SEC Releases Guidelines on Declaration of Delinquency Status and Revocation of Certificate of Registration

In Securities and Exchange Commission (“SEC”) Memorandum Circular No. 19, series of 2023, the SEC released the guidelines for the declaration of delinquent status and revocation of the certificate of registration of a corporation, pursuant to the Revised Corporation Code (“RCC”). 

Section 21 of the RCC provides that a corporation may be placed under delinquent status in case of non-use of corporate charter for 5 years and may be declared delinquent in case of continuous inoperation for 5 years. Section 177 of the RCC also empowers the SEC to place a corporation under delinquent status in case it fails to file its reportorial requirements 3 times either consecutively or intermittently, within 5 years.

Non-Use of Corporate Charter

Failure to formally organize and commence the transaction of business would constitute non-use of corporate charter, which would result in the revocation of its certificate of incorporation on the day following the end of the 5-year period.

A corporation may be considered to have formally organized when it has, for example, adopted its by-laws or elected its Board of Directors/Trustees, among others. Meanwhile, a corporation may be considered to have commenced the transaction of its business when it has performed preparatory acts geared toward the fulfillment of its purpose. The guidelines include what sort of preparatory acts are considered, which include, but is not limited to, entering into contracts or negotiations for the lease or sale of property or for the sale or purchase of goods.

Continuous Inoperation

A corporation is deemed to be in continuous inoperation when for at least 5 years, they have ceased to perform acts or works or exercise its functions, necessary or incidental for the purpose which it was organized.

A corporation who becomes inoperative for 5 years will be sent a Show Cause Order directing them to appear before the SEC at a hearing and show cause within 30 days from receipt of the Show Cause Order to show why they should not be put under delinquent status. 

When a corporation is delinquent, any application or petitions they may have passed to the SEC will not be accepted or approved. They shall also be charged fines and surcharges as applicable. Failure to resume operations will result in the revocation of the Certificate of Incorporation of the corporation.

Non-filing of Reportorial Requirements

A corporation may also be placed under delinquent status if it fails to file its reportorial requirements 3 times either consecutively or intermittently, within 5 years. 

Corporations who fail to file their reportorial requirements have a period of 6 months from receipt of the Order of Delinquency to submit its (a) Audited Financial Statements (“AFS”); (b) General Information Sheet (“GIS”); (c) director or trustee compensation report; and (d) director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee. Failure to submit these requirements within the time period shall result in the revocation of the Certificate of Incorporation of the corporation.

Petition to Lift Order of Delinquency

A corporation with a delinquent status by reason of its continuous inoperation may file a Petition to Lift Order of Delinquency within 2 years from receipt of the Order of Delinquency. Meanwhile, a corporation that is delinquent by reason of non-filing of reportorial requirements may file the same petition within 6 months from receipt of the said order.

The documentary requirements for purposes of lifting the Order of Delinquency, are as follows:

1. Verified Petition to Lift the Order of Delinquency or Revocation with the prescribed certification;
2. Directors’ or Trustees’ Certificate;
3. Latest due AFS;
4. Latest due GIS;
5. Copies of Certificate of Incorporation and latest Certificate of filing of Amended Articles or By-laws (if any) together with latest Articles of Incorporation and By-laws;
6. Copy of registration of stock and transfer book or membership book;
7. Secretary’s Certificate of No Intra Corporate Controversy;
8. Sworn Certification by the External Auditor;
9. For corporations that fail to use their charter, proof of ongoing operation, such as but not limited to:
   • Income Tax Returns;
   • Mayor’s or Business Permits;
   • Contracts;
   • Receipts showing payment of Real Estate Tax;
   • Certification/Recognitions/Annual Conventions; or
   • Any similar/related documents.
10. For corporations vested with public interest, a director or trustee compensation report or a director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee.