REPUBLIC ACT No.

3591 member to complete the unexpired period of the term

of the member concerned.
An Act Establishing the Philippine Deposit Insurance
Corporation, Defining its Powers and Duties and for The Board of Directors shall have the authority:
Other Purposes
1. To prepare and issue rules and regulations as it
Be it enacted by the Senate and House of considers necessary for the effective discharge
Representatives of the Philippine Congress Assembled: of its responsibilities;
2. To direct the management, operations and
Section 1. There is hereby created a Philippine Deposit administration of the Corporation;
Insurance Corporation hereinafter referred to as the 3. To appoint, fix the remunerations and remove
"Corporation" which shall insure, as herein provided, all officers and employees of the Corporation,
the deposits of all banks which are entitled to the subject to the Civil Service Law; and
benefits of insurance under this Act, and which shall 4. To authorize such expenditures by the
have the powers hereinafter granted. Corporation as are in the interest of the
Section 2. The powers and functions of the Corporation effective administration and operation of the
shall be vested in a board of directors consisting of Corporation.1âшphi1
three (3) members one of whom shall be the governor Section 3. As used in this Act—
of the Central Bank of the Philippines and two of whom
shall be citizens of the Republic of the Philippines to be a. The term "Board of Directors" means
appointed by the President of the Philippines with the the Board of Directors of the
advice and consent of the Commission on Corporation.
Appointments. One of the appointive members shall be b. The term "Bank" and "Banking
the Chairman of the Board of Directors of the Institution" shall be synonymous and
Corporation who shall be appointed on a full time basis interchangeable and shall include
for a term of six (6) years at an annual salary of twenty- banks, commercial banks, savings
four thousand pesos (₱24,000.00). The other appointive banks, mortgage banks, rural banks,
member, who shall be appointed for a term of four (4) development banks, cooperative banks,
years and the Governor of the Central Bank shall each trust companies, branches and agencies
receive a per diem of not exceeding fifty pesos (₱50.00) in the Philippines of foreign banks and
for each day of meeting actually attended by them but all other companies, corporations,
in no case shall each of them receive more than five partnership performing banking
hundred pesos (₱500.00) a month. In the event of a functions in the Philippines.
vacancy in the Office of the Governor of the Central c. The term "receiver" includes a receiver,
Bank of the Philippines, and pending the appointment liquidating agent, conservator,
of his successor or during the absence of the Governor, commission, person, or other agency
the Acting Governor of the Central Bank of the charged by law with the duty of winding
Philippines shall act as member of the Board of Director. up the affairs of a bank.
In the event of a vacancy in the Office of the Chairman d. The term "insured bank" means any
of the Board of Directors and pending the appointment bank the deposit of which are insured in
of his successor, the Governor of the Central Bank of accordance with the provision of this
the Philippines shall act as Chairman. The members of Act;
the Board of Directors shall be ineligible during the time e. The term "non-insured bank" means
they are in office and for a period of two years any bank the deposit of which are not
thereafter to hold any office, position or employment in insured.
any insured bank, except that this restriction shall not f. The term "deposit" means the unpaid
apply to any member who has served the full term for balance of money or its equivalent
which he was appointed. No member of the Board of received by a bank in the usual course
Directors shall be an officer or director of any insured of business and for which it has given or
bank; and before entering upon his duties as member of is obliged to give credit to a
the Board of Directors he shall certify under oath that commercial, checking, savings, time or
he has complied with this requirement and such thrift account or which is evidenced by
certification shall be filed with the Secretary of the its certificate of deposit, and trust funds
Board of Directors. Any vacancy in the Board created by held by such bank whether retained or
the death, resignation, or removal of an appointive deposited in any department of such
member shall be filled by the appointment of new bank or deposited in another bank,
 together with such other obligations of enable it to meet all its liabilities to depositors and
a bank as the Board of Directors shall other creditors as shown by the books of the bank.
find and shall prescribe by regulations
Section 5. The factors to be considered by the Board of
to be deposit liabilities of the
Bank: Provided, That any obligation of a Directors under the preceding section shall be the
following: the financial history and condition of the
bank which is payable at the office of
the bank located outside of the Bank, the adequacy of its capital structure, its future
earning prospects, the general character of its
Philippines shall not be a deposit for
any of the purposes of this Act or management, the convenience and needs of the
community to be served by the Bank and whether or
included as part of the total deposits or
of the insured deposit: Provided, not its corporate powers are consistent with the
purposes of this Act.
further, That any insured bank which is
incorporated under the laws of the Section 6. (a) The assessment rate shall be determined
Philippines which maintains a branch by the Board of Directors: Provided, That the
outside the Philippines may elect to assessment rate shall not exceed one-twelfth of one per
include for insurance its deposit centum per annum. The semiannual assessment for
obligation payable only at such branch. each insured bank shall be in the amount of the product
g. The term "insured deposit" means the of one-half (½) the assessment rate multiplied by the
net amount due to any depositor for assessment base. The assessment base shall be the
deposits in an insured bank (after amount of the liability of the bank for deposits,
deducting offsets) less any part thereof according to the definition of the term "deposit" in and
which is in excess of ₱10,000. Such net pursuant to subsection (f) of Section 3 without any
amount shall be determined according deduction for indebtedness of depositors: Provided,
to such regulations as the Board of further, That the bank—
Directors may prescribe and in
determining the amount due to any (1) may deduct (i) from the deposit balance due to an
depositor there shall be added together insured bank the deposit balance due from such insured
all deposits in the bank maintained in bank (other than trust funds deposited by it in such
the same capacity and the same right bank) which is subject to an immediate withdrawal; and
for his benefit or in his own name or in (ii) cash items as determined by either of the following
the names of others. methods, at the option of the bank: (aa) by multiplying
h. The term "transfer deposit" means a by 2 the total of the cash items forwarded for collection
deposit in an insured bank made on the assessment base days (being the days on which
available to a depositor by the the average deposits are computed) and cash items
Corporation as payment of insured held for clearings at the close of business on said days,
deposit of such depositor in a closed which are in the process of collection and which the
bank and assumed by another insured bank has paid in the regular course of business or
bank. credited to deposit accounts; or (bb) by deducting the
i. The term "trust funds" means funds total of cash items forwarded for collection on the
held by an insured bank in a fiduciary assessment base days and cash items held for clearing
capacity and includes without being at the close of business on said days, which are in the
limited to, funds held as trustee, process of collection and which the bank has paid in the
executor, administrator, guardian, or regular course of business or credited to deposit
agent. accounts, plus such uncollected items paid or credited
on preceding days which are in the process of
Section 4. Any bank or banking institution which is collection: Provided, That the Board of Directors may
engaged in the business of receiving deposits as herein define the terms "cash items", "process of collection",
defined on the effective date of this Act, or which and "uncollected items" and shall fix the maximum
thereafter may engage in the business of receiving period for which any such item may be deducted; and
deposits, may insure its deposit liabilities with the
Corporation. Before approving the application of such (2) may exclude from its assessment base (i) drafts
bank to become an insured bank, the Board of Directors drawn by it on deposit accounts in other banks which
shall give consideration to the factors enumerated in are issued in the regular course of business; and the
Section 5 and shall determine upon the basis of a amount of devices or authorizations issued by it for cash
thorough examination of such bank, that its assets in letters received, directing that its deposit account in the
excess of its capital requirements are adequate to sending bank be charged with the amount thereof; and
(ii) cash funds which are received and held solely for the period, each such bank shall comply with the provisions
purpose of securing a liability to the bank but not in an of subsection (b) of this section except that the
amount in excess of such liability, and which are not semiannual assessment base for its first certified
subject to withdrawal by the obligor and are carried in a statement shall be the assessment base of the bank as
special non-interest bearing account designated to of the close of business on the preceding June thirty or
properly show their purpose. December thirty-one, whichever is applicable,
determined in accordance with subsection (a) of this
Each insured bank, as a condition to the right to make section. If such bank has assumed the liabilities for
any such deduction or exclusion in determining its deposits of another bank or banks, it shall include such
assessment base, shall maintain such records as will liabilities in its assessment base. The first certified
readily permit verification of the correctness thereof. statement shall show as the amount of the first
The semiannual assessment base for one semiannual semiannual assessment due to the Corporation, an
period shall be the average of the assessment base of amount equal to the product of one-half of the annual
the bank as of the close of business on March thirty-one assessment rate multiplied by such assessment base.
and June thirty, and the semiannual assessment base
for the other semiannual period shall be the average of (d) As of December thirty-one nineteen hundred sixty-
the assessment base of the bank as of the close of four, and as of December thirty-one of each calendar
business on September thirty and December thirty- year thereafter, the Corporation shall transfer 40 per
one: Provided, That when any of said days is a centum of its net assessment income to its capital
nonbusiness day or a legal holiday, either National or account and the balance of the net assessment income
Provincial, the preceding business day shall be used. The shall be credited pro rata to the insured banks based
certified statements required to be filed with the upon the assessment of each bank becoming due during
Corporation under subsections (b) and (c) of this section said calendar year. Each year such credit shall be
shall be in such form and set forth such supporting applied by the Corporation toward the payment of the
information as the Board of Directors shall prescribe. total assessment becoming due for the semiannual
The assessment payments required from insured banks assessment period beginning the next ensuing July 1
under subsections (b) and (c) of this section shall be and any excess credit shall be applied upon the
made in such manner and at such time or times as the assessment next becoming due. The term "net
Board of Directors shall prescribe, provided the time or assessment income" as used therein means the total
times so prescribed shall not be later than sixty days assessments which becomes due during the calendar
after filing the certified statement setting forth the year less (1) the operating costs and expenses of the
amount of assessment. Corporation for the calendar year; (2) additions to
reserve to provide for insurance losses during the
(b) On or before the 15th of July of each year, each calendar year, except that any adjustments to reserve
insured bank shall file with the Corporation a certified which result in a reduction of such reserve shall be
statement showing for the six months ending on the added; and (3) the insurance losses sustained in said
preceding June thirty the amount of the assessment calendar year plus losses from any preceding years in
base and the amount of the semiannual assessment due excess of such reserves. If the above deductions exceed
to the Corporation for the period ending on the in amount the total assessments which become due
following December thirty-one, determined in during the calendar year, the amount of such excess
