DISQUALIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS OF CORPORATIONS; AND THE GUIDELINES ON THE PROCEDURE FOR THEIR REMOVAL.

DISQUALIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS OF CORPORATIONS; AND THE GUIDELINES ON THE PROCEDURE FOR THEIR REMOVAL. (SEC Memorandum Circular No. 04 s. 2022)

• Under Section 26 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines (“RCC”), a person shall be disqualified from being a director, trustee, or officer of any corporation if, within five (5) years prior to the election or appointment as such, the person was:
  • Convicted by final judgment;
    • Of an offense punishable by imprisonment for a period exceeding six (6) years;
    • For violating this Code; and
    • For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code.
  • Found administratively liable for any offense involving fraudulent acts; and
  • By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) above;
• The same section provides that the SEC or the Philippine Competition Commission (“PCC”) may impose qualifications or other disqualifications in its promotion of good corporate governance or as a sanction in its administrative proceedings.
• Section 27 of the RCC authorizes SEC to motu proprio, or upon a verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to the election, and the removal of such shall be without prejudice to other sanctions that the SEC may impose on the board of directors/trustees who, with knowledge of the disqualification, failed to remove such director/trustee.
• Administrative Sanctions – In addition to the removal as a director, trustee and/or officer, SEC may issue a permanent cease and desist order, and/or impose a fine ranging from PhP10,000.00 – PhP400,000.00 for each violation of the SEC’s orders, or any of the provisions of the RCC on the disqualifications and removal of directors, trustees and/or officers.
• One Person Corporations – In case of removal of the sole director under these rules, the nominee shall take the place of the single stockholder as director and shall manage the corporation’s affairs.
• Disqualifications of Directors, Trustees and Officers – In addition to the above, the following are additional grounds for the disqualification of directors, trustees and officers:
  • Within the tenure, the director, trustee or officer was convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6 years;
  • Within the tenure, the director, trustee or officer was convicted by final judgment for violating the RCC;
  • Within the tenure, the director, trustee or officer was convicted by final judgment for violating the SRC;
  • Within 5 years prior to the election or appointment, the director, trustee or officer was found administratively liable, by final judgment, for any offense involving fraudulent acts punishable under the RCC, SRC, and other laws, rules and regulations enforced or implemented by the SEC;
  • Within the tenure, the director, trustee or officer was found administratively liable, by final judgment, for any offense involving fraudulent acts punishable under the RCC, SRC, and other laws, rules and regulations enforced or implemented by the SEC;
  • Within 5 years prior to the election or appointment, 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;
  • Within the 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; or

Within 5 years prior to the election or appointment, or within the tenure, the director, trustee or officer was found administratively liable, by final judgment, for refusal to allow the inspection and/or reproduction of corporate records.