Principles of corporate governance in terms of transparency and accountability: obligation to keep and report on the main business records

One of the important corporate governance (GC) reforms introduced under the Revised Companies Code of the Philippines (RCCP) has been the formal institution of “the fiduciary duty to keep records and report on important company information ”. Article 161 of the RCCP, under the title “Breach of the obligation to keep records, to allow inspection and reproduction”, expressly subjects to a specified range of criminal fines, “Failure or refusal unjustified business or persons keeping and updating business records, to comply “with the following sections, as well:

(a) ARTICLE 45: The articles of association must be signed by shareholders or members voting for them and must be kept in the main office of the company, subject to inspection by shareholders or members during office hours.

(b) ARTICLE 73: Any company must keep and store carefully at its registered office all information relating to the company, including, but not limited to:

(1) The statutes and statutes and all their amendments;

(2) Current ownership structure and voting rights of the company, including lists of shareholders or members, group structures, intra-group relationships, ownership data and beneficial ownership;

(3) Names and addresses of all members of the Board of Directors and Executive Officers;

(4) List of resolutions of the board of directors and of the shareholders or members;

(5) Recording of all business transactions;

(6) Copies of the latest reporting requirements submitted to the SEC; and,

(7) Minutes of all meetings of shareholders or members, or of the board of directors, setting out in detail, among others;

(i) The time and place of the meeting held;

(ii) How it was authorized, notice given, agenda thereof;

(iii) Whether the meeting was regular or special, its object so special;

(iv) Persons present and absent, and any act performed or ordered at the assembly;

(v) The following shall be noted in the minutes at the request of a director or trustee, shareholder or member:

• The time at which a director or trustee, shareholder or member entered or left the meeting;

• Yes and no to any motion or proposal, and a carefully crafted recording thereof; Where,

• The protest of a director or trustee, shareholder or member against any action or proposed action.

(vi) Stock and Transfer Book (STB) containing:

• Registration of all shares in the names of shareholders listed in alphabetical order;

• The deadlines paid and unpaid on all the shares subscribed, and the date of payment of any due;

• A declaration of each alienation, sale or transfer of stock made, the date thereof, by and to who made it; and,

• All other registrations that the regulations may prescribe.

The STB, which will be kept at the registered office or in the office of the share transfer agent, will be opened for inspection by any director or shareholder at reasonable times on business days.

(c) SECTION 92: A corporation shall, at all times, maintain a list of its members and their attorneys in such form as the SEC may require, which must be updated to reflect registered members and attorneys 20 days before any scheduled election;

(d) ARTICLE 128: For a single-member company, when action is necessary on an issue, it suffices to prepare a written resolution, signed and dated by the sole shareholder, and recorded in the minutes register.

(e) ARTICLE 177: Any company, domestic or foreign, doing business in the Philippines must submit to the SEC: (a) annual audited financial statements certified under oath by the treasurer or the chief financial officer; and (b) the general information sheet (GIS);

Companies with a public interest must also submit:

(1) A remuneration report for each of the directors or trustees; and,

(2) An appraisal or performance report for each director or trustee, and the standards or criteria used to assess each director or trustee.

(f) “Other relevant rules and provisions of this code on the inspection and reproduction of documents”, which may include the following:

(1) ARTICLE 58: Providing that the fiduciary voting agreement deposited with the company must be submitted for review to any shareholder in the same way as the other books or registers of the company;

(2) ARTICLE 74: Provides that –

(i) A company must provide to a shareholder or member, within 10 days of receipt of its written request, its most recent financial statement, in the form and substance of the financial reports required by the SEC;

(ii) At the ordinary meeting of shareholders or members, the board of directors presents a financial report of the operations of the company for the previous year, which includes financial statements duly signed and certified in accordance with the RCCP and the rules prescribed. by SEC.