accordance with subsection (a) of this section, which shall be restored by deduction from total assessments
shall contain or be verified by a written declaration that becoming due in subsequent years.
it is made under the penalties of perjury. Each insured
bank shall pay to the Corporation the amount of the (e) The Corporation (1) may refund to an insured bank
semiannual assessment it is required to certify. On or any payment of assessment in excess of the amount
before the 15th day of January of each year, each due to the Corporation or (2) may credit such excess
insured bank shall file with the Corporation a similar toward the payment of the assessment next becoming
certified statement for the six months ending on the due from such bank and upon succeeding assessments
preceding December thirty-one and shall pay to the until the credit is exhausted.
Corporation the amount of the semiannual assessment
for the period ending on the following June thirty which (f) Any insured bank which fails to file any certified
statement required to be filed by it in connection with
it is required to certify.
determining the amount of any assessment payable by
(c) Each bank which becomes an insured bank shall not the bank to the Corporation may be compelled to file
be required to file any certified statement or pay any such statement by mandatory injunction or other
assessment for the semiannual period in which it appropriate remedy in a suit brought for such purpose
becomes an insured bank. On the expiration of such by the Corporation against the bank and any officer or
officers thereof in any court of the Philippines of fiduciary bank. The Board of Directors shall have the
competent jurisdiction in which such bank is located. power by regulation to prescribe the manner of
reporting and of depositing such trust funds.
(g) The Corporation, in a suit brought in any court of
competent jurisdiction, shall be entitled to recover from Section 7. (a) Any insured bank may, upon not less than
any insured bank the amount of any unpaid assessment ninety days, written notice to the Corporation, and to
lawfully payable by such insured bank to the the Development Bank of the Philippines if it owns or
Corporation, whether or not such bank shall have filed holds as pledges any preferred stock, capital notes, or
any such certified statement and whether or not suit debentures of such bank, terminate its status as an
shall have been brought to compel the bank to file any insured bank. Whenever the Board of Directors shall
such statement. No action or proceeding shall be find that an insured bank or its directors or trustees
brought for recovery of any assessment due to the have continued unsafe or unsound practices in
Corporation or for the recovering of any amount paid to conducting the business of the bank or which have
the Corporation in excess of the amount due to it, knowingly or negligently permitted any of its officers or
unless such action or proceeding shall have been agents to violate any provisions of any law or regulation
brought within five years after the right accrued for to which the insured bank is subject, the Board of
which the claim is made, except where the insured bank Directors shall first give to the Central Bank of the
has made or filed with the Corporation a false or Philippines a statement with respect to such practices
fraudulent certified statement with the intent of evade, or violations for the purpose of securing the correction
in a whole or in part, the payment of assessment, in thereof and shall give a copy thereof to the bank. Unless
which case the claim shall not have been deemed to such correction shall be made within one hundred
have accrued until the discovery by the Corporation that twenty days or such shorter period of time as the
the certified statement is false fraudulent. Central Bank of the Philippines shall require, the Board
of Directors, if it shall determine to proceed further,
(h) Should any insured bank fail or refuse to pay any shall give to the bank not less than thirty days’ written
assessment required to be paid by such bank under any notice of intention to determine the status of the bank
provision of this Act, and should the bank not correct as an insured bank, and shall fix a time and place for a
such failure or refusal within thirty days after written hearing before the Board of Directors or before a
notice has been given by the Corporation to an officer person designated by it to conduct such hearing, at
of the bank, citing this subsection, and stating that the which evidence may be produced, and upon such
bank has failed or refused to pay as required by law the evidence the Board of Directors shall make written
insured status of such bank shall be terminated by the findings which shall be conclusive. Unless the bank shall
Board of Directors.1awp++i1 The remedies provided in appear at the hearing by a duly authorized
this subsection and in the two preceding subsections representative, it shall be deemed to have consented to
shall not be construed as limiting any other remedies the termination of its status as an insured bank. If the
against an insured bank but shall be in addition thereto. Board of Directors shall find that any unsafe or unsound
(i) Trust funds held by an insured bank in a fiduciary practice or violation specified in such notice has been
capacity whether held in trust or deposited in any other established and has not been corrected within the time
department or in another bank shall be insured like above prescribed in which to make such correction, the
other forms of deposits, in an amount not to exceed Board of Directors may order that the insured status of
₱10,000 for each trust estate, and when deposited by the bank be terminated on a date subsequent to such
the fiduciary bank in another insured bank such trust finding and to the expiration of the same specified in
funds shall be similarly insured to the fiduciary bank such notice of intention. The Corporation may publish
according to the trust estates represented. notice of such termination and the bank shall give
Notwithstanding any other provision of this Act, such notice of such termination to each of the depositors at
insurance shall be separate from the additional to that his last address of record on the books of the bank, in
covering other deposits of the owners of such trust such a manner and at such at time as the Board of
funds or the beneficiaries of such trust Directors may find to be necessary and may order for
estates: Provided, That where the fiduciary bank the protection of the depositors. After the termination
deposits any of such trust funds in other insured banks, of the insured status of any bank under the provisions
the amount so held by other insured banks on deposit of this subsection, the insured deposits of each
shall not for the purpose of any certified statement depositor in the bank on the date of such termination,
required under subsections (b) and (c) of this section be less all subsequent withdrawals from any deposits of
considered to be a deposit liability of the fiduciary bank, such depositor, shall continue for a period of two years
but shall be considered to be a deposit liability of the to be insured, and the bank shall continue to pay to the
bank in which such funds are so deposited by such Corporation assessments as in the case of an insured
bank during such period. No additions to any such been so assumed after the semiannual period in which
deposits and no new deposits in such bank made after the assumption takes effect.
the date of such termination shall be insured by the
Section 8. The Corporation as a corporate body shall
Corporation, and the bank shall not advertise or hold
itself out as having insured deposits unless in the same have the power—
connection it shall also state equal prominence that First.— To adopt and use a corporate seal.
such additions to deposits and new deposits made after
such date are not so insured. Such bank shall, in all Second.— To have succession until dissolved by an Act
other respects, be subject to the duties and obligations of Congress.
of an insured bank for the period of two years from the
Third.— To make contracts.
date of such termination, and in the event that such
bank shall be closed on account of insolvency within Fourth.— To sue and be sued, complain and defend, in
such period of two years, the Corporation shall have the any court of law in the Philippines. All suits of a civil
same powers and rights with respect to such bank as in nature to which the corporation shall be a part shall be
case of an insured bank. deemed to arise under the laws of the Philippines. No
attachment or execution shall be issued against the
(b) Notwithstanding any other provision of law,
Corporation or its property before final judgment in any
whenever the Board of Directors shall determine that
suit, action, or proceeding in any court. The Board of
an insured banking institution is not engaged in the
Directors shall designate an agent upon whom service
business of receiving deposits, the Corporation shall
of process may be made in any province or city or
notify the banking institution that its insured status will
jurisdiction in which any insured bank is located.
terminate at the expiration of the first full semiannual
assessment period following such notice. A finding by Fifth.— To appoint by its Board of Directors such officers
the Board of Directors that a banking institution is not and employees as are not otherwise provided for in this
engaged in the business of receiving deposits shall be Act to define their duties, fix their compensation,
conclusive. The Board of Directors shall prescribe the require bonds of them and fix penalty thereof and to
notice to be given by the banking institution of such dismiss such officers and employees for cause.
termination and the Corporation may publish notice
thereof. Upon the termination of the insured status of Sixth.— To prescribe, by its Board of Directors, by-laws
any such banking institution, its deposits shall not inconsistent with law, regulating the manner in
thereupon cease to be insured and the banking which its general business may be conducted, and the
institution shall thereafter be relieved of all future privileges granted to it by law may be exercised and
obligations to the Corporation, including the obligation enjoyed.
to pay future assessments.
Seventh.— To exercise by its Board of Directors, or duly
(c) Whenever the liabilities of an insured bank for authorized officers or agents, all powers specifically
deposits shall have been assumed by another insured granted by the provisions of this Act, and such
bank or banks, the insured status of the bank whose incidental powers as shall be necessary to carry on the
liabilities are so assumed shall terminate on the date of powers so granted.
receipt by the Corporation of satisfactory evidence of
Eighth.— To make examination of and to require
such assumption with like effect as if its insured status
information and reports from banks, as provided in this
had been terminated on said date by the Board of
Act.
Directors after proceedings under subsection (a) of this
section: Provided, That if the bank whose liabilities are Ninth.— To act as receiver.
so assumed gives to its depositors notice of such
assumption within thirty days after such assumption Tenth.— To prescribe by its Board of Directors such
takes effect, by publication or by any reasonable means, rules and regulations as it may deem necessary to carry
in accordance with regulations to be prescribed by the out the provisions of this Act.
Board of Directors, the insurance of its deposits shall
Section 9. (a) The Board of Directors shall administer
terminate at the end of six months from the date such
the affairs of the Corporation fairly and impartially and
assumption takes effect. Such bank shall be subject to
without discrimination. the Corporation shall be entitled
the duties and obligations of an insured bank for the
to the free use of Philippine mails in the same manner
period its deposits are insured: Provided, further, That if
as the other offices of the national government.
the deposits are assumed by a newly insured bank, the
bank whose deposits are assumed shall not be required (b) The Board of Directors shall appoint examiners who
to pay any assessment upon the deposits which have shall have power, on behalf of the Corporation to
examine any insured bank or any bank making (c) Whenever an insured bank shall have been closed on
application to become an insured bank, whenever in the account of insolvency, payment of the insured deposits
judgment of the Board of Directors an examination of in such bank shall be made by the Corporation as soon
the bank is necessary. Each such examiner shall have as possible either (1) by cash or (2) by making available
power to make a thorough examination of all the affairs to each depositor a transferred deposit in another
of the bank and in doing so he shall have power to insured bank in an amount equal to the insured deposit
administer oaths and to examine and take and preserve of such depositor: Provided, That the Corporation, in its
the testimony of any of the officers and agents thereof, discretion, may require proof of claims to be filed
and shall make a full and detailed report of the before paying the insured deposit, and that in any case
condition of the bank to the Corporation. The Board of where the Corporation is not satisfied as to the validity
