The Securities and Exchange Commission (“SEC”) issued on 15 February 2022 Memorandum Circular No. 4, Series of 2022 (“MC 4-2022”), outlining the procedure for the removal of directors, trustees, and officers elected or appointed despite possessing a disqualification, or whose disqualification arose or is discovered after their election or appointment.
MC 4-2022 enumerates the following as grounds for the disqualification of a director, trustee, or officer of a corporation:
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years;
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was convicted by final judgment for violating the Revised Corporation Code (“RCC”);
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was convicted by final judgment for violating the Securities Regulation Code (“SRC”);
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was found administratively liable by final judgment for any offense involving fraudulent acts punishable under the RCC, SRC, other laws, rules, or regulations enforced or implemented by the SEC;
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was convicted or found administratively liable by a foreign court or equivalent foreign regulatory authority for acts, violations, or misconduct similar to those enumerated in paragraphs (a) and (b) of Section 26 of the RCC, e., conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or involving a violation of the RCC or the SRC, or if found to be administratively liable for any offense involving fraudulent acts; and
- Within five (5) years before their election or appointment, or within his tenure, the director, trustee, or officer was found administratively liable, by final judgment, for refusal to allow the inspection or reproduction of corporate records.
All independent administrative actions for removing a director, trustee, or officer under the preceding grounds shall be commenced and heard at the SEC’s main office in Metro Manila or any of the Extension Offices of the Commission with jurisdiction. The action may be commenced upon: (1) the motu proprio issuance of a Formal Charge by the SEC’s Operating Department (“OD”) with competent jurisdiction; or (2) the filing of a Verified Complaint with the OD that has jurisdiction over the subject matter.
Upon the filing of a Verified Complaint by a real party in interest, the payment of the filing fees, and the determination by the Director of the OD of its authority to act over the Complaint and of its sufficiency in form and substance, the OD shall issue summons to the named Respondent(s). The Respondent(s) shall have fifteen (15) calendar days to file a Verified Answer. Should the Respondent(s) fail to file an Answer, the OD may, motu proprio, render a judgment granting such relief or imposing sanction(s), as the Complaint or evidence presented in the course of the proceedings may warrant.
MC 4-2022 also provides that the withdrawal of a complaint does not automatically result in the outright dismissal of the administrative action, nor will it discharge the Respondent(s) from the possible imposition of sanctions or penalty when there is merit to the charges. As such, the SEC may take the Complainant’s place as if it has instituted the Formal Charge by itself.
A copy of the order, decision, or resolution, which includes the removal of a director, trustee, or officer of a corporation, will be maintained by the Corporate Filing and Records Division of the SEC’s Company Registration and Monitoring Department through a designated index for the purpose.