Under the old Companies Code, only denial of the right to inspect and / or reproduce company documents was punishable by criminal law. The RCCP not only retains the separate criminal sanction for violation of the right of inspection and / or reproduction, but has provided under Article 161 a criminal sanction for the aforementioned violations of “the obligation to keep records and allow their inspection or reproduction. “

Under section 73 of the RCCP, any officer or agent of the company who refuses to authorize the inspection and / or reproduction of company records will be liable under section 161; provided that if such denial is made by resolution or order of the board of directors, liability will be imposed on the directors or trustees who voted for such denial. Article 73 also provides that “If the company refuses or does not act on a request for inspection and / or reproduction, the injured party may report this refusal or inaction to the [SEC]. Within five days of receiving this report, the [SEC] conduct a summary investigation and issue an order ordering the inspection or reproduction of the requested records.

The following provisions of the RCCP fall under the “obligation to report”:

(a) Article 25: Provides that –

(1) Within 30 days of the election of directors or trustees and officers, the corporate secretary or other officer shall submit to the SEC the names, nationalities, holdings and residential addresses of the elected directors or trustees and officers;

(2) Within 30 days from the date of the election schedule, shall be reported to the SEC, which report specifies a new date for the election, which shall not exceed 60 days from the date of calendar ; and,

(3) Within seven days of becoming aware of it, a written report must be made to the SEC of the death, resignation or termination in any way whatsoever of holding office as a director, trustee or officer.

(b) ARTICLE 28: The company must notify the SEC within three days of the establishment of an Emergency Council, stating the reason for its establishment;

(c) ARTICLE 29: Provide that the public interest investment company will submit to their shareholders and to the SEC, an annual report of the total remuneration of each of their directors or trustees.

(d) ARTICLE 49: Providing that at each ordinary meeting of shareholders or members, the Board of Directors will endeavor to present the following:

(1) The minutes of the most recent regular meeting which include, among other things:

(i) A description of the voting and counting procedures used at the previous meeting;

(ii) A description of the opportunity given to shareholders or members to ask questions and a record of the questions asked and the answers given;

(iii) The issues discussed and the resolutions adopted;

(iv) A statement of the results of the vote for each item of the agenda;

(v) A list of the directors or trustees, officers and shareholders or members who attended the meeting; and,

(vi) Any other element that the Commission may require in the interest of good corporate governance and the protection of minority shareholders;

(2) A list of members for public limited companies and, for public limited companies, important information about current shareholders and their voting rights;

(3) A detailed, descriptive, balanced and understandable assessment of the performance of the company, which includes information on any material changes in the business, strategy and other affairs of the company;

(4) A financial report for the previous year, which includes financial statements duly signed and certified in accordance with this code and the rules that the Commission may prescribe, a statement on the adequacy of internal controls or risk management systems the company, and a statement of all external and non-audit audit fees;

(5) An explanation of the dividend policy, whether dividends are paid or the reasons for non-payment;

(6) Director or trustee profiles which must include, among other things, their qualifications and relevant experience, their seniority in the company, the training and continuing education followed, and their representations to the board of directors of other companies;

(7) An attendance report of the directors or trustees, indicating the attendance of each director or trustee at each meeting of the board and its committees and at ordinary or special meetings of shareholders;

(8) Appraisals and performance reports for the board and appraisal criteria and procedure;

(9) A report on the remuneration of directors or trustees prepared in accordance with this Code and the rules of the Commission may prescribe;

(10) the information provided by the directors on transactions between related parties and on transactions between individuals; and or

(11) The profiles of the directors appointed or candidates for election or re-election.

It should be noted that there is no specific provision in the RCCP that specifically imposes criminal penalties for the violation of the “duty to report” under Articles 25, 29 and 49. Therefore, the question which most directors or trustees and appraisers face is whether they can be punished under the general sanction clause in section 170 of the RCCP. It should also be noted that nothing prevents the SEC from adopting the reporting provisions of Articles 25, 29 and 49 and from imposing administrative penalties under Article 158 of the RCCP.

This article reflects the personal opinion of the author and does not reflect the official position of the Management Association of the Philippines or the MAP.

Lawyer Cesar L. Villanueva is chairman of the corporate governance committee of MAP, director of the Institute of Corporate Directors, former chairman of the governance committee for GOCCs (August 2011 to June 2016), dean of the Ateneo Law School (April 2004 to September 2011), author of The Law and Practice in Philippine Corporate Governance and the National Book Board Award-winning Profession, and founding partner of Villanueva Gabionza & Dy law firms.

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