Directors in like manner shall appoint claim agents who of a claim for an insured deposit, it may require the final
shall have power to investigate and examine all claims determination of a court of competent jurisdiction
for insured deposits and transferred deposits. Each before paying such claim.
claim agent shall have power to administer oaths and to
examine under oath and take and preserve the (d) The Corporation, upon the payment of any depositor
as provided for in subsection (c) of this section shall be
testimony of any person relating to such claims.
subrogated to all rights of the depositor against the
(c) Each insured bank shall make to the Corporation closed bank to the extent of such payment. Such
reports of condition in such form and at such times as subrogation shall include the right on the part of the
the Board of Directors may require such reports to be Corporation to receive the same dividends from the
published in such manner, not inconsistent with any proceeds of the assets of such closed bank and
applicable law, as it may direct. Every such bank which recoveries on account of stockholders’ liability as would
fails to make or publish any such report within such have been payable to the depositor on a claim for the
time, not less than five days, as the Board of Directors insured deposit, but such depositor shall retain his claim
may require, shall be subject to a penalty of not more for any uninsured portion of his deposit.
than ₱100 for each day of such failure recoverable by
Section 11. (a) Payment of an insured deposit to any
the Corporation of its use.
person by the Corporation shall discharge the
(d) The Corporation shall have access to reports of Corporation, and payment of a transferred deposit to
examination made by, and reports of condition made to any person by the new bank or by an insured bank in
the Superintendent of Banks or the Governor of the which a transferred deposit has been made available
Central Bank of the Philippines, and the Superintendent shall discharge the Corporation and such new bank or
of Banks or the Governor of the Central Bank of the other insured bank, to the same extent that payment to
Philippines shall also have access to reports of such person by the closed bank would have discharged
examination made on behalf of, and reports of it from liability for the insured deposit.
condition made to the Corporation.
(b) Except as otherwise prescribed by the Board of
(e) The members of the Board of Directors and the Directors, neither the Corporation nor such other
officers and employees of the Corporation are insured bank shall be required to recognize as the
prohibited from revealing any information relating to owner of any portion of a deposit appearing on the
the condition or business of any insured bank and any records of the closed bank under a name other than
member of the Board of Directors, officer or employee that of the claimant, any person whose name or interest
of the Corporation violating this provision shall be held as such owner is not disclosed on the records of such
liable for any loss or injury suffered by the Corporation. closed bank as part owner of said deposit, if such
recognition would increase the aggregate amount of the
Section 10. (a) A permanent insurance fund in the insured deposits in such closed bank.
amount of ₱5,000,000 to be appropriated from the
General Fund is hereby created to be used by the (c) The Corporation may withhold payment of such
Corporation to carry out the purposes of this portion of the insured deposit of any depositor in a
Act: Provided, That the maximum amount of the insured closed bank as may be required to provide for the
deposit of any depositor shall be ₱10,000. payment of any liability of such depositor as a
stockholder of the closed bank, or of any liability of such
(b) For the purposes of this Act an insured bank shall be depositor to the closed bank or its receiver, which is not
deemed to have been closed on account of insolvency offset against the claim due from such bank, pending
in any case in which it has been closed for the purpose the determination and payment of such liability by such
of liquidation without adequate provision being made depositor or any other person liable therefor.
for payment of its depositors.
(d) If, after the Corporation shall have given at least the aggregate of one hundred million pesos outstanding
three months notice to the depositor by mailing a copy at any one time: Provided, That the rate of interest to
thereof to his last-known address appearing on the be charged in connection with any loan made pursuant
records of the closed bank, any depositor in the closed to this section shall not be less than the current average
bank shall fail to claim his insured deposit from the rate on outstanding marketable and nonmarketable
Corporation within eighteen months after the Monetary obligations of the Republic of the Philippines as of the
Board of the Central Bank of the Philippines or the last day of the month preceding the making of such
proper court shall have ordered the conversion of the loan. Any such loan shall be used by the Corporation
assets of such closed bank into money, all rights of the solely in carrying out its functions with respect to such
depositor against the Corporation with respect to the insurance.
insured deposit shall be barred, and all rights of the
Section 14. All notes, debentures, bonds, or such
depositor against the closed bank and its shareholders
or the receivership estate to which the Corporation may obligations issued by the Corporation shall be exempt
from taxation.
have become subrogated, shall thereupon revert to the
depositor. Section 15. (a) The Corporation shall annually make a
report of its operations to the Congress as soon as
Section 12. (a) Money of the Corporation not otherwise
employed shall be invested in obligations of the practicable after the 1st day of January in each year.
Republic of the Philippines or in obligations guaranteed (b) The financial transactions of the Corporation shall be
as to principal and interest by the Republic of the audited by the General Auditing Office in accordance
Philippines: Provided, That the Corporation shall not sell with the principles and procedures applicable to
or purchase any such obligations for its own account commercial corporate transactions and under such rules
and in its own right and interest, at any one time and regulations as may be prescribed by the Auditor
aggregating in excess of ₱100,000, without the approval General. The audit shall be conducted at the place or
of the Insurance Commissioner: And Provided, places where accounts of the Corporation are normally
further, That the Insurance Commissioner may waive kept. The representatives of the General Auditing Office
the requirement of his approval with respect to any shall have access to all books, accounts, records,
transaction or classes of transactions subject to the reports, files, and all other papers, things, or property
provisions of this subsection for the period of time and belonging to or in use by the Corporation pertaining to
under such conditions as he may determine. its financial transactions and necessary to facilitate the
(b) The banking or checking accounts of the Corporation audit, and they shall be afforded full facilities for
shall be kept with the Central Bank of the Philippines, verifying transactions with the balances or securities
held by depositaries, fiscal agents, and custodians. All
with the Philippine National Bank, or with any other
bank designated as depositary or fiscal agent of the such books, accounts, records, reports, files, papers,
and property of the Corporation shall remain in
Philippine Government.
possession and custody of the Corporation.
(c) When the Corporation has determined that an
(c) A report of the Audit for each fiscal year ending on
insured bank is in danger of closing, in order to prevent
such closing, the Corporation, in the discretion of its June 30 shall be made by the Auditor General to the
Congress not later than January 15 following the close
Board of Directors is authorized to make loans to, or
purchase the assets of, or make deposits in, such of such fiscal year. On or before December 15 following
such fiscal year the Auditor General shall furnish the
insured bank, upon such terms and conditions as the
Board of Directors may prescribe, when in the opinion Corporation a short form report showing the financial
position of the Corporation at the close of fiscal year.
of the Board of Directors the continued operation of
such bank is essential to provide adequate banking The report to the Congress shall set forth the scope of
the audit and shall include a statement of assets and
service in the community. Such loans and deposits may
be in subordination to the rights of depositors and other liabilities and surplus or deficit; a statement of surplus
or deficit analysis; a statement of income and expenses;
creditors.
a statement of sources and application of funds and
Section 13. The corporation is authorized to borrow such comments and information as may be deemed
from the Central Bank of the Philippines and the Central necessary to inform Congress of the financial operations
Bank is authorized and directed to loan the Corporation and condition of the Corporation, together with such
on such terms as may be fixed by the Corporation and recommendations with respect thereto as the Auditor
the Central Bank, such funds as in the judgment of the General may deem advisable. The report shall also show
Board of Directors of the Corporation are from time to specifically any program, expenditure, or other financial
time required for insurance purposes not exceeding in transactions or undertaking observed in the course of
the audit, which in the opinion of the Auditor General, such protection and indemnity and add the cost thereof
has been carried on or made without authority of law. A to the assessment otherwise payable by such bank.
copy of each report shall be furnished to the President
(e) Any insured bank which wilfully fails or refuses to file
of the Philippines, to the Governor of the Central Bank
of the Philippines, and to the Corporation at the time any certified statement or pay any assessment required
under this Act shall be subject to a penalty of not more
submitted to the Congress.
than ₱100 for each day that such violations continue,
Section 16. (a) Every insured bank shall display at each which penalty the Corporation may recover for its
place of business maintained by it a sign or signs, and use: Provided, That this subsection shall not be
shall include a statement to the effect that its deposits applicable under the circumstances stated in the
are insured by the Corporation in all of its provisions of subsection (b) of this section.
advertisements: Provided, That the Board of Directors
Section 17. Except with the written consent of the
may exempt from this requirement advertisements
which do not relate to deposits or when it is impractical Corporation, no person shall serve as a director, officer,
or employee of an insured bank who has been
to include such statement therein. The Board of
Directors shall prescribe by regulation the forms of such convicted, or who is hereafter convicted, of any criminal
offense involving dishonesty or a breach of trust. For
signs and the manner of display and the substance of
such statements and the manner of use. For each day each willful violation of this prohibition, the bank
involved shall be subject to a penalty of not more than
an insured bank continues to violate any provisions of
this subsection or any lawful provisions of said ₱100 for each day this prohibition is violated, which the
Corporation may recover for its use.
regulations, it shall be subject to a penalty of not more
than ₱100, which the Corporation may recover for its Section 18. If any provision or section of this Act or the
use. application thereof to any person or circumstances is
(b) No insured bank shall pay any dividend on its capital held invalid, the other provisions or sections of this Act,
in the application of such provision or section to other
stock or interest on its capital notes or debentures (if
such interest is required to be paid only out of net persons or circumstances shall not be affected thereby.
profits) or distribute any of its capital assets while it Section 19. All Acts or parts of Acts and executive
remains in default in the payment of any assessment orders, administrative orders, or parts thereof which
due to the Corporation; and any director or officer of are inconsistent with the provisions of this Act are
any insured bank who participates in the declaration or hereby repealed.
payment of any such dividend or interest or in any such
distribution shall, upon conviction, be fined not more Section 20. This Act shall take effect upon approval. The
than ₱1,000 or imprisoned not more than one year, or Philippine Deposit Insurance Corporation shall
both: Provided, That if such default is due to a dispute commence business upon organization of the Board of
between the insured bank and the Corporation over the Directors and certification by the Treasurer of the
amount of such assessment, this subsection shall not Philippines that the Permanent Insurance Fund has
apply, if such bank shall deposit security satisfactory to been appropriated.
the Corporation of payment upon final determination of
Approved: June 22, 1963.
the issue.

