Published — June 15, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
After reading “What is the power of the corporation to sell/dispose corporate assets?”, read also “Shareholders’ approval on sale of Corporate Assets”
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As a general rule, the majority of the board shall only be required to sell or dispose corporate assets if the sale or disposition does not cover or substantially all of the assets.
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A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose of which it was incorporated.
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Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor.
As a general rule, the majority of the board shall only be required to sell or dispose corporate assets if the sale or disposition does not cover or substantially all of the assets.
However, if it involves all or substantially all of the corporate assets including its goodwill, the following shall be required:
- Majority vote of the Board;
- Assent of stockholders, representing at least 2/3 of the outstanding capital stock or 2/3 of members in a non-stock corporation; and
- Meeting duly called for the purpose.
In case of non-stock corporations where there are no members with voting rights, the vote of the majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by Section 39. (Section 39, Revised Corporation Code of the Philippines)
Moreover, nothing in Section 39 is intended to restrict the power of any corporation, without the authorization, by the stockholders or members, to sell, lease, exchange, mortgage, pledge, or otherwise dispose of any of its property and assets in the following causes:
- If the transaction is necessary in the usual and regular course of business; or
- If the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of the remaining business (Section 39, RCCP)
When does a sale or disposition involve all or substantially all of the corporate assets?
The law says:
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose of which it was incorporated. (Section 39, RCCP)
What shall be the liability of another corporation as to the assets of the corporation who sold its assets to the said corporation?
Under the Nell Doctrine, jurisprudence says:
Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor. (Nell vs. Pacific Farms, Inc. G.R. No. L-20850, November 29, 1965)
This, however, comes with exceptions. Under the same case, the Supreme Court held that the Nell Doctrine does not apply when:
- Where the purchaser expressly or impliedly agrees to assume such debts;
- Where the transaction amounts to a consolidation or merger of the corporations;
- Where the purchasing corporation is merely a continuation of the selling corporation; and
- Where the transaction is entered into fraudulently in order to escape liability for such debts (Nell vs. Pacific Farms, Inc. G.R. No. L-20850, November 29, 1965)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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