petition is approved, the Commission shall issue an order lifting the delinquent or revoked status of the corporation. Petitions of corporations with pending intra-corporate dispute between two or more groups claiming ownership or right over the same, shall only be accepted upon the finality of a court decision resolving the intra-corporate controversy.

Delinquent status

Meanwhile, the SEC shall issue a show cause order to corporations with continuous inoperation for five years, directing them to appear before the Commission to explain why its should not be placed under delinquent status.

Failure to provide a valid justification for continuous inoperation shall cause the corporation to be placed under delinquent status, which means that the SEC shall no longer process such corporation’s applications for amendment of articles of incorporation, amendment of license, or conversion to one person corporation, among other similar transactions.

A corporation with delinquent status due to continuous inoperation shall have two years from receipt of Order of Delinquency to resume operations, through the submission of proof of its operations, such as income tax returns, mayor’s or business permits, contracts, and receipts for payment of real estate tax, as well as other similar documents.

Corporations that have failed to file its financial statements (FS) and/or general information sheet (GIS) for three times, consecutively or intermittently within a period of five years shall also be placed under delinquent status.

Such corporations have a total of six months from receipt of Order of Delinquency to submit, as applicable, their audited FS, GIS, director or trustee compensation report, and director or trustee appraisal or performance report, and the standards or criteria used to assess each director or trustee.

If the non-compliant corporation fails to comply with these requirements, the SEC shall enter a “Revoked Status” in its records in the Commission’s database and issue an order of revocation.

A corporation with delinquent status due to continuous inoperation may file a Petition to Lift the Order of Delinquency within two years, while a corporation with delinquent status due to non-filing of reportorial requirements may file the same petition within six months from receipt of the Order of Delinquency.

Amnesty

To give non-compliant and inactive corporations a chance to bring their company back to good standing, the SEC has launched an amnesty program for those who have failed to comply with their reportorial requirements over the years.

Eligible corporations may avail of the amnesty by accepting the web-based Expression of Interest form on their SEC Electronic Filing and Submission Tool (eFAST) accounts, and paying the amnesty fee and petition fee, in the case of suspended and revoked corporations.

After signifying their intention to avail of amnesty, eligible corporations must submit their latest due GIS and AFS on eFAST. Suspended and revoked corporations must also submit their petitions to lift their suspension or revocation.

For suspended and revoked corporations, additional requirements such as copies of their certificates of incorporation, latest mayor’s or business permits, and certificates of registration with the Bureau of Internal Revenue must be submitted to the SEC Company Registration and Monitoring Department or to the nearest SEC Extension Office initially through email.

Corporations applying for amnesty may proceed to the SEC Amnesty Microsite at amnesty.sec.gov.ph for the step-by-step guidance on how to avail of the program.