(c) Without prior written consent by the Corporation, no

insured bank shall (1) merge or consolidate with any
noninsured bank or institution or convert into a
noninsured bank or institution or (2) assume liability to
pay any deposits made in, or similar liabilities of, any
noninsured bank or institution or (3) transfer assets to
any noninsured bank or institution in consideration of
the assumption of liabilities for any portion of the
deposits made in such insured bank.

(d) The Corporation may require any insured bank to

provide protection and indemnity against burglary,
defalcation, and other similar insurable losses.
Whenever any insured bank refuses to comply with any
such requirement the Corporation may contract for
REPUBLIC ACT No. 9520             February 17, 2009
AN ACT AMENDING THE COOPERATIVE CODE OF THE good values and experience and the universally
PHILIPPINES TO BE KNOWN AS THE "PHILIPPINE accepted principles of cooperation which include, but
COOPERATIVE CODE OF 2008" are not limited to, the following:

Be it enacted by the Senate and House of "(1) Voluntary and Open Membership - Cooperatives are
Representatives of the Philippines in Congress voluntary organizations, open to all persons able to use
assembled:: their services and willing to accept the responsibilities
of membership, without gender, social, racial, cultural,
SECTION 1. Articles 1, 2, 3, 4 and 5 of Chapter 1 on political or religious discrimination.
General Concepts and Principles of Republic Act No.
6938, otherwise known as the "Cooperative Code of the "(2) Democrative Member Control - Cooperatives are
Philippines," are hereby amended to read as follows: democratic organizations that are controlled by their
members who actively participate in setting their
CHAPTER I policies and making decisions. Men and women serving
GENERAL CONCEPTS AND PRINCIPLES as elected representatives, directors or officers are
"ARTICLE 1. Title. - This Act shall be known as accountable to the membership. In primary
the "Philippine Cooperative Code of 2008". cooperatives, members have equal voting rights of one-
member, one-vote. Cooperatives at other levels are
"ART. 2. Declaration of Policy.- It is the declared policy organized in the same democratic manner.
of the State to foster the creation and growth of
cooperatives as a practical vehicle for promoting self- "(3) Member Economic Participation - Members
reliance and harnessing people power towards the contribute equitably to, and democratically control, the
attainment of economic development and social justice. capital of their cooperatives. At least part of that capital
The State shall encourage the private sector to is the common property of the cooperative. They shall
undertake the actual formation and organization of receive limited compensation or limited interest, if any,
cooperatives and shall create an atmosphere that is on capital subscribed and paid as a condition of
conducive to the growth and development of these membership. Members allocate surpluses for any or all
cooperatives. of the following purposes: developing the cooperative
by setting up reserves, part of which should at least be
"Toward this end, the Government and all its branches, indivisible; benefitting members in proportion to their
subdivisions, instrumentalities and agencies shall ensure partonage of the cooperative's bubsiness; and,
the provision of technical guidance, financial assistance supporting other activities approved by the
and other services to enable said cooperatives to membership.
develop into viable and responsive economic
enterprises and thereby bring about a strong "(4) Autonomy and Independence - Cooperatives are
cooperative movement that is free from any conditions autonomous, self-help organizations controlled by their
that might infringe upon the autonomy or members. If they enter into aggreements with other
organizational integrity of cooperatives. organizations, including government, or raise capital
from external sources, they shall do so on terms that
"Further, the State recognizes the principle of ensure democratic control of their members and
subsidiarity under which the cooperative sector will maintain their cooperative autonomy.
initiate and regulate within its own ranks the promotion
and organization, training and reserach, audit and "(5) Education, Training and Information - Cooperatives
support services relative to cooperatives with shall provide education and training for their members,
government assistance where necessary. elected and appointed representatives, managers, and
employees, so that they can contribute effectively and
"ART. 3. General Concepts. - A cooperative is an efficiently to the development of their cooperatives.
autonomous and duly registered association of persons,
with a common bond of interest, who have voluntarily "(6) Cooperation Among Cooperatives - Cooperatives
joined together to achieve their social, economic, and serve their members most effectively and strengthen
cultural needs and aspirations by making equitable the cooperative movement by working together
contributions to the capital required, patronizing their through local, national, regional and international
products and services and accepting a fair share of the structures.
risks and benefits of the undertaking in accordance with (7) Concern for Community - Cooperatives work for the
universally accepted cooperative principles. sustainable development of their communities through
"ART. 4. Cooperative Principles. - Every cooperative shall policies approved by their members.
conduct its affairs in accordance with Filipino culture,
"ART. 5. Definition of Terms. – The following terms shall general manager or chief executive officer, secretary,
mean: treasurer and members holding other positions as may
be provided for in their bylaws;
"(1) Member includes a person either natural or juridical
who adhering to the principles set forth in this Code and "(12) Social Audit is a procedure wherein the
in the Articles of Cooperative, has been admitted by the cooperative assesses its social impact and ethical
cooperative as member; performance vis-à-vis its stated mission, vision, goals
and code of social responsibility for cooperatives to be
"(2) General Assembly shall mean the full membership established by the Authority in consultation with the
of the cooperative duly assembled for the purpose of cooperative sector. It enables the cooperative to
exercising all the rights and performing all the develop a process whereby it can account for its social
obligations pertaining to cooperatives, as provided by performance and evaluate its impact in the community
this Code, its articles of cooperation and bylaws: and be accountable for its decisions and actions to its
Provided, That for cooperatives with numerous and regular members;
dispersed membership, the general assembly may be
composed of delegates elected by each sector, chapter "(13) Performance Audit shall refer to an audit on the
or district of the cooperative in accordance with the efficiency and effectiveness of the cooperative as a
rules and regulations of the Cooperative Development whole; its management and officers; and its various
Authority; responsibility centers as basis for improving individual
team or overall performance and for objectively
"(3) Board of Directors shall mean that body entrusted informing the general membership on such
with the management of the affairs of the cooperative performance;
under its articles of cooperation and bylaws;
"(14) A Single-Line or Single-Purpose Cooperative shall
"(4) Committee shall refer to any body entrusted with include cooperative undertaking activities which are
specific functions and responsibilities under the bylaws related to its main line of business or purpose;
or resolution of the general assembly or the board of
directors; "(15) Service Cooperatives are those which provide any
type of service to its members, including but not limited
"(5) Articles of Cooperation means the articles of to, transport, information and communication,
cooperation registered under this Code and includes a insurance, housing, electric, health services, education,
registered amendment thereof; banking, and savings and credit;
"(6) Bylaws means the bylaws registered under this "(16) Subsidiary Cooperative refers to three or more
Code and includes any registered amendment thereof; primary cooperatives, doing the same line of business,
"(7) Registration means the operative act granting organized at the municipal, provincial, city, special
juridical personality to a proposed cooperative and is metropolitan political subdivision, or economic zones
evidenced by a certificate of registration; created by law, registered with the Authority to
undertake business activities in support of its member-
"(8) Cooperative Development Authority refers to the cooperatives."
government agency in charge of the registration and
regulation of cooperatives as such hereinafter referred SEC. 2. Articles 6, 7, 9, 10, 11, 12, 13, 14, 16, 17, 18, 20,
to s the Authority; 21, 23, 24 and 25 of Chapter II on Organization and
Registration of the same Code are hereby amended to
"(9) Universally Accepted Principles means that body of read as follows:
cooperative principles adhered to worldwide by
cooperatives; CHAPTER II
ORGANIZATION AND REGISTRATION
"(10) Representative Assembly means the full
membership of a body of representatives elected by "ART. 6. Purposes of Cooperatives. – A cooperative may
each of the sectors, chapter or district o the cooperative be organized and registered for any or all of the
duly assembled for the purpose of exercising such following purposes:
powers lawfully delegated unto them by the general "(1) To encourage thrift and savings mobilization among
assembly in accordance with its bylaws; the members;
"(11) Officers of the Cooperative shall include the "(2) To generate funds and extend credit to the
members of the board of directors, members of the members for productive and provident purposes;
different committee created by the general assembly,
"(3) To encourage among members systematic "(f) Cooperate with the government, other cooperatives
production and marketing; and people-oriented organizations to further the
attainment of any of the foregoing objectives.
"(4) To provide goods and services and other
requirements to the members; "ART. 8. Cooperatives Not in Restraint of Trade. – No
cooperative or method or act thereof which complies
"(5) To develop expertise and skills among its members; with this Code shall be deemed a conspiracy or
"(6) To acquire lands and provide housing benefits for combination in restraint of trade or an illegal monopoly,
the members; or an attempt to lessen competition or fix prices
arbitrarily in violation of any laws of the Philippines.
"(7) To insure against losses of the members;
"ART. 9. Cooperative Powers and Capacities. – A
"(8) To promote and advance the economic, social and cooperative registered under this Code shall have the
educational status of the members; following powers, rights and capacities:

"(9) To establish, own, lease or operate cooperative "(1) To the exclusive use of its registered name, to sue
banks, cooperative wholesale and retail complexes, and be sued;
insurance and agricultural/industrial processing
enterprises, and public markets; "(2) Of succession;

"(10) To coordinate and facilitate the activities of "(3) To amend its articles of cooperation in accordance
cooperatives; with the provisions of this Code;

"(11) To advocate for the cause of the cooperative "(4) To adopt bylaws not contrary to law, morals or
movements; public policy, and to amend and repeal the same in
accordance with this Code;
"(12) To ensure the viability of cooperatives through the
utilization of new technologies; "(5) To purchase, receive, take or grant, hold, convey,
sell, lease, pledge, mortgage, and otherwise deal with
"(13) To encourage and promote self-help or self- such real and personal property as the transaction of
employment as an engine for economic growth and the lawful affairs of the cooperative may reasonably and
poverty alleviation; and necessarily require, subject to the limitations prescribed
by law and the Constitution;
"(14) To undertake any and all other activities for the
effective and efficient implementation of the provisions "(6) To enter into division, merger or consolidation, as
of this Code. provided in this Code;

"ART. 7. Objectives and Goals of a Cooperative. – The "(7) To form subsidiary cooperatives and join
primary objective of every cooperative is to help federations or unions, as provided in this Code;
improve the quality of life of its members. Towards this
end, the cooperative shall aim to: "(8) To avail of loans, be entitled to credit and to accept
and receive grants, donations and assistance from
"(a) Provide goods and services to its members to foreign and domestic sources, subject to the conditions
enable them to attain increased income, savings, of said loans, credits, grants, donations or assistance
investments, productivity, and purchasing power, and that will not undermine the autonomy of the
promote among themselves equitable distribution of cooperative. The Authority, upon written request, shall
net surplus through maximum utilization of economies provide necessary assistance in the documentary
of scale, cost-sharing and risk-sharing; requirements for the loans, credit, grants, donations
and other financial support;
"(b) Provide optimum social and economic benefits to
its members; "(9) To avail of preferential rights granted to
cooperatives under Republic Act No. 7160, otherwise
"(c) Teach them efficient ways of doing things in a
known as the Local Government Code, and other laws,
cooperative manner;
particularly those in the grant of franchises to establish,
"(d) Propagate cooperative practices and new ideas in construct, operate and maintain ferries, wharves,
business and management; markets or slaughterhouses and to lease public utilities,
including access to extension and on-site research
"(e) Allow the lower income and less privileged groups services and facilities related to agriculture and fishery
to increase their ownership in the wealth of the nation; activities;
and
"(10) To organize and operate schools in accordance articles of cooperation which shall be signed by each of
with Republic Act No. 9155, Governance of Basic the organizers and acknowledged by them if natural
Education Act of 2001 and other pertinent laws; and persons, and by the chairpersons or secretaries, if
juridical persons, before a notary public.
"(11) To exercise such other powers granted by this
Code or necessary to carry out its purpose or purposes "(2) The articles of cooperation shall set forth:
as stated in its Articles of cooperation.
"(a) The name of the cooperative which shall include
"ART. 10. Organizing a Primary Cooperative. – Fifteen the word cooperative;
(15) or more natural persons who are Filipino citizens,
of legal age, having a common bond of interest and are "(b) The purpose or purposes and scope of business for
which the cooperative is to be registered;
actually residing or working in the intended area of
operation, may organize a primary cooperative under "(c) The term of existence of the cooperative;
this Code: Provided, That a prospective member of a
primary cooperative must have completed a Pre- "(d) The area of operation and the postal addresses of
Membership Education Seminar (PMES). its principal office;

"Any newly organized primary cooperative may be "(e) The names, nationality, and the postal addresses of
registered as multipurpose cooperative only after the registrants;
compliance with the minimum requirements for
"(f) The common bond of membership;
multipurpose cooperatives to be set by the Authority. A
single-purpose cooperative may transform into a "(g) The list of names of the directors who shall manage
multipurpose or may create subsidiaries only after at the cooperative; and
least two (2) years of operations.
"(h) The amount of its share capital, the names and
"ART. 11. Economic Survey. - Every group of individuals residences of its contributors and a statement of
or cooperatives intending to form a cooperative under whether the cooperative is primary, secondary or
this Code shall submit to the Authority a general tertiary in accordance with Article 23 hereof.
statement describing, among others the structure and
purposes of the proposed cooperative: Provided, That "(3) The articles of cooperation may also contain any
the structure and actual staffing pattern of the other provisions not inconsistent with this Code or any
cooperative shall include a related law.
bookkeeper; Provided, further, That they shall not be
"(4) Four (4) copies each of the proposed articles of
allowed to operate without the necessary personnel
cooperation, bylaws, and the general statement
and shall also submit an economic survey, indicating
required under Article 11 of this Code shall be
therein the area of operation, the size of membership,
submitted to the Authority.
and other pertinent data in a format provided by the
Authority. "(5) No cooperative, other than a cooperative union as
described under Article 25 hereof, shall be registered
"ART. 12. Liability. – A cooperative duly registered
unless the articles of cooperation is accompanied with
under this Code shall have limited liability.
the bonds of the accountable officers and a sworn
"ART. 13. Term. – A cooperative shall exist for a period statements of the treasurer elected by the subscribers
not exceeding fifty (50) years from the date of showing that at least twenty-five per centum (25%) of
registration unless sooner dissolve or unless said period the authorized share capital has been subscribed and at
is extended. The cooperative term, as originally stated least twenty-five per centum (25%) of the total
in the articles of cooperation, may be extended for subscription has been paid: Provided, That in no case
periods not exceeding fifty (50) years in any single shall the paid-up share capital be less than Fifteen
instance by an amendment of the articles of thousand pesos (P15,000.00).
cooperation, in accordance with this Code: Provided,
"The Authority shall periodically assess the required
That no extension can be made earlier than five (5)
paid-up share capital and may increase it every five (5)
years prior to the original or subsequent expiry
years when necessary upon consultation with the
date/dates unless there are justifiable reasons for an
cooperative sector and the National Economic and
earlier extension as may be determined by the
Development Authority (NEDA).
Authority.
"ART. 15. Bylaws. – (1) Each cooperative to be
"ART. 14. Articles of Cooperation. – (1) All cooperatives
registered under this Code shall adopt bylaws not
applying for registration shall file with the Authority the
inconsistent with the provisions of this Code. The within a period of sixty (60) days from the filing thereof,
bylaws shall be filed at the same time as the articles of otherwise the application is deemed approved, unless
cooperation. the cause of the delay is attributable to the
applicant: Provided, That in case of a denial of the
"(2) The bylaws of each cooperative shall provide: application for registration, an appeal shall lie with the
"(a) The qualifications for admission to membership and Office of the President within ninety (90) days from
the payment to be made or interest to be acquired as a receipt of notice of such denial: Provided, further, That
conditions for the exercise of the right of membership; failure of the Office of the President to act on the
appeal within ninety (90) days from the filing thereof
"(b) The rights and liabilities of membership; shall mean approval of said application.

