Proposed SEC rules on sale, disposal of listed firms’ assets

The Securities and Exchange Commission (SEC) continues to spearhead corporate governance reforms pursuant to Republic Act 11232, otherwise known as the “Revised Corporation Code of the Philippines” (RCC). Three weeks after I wrote about the proposed rules on the notice period for regular meetings of stockholders/members, the SEC released another set of rules seeking to […]

The Securities and Exchange Commission (SEC) continues to spearhead corporate governance reforms pursuant to Republic Act 11232, otherwise known as the “Revised Corporation Code of the Philippines” (RCC).

Three weeks after I wrote about the proposed rules on the notice period for regular meetings of stockholders/members, the SEC released another set of rules seeking to promote good corporate governance and the protection of minority investors, for public comment, by regulating the sale or disposal of corporate properties and assets.

Section 39 of the RCC provides: “A sale of all or substantially all of the corporation’s properties and assets, including its goodwill, must be authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members, in a stockholders’ or members’ meeting duly called for the purpose. In nonstock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section.”

Section 39 further states that: “The determination of whether or not the sale involves all or substantially all of the corporation’s properties and assets must be computed based on its net asset value, as shown in its latest financial statements.”

To effectively implement the provision and fulfill the underlying objective of protecting minority investors, the SEC will issue rules on shareholders’ approval on sale of corporate assets of publicly-listed companies (PLCs).

The commission drafted the rules with the following objectives: to further protect the interest of shareholders and ensure that there is mandatory shareholder participation particularly, in corporate acts or transactions significantly affecting their investments and more so, their appraisal rights; to promote ease of doing business best practices as recommended by the World Bank Doing Business Team; and to improve the global competitiveness of the Philippines’ corporate sector.

The draft memorandum circular (MC) also seeks to ease the shareholders’ burden of proving that such sale of corporate property and assets constitutes a sale of all or substantially all of the corporate assets, prior to invoking their right to vote on the corporate acts or transactions.

Hence, the draft MC provides the following rules:

— The sale or disposal of corporate property and assets amounting to at least 51 percent of the corporation’s total assets shall be considered as sale of all or substantially all of corporate property and assets, whether such sale accrued in a single transaction or in several transactions taking place within one year from the date of the first transaction (aggregate sale transactions).

— In sale of corporate assets or property falling under the preceding paragraph, the vote of the stockholders representing at least two-thirds of the outstanding capital stock in a stockholders’ meeting duly called for the purpose shall be required.

— In aggregate sale transactions, shareholder approval shall be required for the sale transaction that breaches the 51-percent corporate asset threshold.

— The determination of whether or not the sale amounts to at least 51 percent of the corporation’s assets must be computed based on its total assets as shown in its latest audited financial statements.

The draft SEC memorandum circular was released on the commission’s website (www.sec.gov.ph) on Feb. 21, 2020. I encourage you to go over the full details of the draft MC and let us know what you think.

The commission welcomes any feedback from the public on or before Mar. 7, 2020. You may send your comments or inputs to cgfd_cgd@sec.gov.ph, using the template provided on our website.

Kelvin Lester K. Lee is a commissioner of the Securities and Exchange Commission (SEC). The views and opinions stated here are his own. You may email your comments and questions to oclee@sec.gov.ph.