In the reality of the business world, companies often encounter challenges that lead to difficult decisions. One such challenge is corporate liquidation. The majority of entrepreneurs view it as a necessary step toward resolution when they can no longer meet their financial obligations, whether due to outstanding debt and liabilities, shifts in the market, or a strategic pivot.
What is Corporate Liquidation?
Corporate Liquidation is the process of winding up a corporation’s affairs. It happens when a corporation can no longer meet its financial obligations, which often leads to bankruptcy or a decision to cease operations. During this process, the corporation sells its assets to generate funds to pay off creditors, shareholders, and their other financial obligations. Additionally, some corporations may liquidate assets as part of a strategic decision rather than financial distress.
What are the Types of Corporate Liquidation?
There are two types of corporate liquidation:
- Voluntary Liquidation is initiated by the board of directors and shareholders to no longer continue the operations. This happens for various reasons, such as poor financial performance or strategic decisions.
- Involuntary Liquidation is ordered by the court. This typically happens when the creditors or regulatory authorities file a petition to liquidate the company due to insolvency or other legal grounds.
What are the Legal Grounds for Involuntary Liquidation?
The following are the legal grounds for involuntary liquidation:
- Insolvency
- Fraudulent activities
- Violation of laws or regulations
- Inability to meet financial obligations
What are the Requirements for Corporate Liquidation in the Philippines?
Requirements for Voluntary Liquidation
The following documents are required when processing a voluntary liquidation:
- Petition for Voluntary Dissolution signed by a majority of the board of directors and authorized by shareholders
- Certified copies of Board Resolution and minutes of the shareholders meeting
- Affidavit of Publication
- Latest Audited Financial Statements
- Final Liquidation Report
- Other necessary documents
Requirements for Involuntary Liquidation
The following documents are required when processing an involuntary liquidation:
- Petition for Involuntary Distribution
- Affidavit of the Liquidator
- Final Liquidation Report
- Other necessary documents
What are the Legal Procedures for Corporate Liquidation?
Liquidation of corporation in the Philippines may be processed in two ways:
Legal Procedure for Voluntary Liquidation
For voluntary liquidation, the following procedure must be followed:
- Board Resolution and Shareholder Approval. The board of directors must pass a resolution to dissolve the corporation and schedule a meeting for shareholders. A two-thirds vote of the outstanding capital stock is required for shareholders to approve the liquidation.
- Submission of Documents. The necessary documents must be submitted to the Securities and Exchange Commission (SEC) to formalize the liquidation process.
- Publication of Notice of Dissolution. The notice of dissolution shall be published in a newspaper of general circulation once a week for three consecutive weeks. It must provide details about the dissolution and a request for creditors to submit their claims.
- Appointment of Liquidator. The corporation appoints a liquidator to manage the process, collect the corporation’s assets, pay the debts, and distribute the remaining assets to the shareholders. The liquidator may be an individual, a committee, or the board of directors acting as a liquidating body.
- Settlement of Obligations. The liquidator addresses the corporation’s obligations by paying creditors and resolving any liabilities.
- Distribution of Remaining Assets. After settling all debts and liabilities, the remaining assets shall be distributed to shareholders based on their rights.
- Submission of Final Report. A final report must be submitted to the SEC. The report must include the liquidation process and the distribution of assets.
Legal Procedure for Involuntary Liquidation
For involuntary liquidation, the following procedure must be followed:
- File a Petition. Creditors, shareholders, or regulatory authorities may file a petition for involuntary liquidation with the appropriate court.
- Issuance of Liquidation. The court will review the petition. If granted, an order for liquidation will be issued. The procedures and timeline for liquidation will be outlined in the order. In addition, the court may appoint a liquidator to manage the liquidation process.
- Appointment of a Liquidator. The court appoints a liquidator to ensure and manage the process, collect the corporation’s assets, pay the debts, and distribute any remaining assets to the shareholders.
- Notification to Creditors and Settlement of Obligations. The appointed liquidator will notify the creditors and settle the company’s obligations.
- Distribution of Remaining Assets. After settling all debts and liabilities, the remaining assets shall be distributed to shareholders based on their rights.
- Submission of Final Report. A final report must be submitted to the court. The report must include the liquidation process and the distribution of assets.
What Corporate Assets Can Be Liquidated?
Corporate assets are all equipment, furniture, decorations and vehicles owned by a corporation. However, only some of the assets can be liquidated. These assets are the following:
- Unsold products (perishable products, such as food, beverages and medicines are not accepted)
- Raw materials, such as oil, wood, gasoline, coal, and minerals
- Office equipment, such as desktops, laptops, tablets and mobile phones
- Other electronic equipment, such as televisions, speakers, printers, scanners, and point sale systems
- Office furniture such as desks, office chairs, lighting fixtures, and storage cabinets
- Office decorations, such as artworks and sculptures
- Company vehicles
What Should Be Considered When Processing a Corporate Liquidation?
Corporate liquidation in the Philippines involves a legal process to wind up a corporation’s affairs, settle financial obligations, and distribute any remaining assets. Navigating the complexities of this process without the assistance of a specialized law firm or lawyer can be challenging and stressful. Therefore, it is highly advisable to consult with legal professionals who can help you understand the liquidation procedures and ensure compliance with the law. They can also assist in resolving any potential problems that may arise during the process. In cases involving the court, a lawyer can represent your interests and protect your rights.
Need further information and assistance regarding Corporate Liquidation? Talk to our team at Duran & Duran-Schulze Law to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