"(c) The circumstances under which membership is "ART. 17. Certificate of Registration. – A certificate of
acquired, maintained and lost; registration issued by the Authority under its official
seal shall be conclusive evidence that the cooperative
"(d) The procedure to be followed in cases of
therein mentioned is duly registered unless it is proved
termination of membership;
that the registration thereof has been cancelled.
"(e) The conditions under which the transfer of a share
"ART. 18. Amendment of Articles of Cooperation and
or interest of the members shall be permitted;
Bylaws. – Unless otherwise prescribed by this Code and
"(f) The rules and procedures on the agenda, time, place for legitimate purposes, any provision or matter stated
and manner of calling, convening, conducting meetings, in the articles of cooperation and by laws may be
quorum requirements, voting systems, and other amended by two-thirds (2/3) vote of all the members
matters relative to the business affairs of the general with voting rights, without prejudice to the right of the
assembly, board of directors, and committees; dissenting members to exercise their right to withdraw
their membership under Article 30.
"(g) The general conduct of the affairs of the
cooperative, including the powers and duties of the Both the original and amended articles and/or bylaws
general assembly, the board of directors, committees shall contain all provisions required by law to be set out
and the officers, and their qualifications and in the articles of cooperation and by laws. Amendments
disqualifications; shall be indicated by underscoring or otherwise
appropriately indicating the change or changes made
"(h) The manner in which the capital, may be raised and and a copy of the amended articles or amended bylaws
the purposes for which it can be utilized; duly certified under oath by the cooperative secretary
and a majority of the directors stating the fact that said
"(i) The mode of custody and of investment of net
amendment or amendments to the articles of
surplus;
cooperation and/or bylaws have been duly approved by
"(j) The accounting and auditing systems; the required vote of the members. All amendments to
the article of cooperation and/or bylaws shall be
"(k) The manner of loaning and borrowing including the submitted to the Authority. The amendments shall take
limitations thereof; effect upon its approval by the authority or within thirty
(30) days from the date of filing thereof if not acted
"(l) The method of distribution of net surplus;
upon by the Authority for a cause not attributable to
"(m) The manner of adopting, amending, repealing, and the cooperative.
abrogating bylaws;
"ART. 19. Contracts Executed Prior to Registration and
"(n) A conciliation or mediation mechanism for the Effects Thereof. – Contracts executed between private
amicable settlement of disputes among members, persons and cooperatives prior to the registration of the
directors, officers and committee members of the cooperative shall remain valid and binding between the
cooperative; and parties and upon registration of the cooperative. A
formal written contract shall be adopted and made in
"(o) Other matters incident to the purposes and the cooperative’s name or on its behalf prior to its
activities of the cooperative. registration.
"ART. 16. Registration. – A cooperative formed and "ART. 20. Division of Cooperatives. – Any registered
organized under this Code acquires juridical personality cooperative may, by a resolution approved by a vote of
from the date the Authority issues a certificate of three-fourths (3/4) of all the members with voting
registration under its official seal. All applications for rights, present and constituting a quorum, resolve to
registration shall be finally disposed of by the Authority
divide itself into the two (2) or more cooperatives. The upon the property of any such constituent cooperatives
procedure for such division shall be prescribed in the shall be impaired by such merger or consolidation.
regulations of the Authority: Provided, That all the
"ART. 23. Type and Categories of Cooperatives. – (1)
requirements set forth in this Code have been complied
with by the new cooperatives: Provided, further, That Types of Cooperatives – Cooperatives may fall under
any of the following types:
no division of a cooperative in fraud of creditors shall be
valid. "(a) Credit Cooperative is one that promotes and
undertakes savings and lending services among its
"ART. 21. Merger and Consolidation of Cooperatives. –
(1) Two (2) or more cooperatives may merge into a members. It generates a common pool of funds in order
to provide financial assistance to its members for
single cooperative which shall either be one of the
constituent cooperatives or the consolidated productive and provident purposes;
cooperative. "(b) Consumers Cooperative is one of the primary
"(2) No merger or consolidation shall be valid unless purpose of which is to procure and distribute
commodities to members and non-members;
approved by a three-fourths (3/4) vote of all the
members with voting rights, present and constituting a "(c) Producers Cooperative is one that undertakes joint
quorum of each of the constituent cooperatives at production whether agricultural or industrial. It is
separate general assembly meetings. The dissenting formed and operated by its members to undertake the
members shall have the right to exercise their right to production and processing of raw materials or goods
withdraw their membership pursuant to Article 30. produced by its members into finished or processed
products for sale by the cooperative to its members and
"(3) The Authority shall issue the guidelines governing
the procedure of merger or consolidation of non-members. Any end product or its derivative arising
from the raw materials produced by its members, sold
cooperatives. In any case, the merger or consolidation
of cooperatives. In any case, the merger or in the name and for the account of the cooperative,
shall be deemed a product of the cooperative and its
consolidation shall be effective upon the issuance of the
certificate of merger or consolidation by the Authority. members;

"(d) Marketing Cooperative is one which engages in the

"ART. 22. Effects of Merger and Consolidation. – The
merger or consolidation of cooperatives shall have the supply of production inputs to members and markets
their products;
following effects:

"(1) The constituent cooperatives shall become a single "(e) Service Cooperative is one which engages in medical
and dental care, hospitalization, transportation,
cooperative which, in case of merger, shall be the
surviving cooperative, and, in case of consolidation, insurance, housing, labor, electric light and power,
communication, professional and other services;
shall be the consolidated cooperative;

"(2) The separate existence of the constituent "(f) Multipurpose Cooperative is one which combines
two (2) or more of the business activities of these
cooperatives shall cease, except that of the surviving or
the consolidated cooperative; different types of cooperatives;

"(g) Advocacy Cooperative is a primary cooperative

"(3) The surviving or the consolidated cooperative shall
possess al the assets, rights, privileges, immunities and which promotes and advocates cooperativism among its
members and the public through socially-oriented
franchises of each of the constituent cooperatives;
projects, education and training, research and
"(4) The surviving or the consolidated cooperative shall communication, and other similar activities to reach out
possess all the assets, rights, privileges, immunities and to its intended beneficiaries;
franchises of each of the constituent cooperatives; and
"(h) Agrarian Reform Cooperative is one organized by
"(5) The surviving or the consolidated cooperative shall marginal farmers majority of which are agrarian reform
be responsible for all the liabilities and obligation of beneficiaries for the purpose of developing an
each of the constituent cooperatives in the same appropriate system of land tenure, land development,
manner as if such surviving or consolidated cooperative land consolidation or land management in areas
had itself incurred such liabilities or obligations. Any covered by agrarian reform;
claim, action or proceeding pending by or against any
"(i) Cooperative Bank is one organized for the primary
such constituent cooperatives may be prosecuted by or
against the surviving or consolidated cooperative, as the purpose of providing a wide range of financial services
to cooperatives and their members;
case may be. Neither the rights of creditors nor any lien
"(j) Dairy Cooperative is one whose members are "(2) Categories of Cooperative – Cooperatives shall be
engaged in the production of fresh milk which may be categorized according to membership and territorial
processed and/or marketed as dairy products; considerations as follows:

"(k) Education Cooperative is one organized for the "(a) In terms of membership, cooperative shall be
primary purpose of owning and operating licensed categorized into:
educational institutions notwithstanding the provisions
of Republic Act No. 9155, otherwise known as the "(i) Primary – The members of which are natural
persons;
Governance of Basic Education Act of 2001;

"(l) Electric Cooperative is one organized for the primary "(ii) Secondary – The members of which are primaries;
and
purposed of undertaking power generations, utilizing
renewable energy sources, including hybrid systems, "(iii) Tertiary – The members of which are secondary
acquisition and operation of subtransmission or cooperatives; and
distribution to its household members;
"(b) In terms of territory, cooperatives shall be
"(m) Financial Service Cooperative is one organized for categorized according to areas of operations which may
the primary purpose of engaging in savings and credit or may not coincide with the political subdivisions of the
services and other financial services; country.
"(n) Fishermen Cooperative is one organized by "ART. 24. Functions of a Federation of Cooperatives. – A
marginalized fishermen in localities whose products are federation of cooperatives shall undertake the following
marketed either as fresh or processed products; functions:
"(o) Health Services Cooperative is one organized for the "(a) To carry on any cooperative enterprise authorized
primary purpose of providing medical, dental and other under Article 6 that complements augments, or
health services; supplements but does not conflict, complete with, nor
"(p) Housing Cooperative is one organized to assist or supplant the business or economic activities of its
members;
provide access to housing for the benefit of its regular
members who actively participate in the savings "(b) To carry on, encourage, and assist educational and
program for housing. It is co-owned and controlled by advisory work relating to its member cooperatives;
its members;
"(c) To render services designed to encourage simplicity,
"(q) Insurance Cooperative is one engaged in the efficiency, and economy in the conduct of the business
business of insuring life and poverty of cooperatives and of its member cooperatives and to facilitate the
their members; implementation of their bookkeeping, accounting, and
"(r) Transport Cooperative is one which includes land other systems and procedures;
and sea transportation, limited to small vessels, as "(d) To print, publish, and circulate any newspaper or
defined or classified under the Philippine maritime laws, other publication in the interest of its member
organized under the provisions of this Code; cooperatives and enterprises;
"(s) Water Service Cooperative is one organized to own, "(e) To coordinate and facilitate the activities of its
operate and manage waters systems for the provision member cooperatives;
and distribution of potable water for its members and
their households; "(f) To enter into joint ventures with national or
international cooperatives of other countries in the
"(t) Workers Cooperative is one organized by workers, manufacture and sale of products and/or services in the
including the self-employed, who are at same time the Philippines and abroad; and
members and owners of the enterprise. Its principal
purpose is to provide employment and business "(g) To perform such other functions as may be
opportunities to its members and manage it in necessary to attain its objectives.
accordance with cooperative principles; and
"A federation of cooperatives may be registered by
"(u) Other types of cooperative as may be determined carrying out the formalities for registration of a
by the Authority. cooperative.
"Registered cooperatives may organize a federation meets the minimum requirements of regular
according to the type of business activity engaged in by membership, continues to patronize the cooperative for
the cooperatives. two (2) years, and signifies his/her intention to remain a
member shall be considered a regular member.
"ART. 25. Cooperative Unions. – Registered cooperatives
and federations at the appropriate levels may organize "A cooperative organized by minors shall be considered
or join cooperative unions to represent the interest and a laboratory cooperative and must be affiliated with a
welfare of all types of cooperatives at the provincial, registered cooperative. A laboratory cooperative shall
city, regional, and national levels. Cooperative unions be governed by special guidelines to be promulgated by
may have the following purposes: the Authority.

