Corporate Governance in the Time of COVID-19: Navigating New Horizons
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This legal briefing was prepared by SyCipLaw for its clients to give them an overview of recent SEC regulations and to help them address corporate governance issues triggered by the current pandemic, or issues which have become more relevant because of it.
A. Getting the Ball Rolling: ECQ Guidelines on Setting up a Philippine entity
During the ECQ, the SEC’s offices in the National Capital Region and certain areas were closed. As the National Capital Region has now transitioned into MECQ, government offices are operating with a skeleton workforce, and while the SEC has given details on the opening of payment facilities on-site, it has yet to do so for the rest of its operations. This presents a challenge for persons who wish to set up Philippine entities in order to conduct business in the country as they cannot physically submit documents to the SEC. The SEC has allowed applicants who wish to incorporate or set up other entities to start this process, and complete the rest of the steps once the MECQ is lifted.
The SEC continues to accept online applications for the registration of corporations and partnerships through the SEC Company Registration System (CRS). However, payment of the filing fees can only be verified and the Certificate of Incorporation or Certificate of Filing of Articles of Partnership can only be generated on-site and are difficult to accomplish due to the MECQ.
In addition, the SEC has set up an interim online registration to facilitate application for the registration of One Person Corporations (OPCs) and corporations with two to four incorporators. This registration system is separate from CRS and may be accessed at https://apps004.sec.gov.ph:8001/application.
As advised by the SEC, the registration fees may be paid either through: (1) over the counter payment to Landbank, (2) e-Payment through the CRS Platform, or (3) to the SEC Ortigas Branch which will be open starting 11 May 2020, every Monday, Wednesday and Friday, from 8:00 am to 3:00 pm. Further, the SEC will be opening payment facilities in its Main Office and Ortigas Office starting 26 May 2020, but cashiers in the SEC’s Satellite Offices will remain closed until further notice.
Due to the MECQ, submission of signed and notarized hardcopies of registration documents, and releasing of the Certificate of Incorporation will also be challenging.
In this connection, the SEC has advised that the Company Registration and Monitoring Department (CRMD) resumed its manual operations in the SEC’s Main Office on 21 May 2020. CRMD’s manual operations will cater to applications that have already been assessed and approved through online processing, such as registration of corporations. CRMD will be open from Mondays to Thursdays from 9:00 am to 4:00 pm, and will receive proof of payment and signed and notarized hardcopies of registration documents and release Certificates of Incorporation.
B. One Step Less: Guidelines on Authentication of Constitutive Documents
The SEC issued Memorandum Circular No. 16-2020 dated 30 April 2020 to bolster the ease of doing business in the Philippines by allowing incorporators to authenticate Articles of Incorporation (AOI) without need of notarization.
For AOI executed in the Philippines, the SEC will accept the AOI accompanied by a Certification of Authentication signed by all incorporators. The AOI and the Certification need not be notarized. However, the incorporators may still choose to have the AOI notarized and the SEC will accept the same.
For AOI executed abroad, these may be either (a) apostilled or (b) notarized or authenticated by a Philippine diplomatic or consular officer.
C. Alone Together: Holding of Meetings when Social Distancing
One of the core policies adopted by most governments, including the Philippines, to slow down the spread of COVID – 19 is the policy of social-distancing. Any mass gathering of civilians for any purpose is restricted. For obvious reasons, this creates a barrier to the holding of meetings of a corporation’s Board of Directors and that of its stockholders or members. Below are measures allowed under the the Revised Corporation Code of the Philippines (RCCP) and by the SEC to continue the holding of meetings despite prohibitions on social gathering.
The RCCP provides that notices of regular meetings of stockholders or members may be sent through electronic mail or such other manner as the SEC may allow under its guidelines. In Memorandum Circular No. 6, Series of 2020 (SEC MC 6), the SEC allowed the Corporate Secretary to send notice of meetings to directors or trustees through electronic mail, messaging service or such other manner as may be provided by the by-laws or board resolution.
In addition, recognizing that the declaration of the ECQ over Luzon and other parts of the country has affected the normal process of producing and distributing meeting materials, the SEC, on 20 April 2020, issued a notice addressed to all Publicly Listed Companies (PLC) and Other Companies with Registered Securities under the Markets and Securities Regulation Department’s supervision on the Alternative Mode for Distributing and Providing Copies of the Notice of Meeting, Information Statement, and Other Documents in connection with the holding of the Annual Stockholders’ Meeting (ASM) for 2020.