"(a) To represent its member organizations; "ART. 27. Government Officers and Employees. – (1) Any
officer or employee of the Authority shall be disqualified
"(b) To acquire, analyze, and disseminate, economic, to be elected or appointed to any position in a
statistical, and other information relating to its cooperative: Provided, That the disqualification does
members and to all types of cooperatives within its area not extend to a cooperative organized by the officers or
of operation; employees of the Authority.
"(c) To sponsor studies in the economic, legal, financial, "(2) All elective officials of the Government shall be
social and other phases of cooperation, and publish the ineligible to become officers and directors of
results thereof; cooperatives: Provided, That the disqualification does
"(d) To promote the knowledge of cooperative not extend to a party list representative being an officer
principles and practices; of a cooperative he or she represents; and

"(e) To develop the cooperative movement in their "(3) Any government employee or official may, in the
respective jurisdictions; discharge of is duties as a member in the cooperative,
be allowed by the end of office concerned to use official
"(f) To advise the appropriate authorities on all time for attendance at the general assembly, board and
questions relating to cooperatives; committee meetings of cooperatives as well as
cooperative seminars, conferences, workshops,
"(g) To raise funds through membership fees, dues and
technical meetings, and training courses locally or
contributions, donations, and subsidies from local and
abroad: Provided, That the operations of the office
foreign sources whether private or government; and
concerned are not adversely affected.
"(h) To do and perform such other non-business
"ART. 28. Application. – An applicant for membership
activities as may be necessary to attain the foregoing
shall be deemed a member after approval of his
objectives.
membership by the board of directors and shall exercise
"Cooperative unions may assist the national and local the rights of member after having made such payments
governments in the latter’s development activities in to the cooperative in respect to membership or
their respective jurisdictions." acquired interest in the cooperative as may be
prescribed in the bylaws. In case membership is refused
SEC. 3. Articles 26, 27, 28, 29, 30, 31 and 32 of Chapter or denied by the board of directors, an appeal may be
III on Membership of the same Code are hereby made to the general assembly and the latter’s decision
renumbered and amended to read, as follows: shall be final. For this purpose, the general assembly
may opt to create an appeal and grievance committee,
CHAPTER III
the members of which shall serve for a period of one (1)
MEMBERSHIP
year and shall decide appeals on membership
"ART. 26. Kinds of Membership. – A cooperative may application within thirty (30) days upon receipt thereof.
have two (2) kinds of members, to wit: (1) regular If the committee fails to decide within the prescribed
members and (2) associate members. period, the appeal is deemed approved in favor of the
applicant.
"A regular member is one who has complied with all the
membership requirements and entitled to all the rights "ART. 29. Liability of Members. – A member shall be
and privileges of membership. An associate member is liable for the debts of the cooperative to the extent of
one who has no right to vote nor be voted upon and his contribution to the share capital of the cooperative.
shall be entitled only to such rights and privileges as the
"ART. 30. Termination of Membership. – (1) A member
bylaws may provide: Provided, That an associate who
of a cooperative may, for any valid reason, withdraw his
membership from the cooperative by giving a sixty (60) "ART. 31. Refund of Interests. – All sums computed in
day notice to the board of directors. Subject to the accordance with the bylaws to be due from a
bylaws of the cooperative, the withdrawing member cooperative to a former member shall be paid to him
shall be entitled to a refund of his share capital either by the cooperative or by the approved
contribution and all other interests in the transferee, as the case may be, in accordance with this
cooperative: Provided, That such fund shall not be made Code."
if upon such payment the value of the assets of the
SEC. 4. Articles 33, 34, 35, 36, 37, 38, 39, 40, 42, 42, 43,
cooperative would be less than the aggregate amount
of its debts and liabilities exclusive of his share capital 44, 45, 46, 47, 48, 49, 50 and 51 of Chapter IV on
Administration of the same Code are hereby
contribution.
renumbered and amended to read, as follows:
"(2) The death or insanity of a member in a primary
CHAPTER IV
cooperative, and the insolvency or dissolution of a
member in a secondary or tertiary cooperative may be ADMINISTRATION
considered valid grounds for termination of "ART. 32. Composition of the General Assembly. – The
membership: Provided, That in case of death or insanity general assembly shall be composed of such members
of an agrarian reform beneficiary-member of a who are entitled to vote under the articles of
cooperative, the next-of-kin may assume the duties and cooperation and bylaws of the cooperative.
responsibilities of the original member
"ART. 32. Powers of the General Assembly. – The
"(3) Membership in the cooperative may be terminated general assembly shall be composed of such members
by a vote of the majority of all the members of the who are entitled to vote under the articles of
board of directors for any of the following causes: cooperation and bylaws of the cooperative.
"(a) When a member has not patronized any of the "ART. 33. Powers of the General Assembly. – The
services of the cooperative for an unreasonable period general assembly shall be the highest policy-making
of time as may be previously determined by the board body of the cooperative and shall exercise such powers
of directors; as are stated in this Code, in the articles of cooperation
and in the bylaws of the cooperative. The general
"(b) When a member has continuously failed to comply
with his obligations; assembly shall have the following exclusive powers
which cannot be delegate:
"(c) When a member has acted in violation of the
bylaws and the rules of the cooperative; and "(1) To determine and approve amendments to the
articles of cooperation and bylaws;
"(d) For any act or omission injurious or prejudicial to
the interest or the welfare of the cooperative. "(2) To elect or appoint the members of the board of
directors, and to remove them for cause. However, in
"A member whose membership the board of directors the case of the electric cooperatives registered under
may wish to terminate shall be informed of such this Code, election of the members of the board shall be
intended action in writing and shall be given an held in accordance with its bylaws or election guideline
opportunity to be heard before the said board makes its of such electric cooperative; and
decision. The decision of the board shall be in writing
and shall be communicated in person or by registered "(3) To approve developmental plans of the
cooperative.
mail to said member and shall be appealable within
thirty (30) days from receipt thereof to the general "Subject to such other provisions of this Code and only
assembly whose decision shall be final. The general for purposes of prompt and intelligent decision-making,
assembly may create an appeal and grievance the general assembly may be a three-fourths (3/4) vote
committee whose members shall serve for a period of of all its members with voting rights, present and
one (1) year and shall decide appeals on membership constituting a quorum, delegate some of its powers to a
termination. The committee is given thirty (30) days smaller body of the cooperative. These powers shall be
from receipt thereof to decide on the appeal. Failure to enumerated under the bylaws of the cooperative.
decide within the prescribed period, the appeal is
deemed approved in favor of the member. Pending a "ART. 34. Meetings. – (1) A regular meeting shall be held
decision by the general assembly, the membership annually by the general assembly on a date fixed in the
remains in force. bylaws, or if not so fixed, on any dated within ninety
(90) days after the close of each fiscal year: Provided,
That notice of regular meetings shall be sent in writing,
by posting or publication, or through other electronic "ART. 37. Composition and Term of the Board of
means to all members of record. Directors. – Unless otherwise provided in the bylaws,
the direction and management of the affairs of a
"(2) Whenever necessary, a special meeting of the cooperative shall be vested in a board of directors
general assembly may be called at any time by a which shall be composed of not less that five (5) nor
majority vote of the board of directors or as provided more than fifteen (15) members elected by the general
for in the bylaws: Provided, That a notice in writing shall assembly for a term of two (2) years and shall hold
be sent one (1) week prior to the meeting to all office until their successors are duly elected an
members who are entitled to vote. However, a special qualified, or until duly removed for caused.
meeting shall be called by the board of directors after
compliance with the required notice within from at "ART. 38. Powers of the Board of Directors. – The board
least ten per centum (10%) of the total members who re of directors shall be responsible for the strategic
entitled to vote to transact specific business covered by planning, direction-setting and policy-formulation
the call. activities of the cooperatives.

"If the board fails to call a regular or a special meeting "ART. 39. Directors. – (1) Any member of a cooperative
within the given period, the Authority, upon petition of who under the bylaws of the cooperative, has the right
ten per centum (10%) of all the members of the to vote and who possesses all the qualifications and
cooperative who are entitled to vote, and for good none of the disqualifications provided in the laws or
cause shown, shall issue an order to the petitioners bylaws shall be eligible for election as director.
directing them to call a meeting of the general assembly
"(2) The cooperative may, by resolution of its board of
by giving proper notice as required in this Code or in the
bylaws; directors, admit as directors, or committee member one
appointed by any financing institution from which the
"(3) In the case of a newly approved cooperative, a cooperative received financial assistance solely to
special general assembly shall be called, as far as provide technical knowledge not available within its
practicable, within ninety (90) days from such approval; membership. Such director or committee member not
be a member of the cooperative and shall have no
"(4) The Authority may call a special meeting of the powers, rights, nor responsibilities except to provided
cooperative for the purpose of reporting to the technical assistance as required by the cooperative.
members the result of any examination or other
investigation of the cooperative affairs; and "(3) The members of the board of directors shall not
hold any other position directly involved in the day to
"(5) Notice of any meeting may be waived, expressly or day operation and management of the cooperative.
impliedly, by any member.
"(4) Any person engaged in a business similar to that of
"ART. 35. Quorum. – A quorum shall consist of at least the cooperative or who in any way has a conflict of
twenty-five per centum (25%) of all the members interest with it, is disqualified from election as a
entitled to vote. In the case of cooperative banks, the director of said cooperative.
quorum shall be as provided in Article 99 of this Code.
In the case of electric cooperatives registered under this "ART. 40. Meeting of the Board and Quorum
Code, a quorum, unless otherwise provided in the Requirement. – (1) In the case of primary cooperatives,
bylaws, shall consist of five per centum (5%) of all the regular meetings of the board of directors shall be held
members entitled to vote. at least once a month.