The covered companies are allowed to notify their stockholders about the ASM via alternative mode by causing the publication of the Notice of the ASM. The Notice of the ASM must be published in the business section of two newspapers of general circulation, in print and online format, for two consecutive days and the last publication of the Notice of the ASM (print and online) shall be made no later than 21 days prior to the scheduled ASM. Compliance by the concerned companies with the foregoing shall be considered fulfillment of the requirements on the distribution and provision of the aforementioned documents as required under the 2015 Securities Regulation Code Implementing Rules and Regulations, the RCCP and other applicable issuances of the SEC.
Although the RCCP provides that stockholders’ or members’ meetings, whether regular or special, shall generally still be held in the principal office of the corporation as set forth in the articles of incorporation, the same now provides that the right to vote of stockholders or members may be exercised through remote communication or in absentia.
SEC MC 6 provides that when allowed by the by-laws or by a majority of the board, stockholders or members who cannot physically attend the meetings may participate through remote communications or other alternative modes of communication, and they shall be deemed present for the purpose of determining quorum. In addition, SEC MC 6 also provides that stockholders or members may exercise their right to vote through remote communication or in absentia when allowed by the by-laws or authorized by a resolution of majority of the board which shall be applicable only for that particular meeting. However, in instances when the corporation is vested with public interest, stockholders or members may vote in the election of directors or trustees through remote communication or in absentia, even if this is not provided in the by-laws.
As to the meeting of the board of directors or of the trustees, the RCCP provides that the meeting may be held anywhere in or outside of the Philippines, unless the by-laws provide otherwise.
Directors or trustees who cannot physically attend or vote at board meetings may participate and vote through remote communication such as videoconferencing, teleconferencing, or other alternative modes of communication that allow them reasonable opportunities to participate. For the purpose of determining the existence of a quorum, the director or trustee who participates through remote communication shall be deemed present. In case of a need to vote on any item or matter in the agenda, the director or trustee participating in the meeting via remote communication may cast his vote through electronic mail, messaging service or such other manner as may be provided in the internal procedures. The vote shall then be sent to the Presiding Officer and the Corporate Secretary for notation.
C. Business, but not as usual: How to Comply with Reportorial Requirements
Despite the ECQ (and now MECQ) imposed over the National Capital Region and the directive that government agencies are allowed to operate with a skeleton workforce, business must go on, and corporations must still comply with their reportorial requirements to the SEC. In response to this situation, the SEC has issued several issuances extending the deadlines for certain reports or providing alternative modes of filing. On 8 April 2020, the SEC issued a Notice summarizing the guidelines for filing reports and other documents. Based on an inquiry with the SEC, the issuances on reportorial requirements in force during the ECQ remain applicable to the MECQ, unless the SEC issues a new circular.
General Information Sheet (GIS)
At the start of the ECQ, the SEC issued a circular giving corporations that have conducted their annual stockholders’/members’ meetings the option of filing their GISs via email (to any of the following email addresses: [email protected], [email protected], or
[email protected]), mail, or private courier within 30 calendar days from the date actual meeting.
For corporations that have not conducted their election of directors/trustees between 1 March and 31 May 2020 due to the COVID-19 pandemic and have no facilities for remote communication, the SEC allows these corporations to file a Report of Non-Holding of Election within 30 days from the original meeting date via email, mail, or courier. The Report of Non-Holding of Election must specify the new date for election, which should not be later than 60 days from the originally scheduled date.
With respect to the submission of hard copy of the GIS during the period after the lifting of the ECQ, the SEC has issued a circular stating that GIS can be filed via email, but after doing so, a hard copy has to be submitted through the SEC Express Nationwide Submission to any courier of the corporation’s choice and/or the Philippine Postal Office.
In this connection, the SEC has advised that it will announce a specific date for submitting the duly notarized hard copies after the state of public health emergency has been lifted.
Audited Financial Statements (AFS)
Similar to the GIS, the AFS can be filed via email, but after doing so, a hard copy has to be submitted through the SEC Express Nationwide Submission to any courier of the corporation’s choice and/or the Philippine Postal Office.
The SEC has provided a schedule for the filing of the AFS for the year ending 31 December 2019 depending on the last digit of the SEC registration of the corporation, as follows:
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