"ART. 36. Voting System. – Each member of a primary "(2) Special meetings of the board of directors may be
cooperative shall have only one (1) vote. In the case of held at any time upon the call of the chairperson or a
members of secondary or tertiary cooperatives, they majority of the members of the board: Provided, That
shall have one (1) basic vote and as many incentive written notices of the meeting specifying the agenda of
votes as provided for in the bylaws but not exceed five the special meeting shall be given to all members of the
(5) votes. The votes cast by the delegates shall be board at least one (1) week before the said meeting.
deemed as votes cast by the members thereof.
"(3) A majority of the members of the Board shall
"However, the bylaws of a cooperative other than a constitute a quorum or the conduct of business, unless
primary may provide for voting by proxy. Voting by the bylaws proved otherwise.
proxy means allowing a delegate of a cooperative to
represent or vote in behalf of another delegate of the "(4) Directors cannot attend or vote by proxy at board
meetings.
same cooperative.
"ART. 41. Vacancy in the Board of Directors. – Any their training requirements, shall be in accordance with
vacancy in the board of directors, other than by the rules and regulations issued by the Authority.
expiration of term, may be filled by the vote of at least a
"ART. 45. Liability of Directors, Officers and Committee
majority of the remaining directors, if still constituting a
quorum; otherwise, the vacancy must be filled by the Members. – Directors, officers and committee
members, who are willfully and knowingly vote for or
general assembly in a regular or special meeting called
for the purpose. A director so elected to fill a vacancy assent to patently unlawful acts or who are guilty of
gross negligence or bad faith in directing the affairs of
shall serve only the unexpired term of his predecessor
in office. the cooperative or acquire any personal or pecuniary
interest in conflict with their duty as such directors,
"ART. 42. Officers of the Cooperative. – The board of officers or committee members shall be liable jointly
directors shall elect from among themselves the and severally for all damages or profits resulting
chairperson and vice-chairperson, and elect or appoint therefrom to the cooperative, members, and other
other officers of the cooperative from outside of the persons.
board in accordance with their bylaws. All officers shall
serve during good behavior and shall not be removed "When a director, officer or committee member
attempts to acquire or acquires, in violation of his duty,
except for cause after due hearing. Loss of confidence
shall not be a valid ground for removal unless evidenced any interest or equity adverse to the cooperative in
respect to any matter which has been reposed in him in
by acts or omission causing loss of confidence in the
honesty and integrity of such officer. No two (2) or more confidence, he shall, as a trustee for the cooperative, be
liable for damages and shall be accountable for double
persons with relationships up to the third civil degree of
consanguinity or affinity nor shall any person engaged in the profits which otherwise would have accrued to the
cooperative.
a business similar to that of the cooperative nor who in
any other manner has interests in conflict with the "ART. 46. Compensation. – (1) In the absence of any
cooperative shall serve as an appointive officer. provisions in the bylaws fixing their compensation, the
"ART. 43. Committees of Cooperatives. – (1) The bylaws directors shall not receive any compensation except for
reasonable per diems: Provided however, That the
may create an executive committee to be appointed by
the board of directors with such powers and duties as directors and officers shall not be entitled to any per
diem when, in the preceding calendar year, the
may be delegated to it in the bylaws or by a majority
vote of all the members of the board of directors. cooperative reported a net loss or had a dividend rate
less than the official inflation rate for the same year.
"(2) The bylaws shall provide for the creation of an Any compensation other than per diems may be granted
audit, election, mediation and conciliation, ethics, and to directors by a majority vote of the members with
such other committees as may be necessary for the voting rights at a regular or special general assembly
conduct of the affairs of the cooperative. The members meeting specifically called for the purpose: Provided,
of both the audit and election committee shall be That no additional compensation other than per
elected by the general assembly and the rest shall be diems shall be paid during the first year of existence of
appointed by the board. The audit committee shall be any cooperative.
directly accountable and responsible to the general
"(2) The compensation of officers of the cooperative as
assembly. It shall have the power and duty to
continuously monitor the adequacy and effectiveness of well as the members of the committee as well as the
members of the committees created pursuant to this
the cooperative’s management control system and
audit the performance of the cooperative and its Code or its bylaws may be fixed in the bylaws.
various responsibility centers. "(3) Unless already fixed in the bylaws, the
"Unless otherwise provided in the bylaws, the board, in compensation of all other employee shall be
determined by the board of directors.
case of a vacancy in the committees, may call an
election to fill the vacancy or appoint a person to fill the "ART. 47. Dealings of Directors, Officers, or Committee
same subject to the provision that the person elected or Members. – A contract entered into by the cooperative
appointed shall serve only for the unexpired portion of with one (1) or more of its directors, officers, and
the term. committee members is voidable, at the option of the
"ART. 44. Functions, Responsibilities and Training cooperative, unless all the following conditions are
present.
Requirements of Directors, Officers and Committee
Members. – the functions and responsibilities of
directors, officers and committee members, as well as
"(1) That the presence of such director in the board the officer concerned under preventive suspension
meeting wherein contract was approved was not pending the resolution of the investigation. Upon
necessary to constitute a quorum for such meeting; finding of a prima facie evidence of guilt, the board shall
present its recommendation for removal to the general
"(2) That the vote of such director was not necessary for assembly.
the approval of the contract;
"An elective officer may be removed by three fourths
"(3) That the contract is fair and reasonable under the (3/4) votes of the regular members present and
circumstances; and constituting a quorum, in a regular or special general
"(4) That in the case of an officer or committee assembly meeting called for the purpose. The officer
member, the contract with the officer or committee concerned shall be given an opportunity to be heard at
member has been previously authorized by the general said assembly.
assembly or by the board of directors. SEC. 5. Articles 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62
"Where any of the first two conditions set forth in the and 63 of Chapter V on Responsibilities, Rights and
preceding paragraph is absent, in the case of a contract Privileges of Cooperatives of the same Code are hereby
with a director, such contract may be ratified by a renumbered and amended to read, as follows:
three-fourths (3/4) vote of all the members with voting CHAPTER V
rights, present and constituting a quorum in a meeting RESPONSIBILITIES, RIGHTS AND PRIVILEGES OF
called for the purpose: Provided, That full disclosure of COOPERATIVE
the adverse interest of the directors involved is made at
such meeting, and that the contract is fair and "ART. 51. Address. – Every cooperative shall have an
reasonable under the circumstances. official postal address to which all notices and
communications shall be sent. Such address and every
"ART. 48. Disloyalty of a Director. – A director who, by change thereof shall be registered with the Authority.
virtue of his office, acquires for himself an opportunity
which should belong to the cooperative shall be liable "ART. 52. Books to be Kept Open. – (1) Every
for damages and must account for double the profits cooperative shall have the following documents ready
that otherwise would have accrued to the cooperative and accessible to its members and representatives of
by refunding the same, unless his act has been ratified the Authority for inspection during reasonable office
by a three-fourths (3/4) vote of all the members with hours at its official address:
voting rights, present and constituting a quorum. This
provision shall be applicable, notwithstanding the fact "(a) A copy of this Code and all other laws pertaining to
cooperatives;
that the director used his own funds in the venture.

"ART. 49. Illegal Use of Confidential Information. – (1) A "(b) A copy of the regulations of the Authority;
director or officer, or an associate of a director or "(c) A copy of the articles of cooperation and bylaws of
officer, who, for his benefit or advantage or that of an the cooperative;
associate, makes use of confidential information that, if
generally known, might reasonably be expected to "(d) A register of members;
adversely affect the operation and viability of the
"(e) The books of the minutes of the meetings of the
cooperative, shall be held:
general assembly, board of directors and committee;
"(a) Liable to compensate the cooperative for the direct
"(f) Share books, where applicable;
losses suffered by the cooperative as a result of the
illegal use of information; and "(g) Financial statement; and
"(b) Accountable to the cooperative for any direct "(h) Such other documents as may be prescribed by
benefit or advantage received or yet to be received by laws or the bylaws.
him or his associate, as a result of the transaction.
"(2) The accountant or the bookkeeper of the
"(2) The cooperative shall take the necessary steps to cooperative shall be responsible for the maintenance of
enforce the liabilities described in subsection (a) the cooperative in accordance with generally accepted
accounting practices. He shall also be responsible for
"ART. 50. Removal. – All complaints for the removal of
the production of the same at the time of audit or
any elected officer shall be filed with the board of
inspection.
directors. Such officer shall be given the opportunity to
be heard. Majority of the board of directors may place
"The audit committee shall be responsible for the penalties that will be imposed until such time that the
continuous and periodic review of the books and cooperative has complied with the requirements.
records of account to ensure that these are in
"ART. 54. Register of Members as Prima Facie Evidence.
accordance with generally accepted accounting
practices. He shall also be responsible for the – Any register or list of members shares kept by any
registered cooperative shall be prima facie evidence of
production of the same at the time of audit or
inspection. the following particulars entered therein:

"(1) The date on which the name of any person was

"(3) Each cooperative shall maintain records of accounts
such that the true and correct condition and the results entered in such register or list of member; and
of the operation of the cooperative may be ascertained "(2) The date on which any such person ceased to be a
therefrom at any time. The financial statements, member.
audited according to generally accepted auditing
standards, principles and practices, shall be published "ART. 55. Probative Value of Certified Copies of Entries.
annually and shall be kept posted in a conspicuous place – (1) A copy of any entry in any book, register or list
in the principal office of the cooperative. regularly kept in the course of business in the
possession of a cooperative shall, if duly certified in
"(4) Subject to the pertinent provisions of the National accordance with the rules of evidence, be admissible as
Internal Revenue Code and other laws, a cooperative evidence of the existence of entry and prima facie
may dispose by way of burning or other method of evidence of the matters and transactions therein
complete destruction any document, record or book recorded.
pertaining to its financial and nonfinancial operations
which are already more than five (5) years old except "(2) No person or a cooperative is possession of the
those relating to transactions which are the subject of books of such cooperative shall, in any legal
civil, criminal and administrative proceedings. An proceedings to which the cooperative is not a party, be
inventory of the audited documents, records and books compelled to produce any of the books of the
to be disposed of shall be drawn up and certified to by cooperative, the contents of which can be proved and
the board secretary and the chairman of the audit the matters, transactions and accounts therein
committee and presented to the board of directors recorded, unless by order of a competent court.
which may thereupon approve the disposition of said
"ART. 56. Bonding of Accountable Officers. – Every
records.
director, officer, and employee handling funds,
"ART. 53. Reports. – (1) Every cooperative shall draw up securities or property on behalf of any cooperative shall
regular reports of its program of activities, including be covered by a surety bond to be issued for a duly
those in pursuance of their socio-civic undertakings, registered insurance or bonding company for the
showing their progress and achievements at the end of faithful performance of their respective duties and
every fiscal year. The reports shall be made accessible obligations. The board of directors shall determine the
to its members, and copies thereof shall be furnished to adequacy of such bonds.
all its members or record. These reports shall be filed
"Upon the filing of the application for registration of a
with the Authority within one hundred twenty (120)
cooperative, the bonds of the accountable officers shall
days from the end of the calendar year. The form and
be required by the Authority. Such bonds shall be
contents of the reports shall be as prescribed by the
renewed manually and the Authority shall accordingly
rules of the Authority. Failure to file the required
be informed of such renewal.
reports shall subject the accountable officer/s to fines
and penalties as may be prescribed by the Authority, "ART. 57. Preference of Claims. – (1) Notwithstanding
and shall be a ground for the revocation of authority of the provisions of existing laws, rules and regulations to
the cooperative to operate as such. The fiscal year of the contrary, but subject to the prior claim of the
every cooperative shall be the calendar year except as Authority, any debt due to the cooperative from the
may be otherwise provided in the bylaws. member shall constitute a first lien upon any raw
materials, production, inputs, and products produced;
"(2) If a cooperative fails to make, publish and file the
or any land, building, facilities, equipment, goods or
reports required herein, or fails to include therein any
services acquired and held, by such member through
matter required by the Code, the Authority shall, within
the proceeds of the loan or credit granted by the
fifteen (15) days from the expiration of the prescribed
cooperative to him for as long as the same is not fully
period, send such cooperative a written notice, stating
paid.
its non-compliance and the commensurate fines and
"(2) No property or interest on property which is subject "ART. 60. Tax Treatment of Cooperative. - Duly
to a lien under paragraph (1) shall be sold nor conveyed registered cooperatives under this Code which do not
to third parties without the prior permission of the transact any business with non-members or the general
cooperative. The lien upon the property or interest shall public shall not be subject to any taxes and fees
continue to exit even after the sale or conveyance imposed under the internal revenue laws and other tax
thereof until such lien has been duly extinguished. laws. Cooperatives not falling under this article shall be
governed by the succeeding section.
"(3) Notwithstanding the provisions of any law to the
contrary, any sale or conveyance made in contravention "ART.61. Tax and Other Exemptions. Cooperatives
of paragraph (2) hereof shall be void. transacting business with both members and non-
members shall not be subjected to tax on their
"ART. 58. Instrument for Salary or Wage Deduction. – (1) transactions with members. In relation to this, the
A member of a cooperative may, notwithstanding the transactions of members with the cooperative shall not
provisions of existing laws to the contrary, execute an be subject to any taxes and fees, including not limited to
instrument in favor of the cooperative authorizing his final taxes on members’ deposits and documentary tax.
employer to deduct from his/her salary or wages, Notwithstanding the provisions of any law or regulation
commutation of leave credits and any other monetary to the contrary, such cooperatives dealing with
benefits payable to him by the employer and remit such nonmembers shall enjoy the following tax exemptions:
amount as maybe specified in satisfaction of a debt or
other demand due from the member to the "(1) Cooperatives with accumulated reserves and
cooperative. undivided net savings of not more than Ten million
pesos (P10,000,000.00) shall be exempt from all
"(2) Upon the execution of such instrument and as may national, city, provincial, municipal or barangay taxes of
be required by the cooperative contained in a written whatever name and nature. Such cooperatives shall be
request, the employer shall make the deduction in exempt from customs duties, advance sales or
accordance with the agreement and deduction in compensating taxes on their importation of
accordance with the agreement and remit forthwith the machineries, equipment and spare parts used by them
amount so deducted within ten (10) days after the end and which are not available locally a certified by the
of the payroll month to the cooperative. The employer department of trade and industry (DTI). All tax free
shall make the deduction for as long as such debt or importations shall not be sold nor the beneficial
other demand remains unpaid by the employee. ownership thereof be transferred to any person until
"(3) The term "employer" as used in this article shall after five (5) years, otherwise, the cooperative and the
include all private firms and the national and local transferee or assignee shall be solidarily liable to pay
governments and government-owned or controlled twice the amount of the imposed tax and / or duties.
corporations who have under their employer a member "(2) Cooperatives with accumulated reserves and
of a cooperative and have agreed to carry out the terms divided net savings of more than Ten million pesos
of the instrument mentioned in paragraphs (1) and (2) (P10,000,000.00) shall fee the following taxes at the full
of this article. rate:
"(4) The provisions of this article shall apply to all similar "(a) Income Tax - On the amount allocated for interest
agreements referred to in paragraph (1) and were on capitals: Provided, That the same tax is not
enforced prior to the approval of this Code. consequently imposed on interest individually received
"(5) Notwithstanding the provisions of existing laws to by members: Provided, further, That cooperatives
the contrary, the responsibilities of the employer as regardless of classification, are exempt income tax from
stated in paragraphs (1) and (2) of this articles shall be the date of registration with the Authority;
mandatory: Provided, That in the case of private "(b) Value-Added Tax – On transactions with non-
employer, the actual and reasonable cost deducting and members: Provided, however, That cooperatives duly
remitting maybe collected. registered with the Authority; are exempt from the
"ART. 59. Primary Lien. - Notwithstanding the provision payment of value-added tax; subject to Section 109,
of any law with the contrary, a cooperative shall have sub-sections L, M and N of Republic Act No. 9337, the
primary lien upon the capital, deposits or interest of a National Internal Revenue Code, as amended: Provided,
member for any debt due to the cooperative from such That the exempt transaction under Section 109 (L) shall
a member. include sales made by cooperatives duly registered with
the Authority organized and operated by its member to
undertake the production and processing of raw
materials or of goods produced by its members into the payment of obligations contracted in favor of the
finished or process products for sale by the cooperative cooperative.
to its members and non-members: Provided, further,
"(7) All cooperatives shall be exempt from putting up a
That any processed product or its derivative arising
from the raw materials produced by its members, sold bond for bringing an appeal against the decision of an
inferior court or for seeking to set aside any third party
in then name and for the account of the
cooperative: Provided , finally, That at least twenty- claim: Provided, That a certification of the Authority
showing that the net assets of the cooperative are in
five per centum (25%) of the net income of the
cooperatives is returned to the members in the form of excess of the amount of the bond required by the court
in similar cases shall be accepted by the court as a
interest and/or patronage refunds;
sufficient bond.
"(c) All other taxes unless otherwise provided herein;
"(8) Any security issued by cooperatives shall be exempt
and
from the provisions of the Securities Act provided such
"(d) Donations to charitable, research and educational security shall not be speculative.
institutions and reinvestment to socioeconomic projects
within the area of operation of the cooperative may be "ART. 62. Privileges of Cooperatives. – Cooperatives
registered under this Code, notwithstanding the
tax deductible.
provisions of any law to the contrary, be also accorded
"(3) All cooperatives, regardless of the amount of the following privileges:
accumulated reserves and undivided net savings shall
be exempt from payment of local taxes and taxes on "(1) Cooperatives shall enjoy the privilege of depositing
their sealed cash boxes or containers, documents or any
transactions with banks and insurance
companies: Provided, That all sales or services rendered valuable papers in the safes of the municipal or city
treasurers and other government offices free of charge,
for non-members shall be subject to the applicable
percentage taxes sales made by producers, marketing and the custodian of such articles shall issue a receipt
acknowledging the articles received duly witnessed by
or service cooperatives: Provided further, That nothing
in this article shall preclude the examination of the another person;
books of accounts or other accounting records of the "(2) Cooperatives organized among government
cooperative by duly authorized internal revenue officers employees, notwithstanding any law or regulation to
for internal revenue tax purposes only, after previous the contrary, shall enjoy the free use of any available
authorization by the Authority. space in their agency, whether owned or rented by the
Government;
"(4) In areas where there are no available notaries
public, the judge, exercising his ex officio capacity as "(3) Cooperatives rendering special types of services
notary public, shall render service, free of charge, to any and facilities such as cold storage, ice plant, electricity,
person or group of persons requiring the administration transportation, and similar services and facilities shall
of oath or the acknowledgment of articles of secure a franchise therefore, and such cooperatives
cooperation and instruments of loan from cooperatives shall open their membership to all persons qualified in
not exceeding Five Hundred Thousand Pesos their areas of operation;
(P500,000.00).
"(4) In areas where appropriate cooperatives exist, the
"(5) Any register of deeds shall accept for registration, preferential right to supply government institutions and
free of charge, any instrument relative to a loan made agencies rice, corn and other grains, fish and other
under this Code which does not exceed Two Hundred marine products, meat, eggs, milk, vegetables, tobacco
Fifty Thousand Pesos (P250,000.00) or the deeds of title and other agricultural commodities produced by their
of any property acquired by the cooperative or any members shall be granted to the cooperatives
paper or document drawn in connection with any action concerned;
brought by the cooperative or with any court judgment
rendered in its favor or any instrument relative to a "(5) Preferential treatment in the allocation of
bond of any accountable officer of a cooperative for the fertilizers, including seeds and other agricultural inputs
faithful performance of his duties and obligations. and implements, and in rice distribution shall be
granted to cooperatives by the appropriate government
"(6) Cooperatives shall be exempt from the payment of agencies;
all court and sheriff’s fees payable to the Philippine
Government for and in connection with all actions "(6) Preferential and equitable treatment in the
brought under this Code, or where such actions is allocation or control of bottomries of commercial
brought by the Authority before the court, to enforce
shipping vessels in connection with the shipment of of the Solicitor General, free of charge, except when the
goods and products of cooperatives; adverse party is the Republic of the Philippines;

"(7) Cooperatives and their federations, such as farm "(12) Cooperatives organized by faculty members and
and fishery producers and suppliers, market vendors employees of educational institutions shall have the
and such other cooperatives, which have for their preferential right in the management of the canteen
primary purpose the production and/or the marketing and other services related to the operation of the
of products from agriculture, fisheries and small educational institution where they are employed:
entrepreneurial industries and federations thereof, shall Provided, That such services are operated within the
have preferential rights in the management of public premises of the said educational institution; and
markets and/or lease of public market facilities, stalls or
spaces: Provided, That these rights shall only be utilized "(13) The appropriate housing agencies and government
financial institutions shall create a special window for
exclusively by cooperatives: Provided, further, That no
cooperative forming a joint venture, partnership or any financing housing projects undertaken by cooperatives,
with interest rates and terms equal to, or better than
other similar arrangement with a non-cooperative
entity can utilize these rights; those given for socialized housing projects. This
financing shall be in the form of blanket loans or long-
"(8) Cooperatives engaged in credit services and/or term wholesale loans to qualified cooperatives, without
federations shall be entitled to loans credit lines, need for individual processing.
rediscounting of their loan notes, and other eligible
papers with the Development Bank of the Philippines, "The Authority, in consultation with the appropriate
government agencies and concerned cooperative
the Land Bank of the Philippines and other financial
institutions except the Bangko Sentral ng Pilipinas (BSP); sector, shall issue rules and regulations on all matters
concerning housing cooperatives."
"The Philippine Deposit Insurance Corporation (PDIC)
and other government agencies, government-owned SEC. 6. Article 64 of Chapter VI on Insolvency of
Cooperatives of the same Code is hereby renumbered
and controlled corporations and government financial
institutions shall provide technical assistance to and amended to read, as follows:
registered national federations and unions of CHAPTER VI
cooperatives which have significant engagement in INSOLVENCY OF COOPERATIVES
savings and credit operations in order for these
federations and unions to establish and/or strengthen "ART. 63. Proceeding Upon Insolvency.- In case a
their own autonomous cooperative deposit insurance cooperative is unable to fulfill its obligations to creditors
systems; due to insolvency, such cooperative may apply for such
remedies as it may deem fit under the provisions of Act
"(9) A public transport service cooperative may be No. 1956, as amended, otherwise known as the
entitled to financing support for the acquisition and/or Insolvency Law.
maintenance of land and sea transport equipment,
facilities and parts through the program of the "Nothing in this Article, however, precludes creditors
government financial institutions. It shall have the from seeking protection from said insolvency law."
preferential right to the management and operation of
SEC. 7. Articles 65, 66. 67, 68, 69, 70 and 71 of Chapter
public terminals and ports whether land or sea
VII on Dissolution of Cooperatives of the same Code are
transport where the cooperative operates and on
hereby renumbered and amended to read, as follows:
securing a franchise for active or potential routes for
the public transport; CHAPTER VII
DISSOLUTION OF COOPERATIVES
"(10) Cooperatives transacting business with the
Government of the Philippines or any of its political "ART. 64. Voluntary Dissolution Where no Creditors are
subdivisions or any of its agencies or instrumentalities, Affected. – If the dissolution of a cooperative does not
including government-owned and controlled prejudice the rights of any creditor having a claim
corporations shall be exempt from prequalification against it, the dissolution may be affected by a majority
bidding requirements notwithstanding the provisions of vote of the board of directors, and by a resolution duly
Republic Act No.9184, otherwise known as, the adopted by the affirmative vote of at least three-fourths
Government Procurement Act; (3/4) of all the members with voting rights, present and
constituting a quorum at a meeting to be held upon call
"(11) Cooperative shall enjoy the privilege of being
of the directors: Provided, That the notice of time, place
represented by the provincial or city fiscal or the Office
and object of the meeting shall be published for three
(3) consecutive weeks in a newspaper published in the "ART. 66. Involuntary Dissolution. – A cooperative may
place where the principal office of said cooperative is be dissolved by order of a competent court after due
located, or if no newspaper is published in such place, in hearing on the grounds of:
a newspaper of general circulation in the
Philippines: Provided, further, That the notice of such "(1) Violation of any law, regulation or provisions of its
bylaws; or
meeting is sent to each member of record either by
registered mail or by personal delivery at least thirty "(2) Insolvency.
(30) days prior to said meeting. A copy of the resolution
authorizing the dissolution shall be certified to by a "ART. 67. Dissolution by Order of the Authority. – The
majority of the board of directors and countersigned by Authority may suspend or revoke, after due notice and
the board secretary. The Authority shall thereupon issue hearing, the certificate of registration of a cooperative
the certificate of dissolution. on any of the following grounds:

"ART. 65. Voluntary Dissolution Where Creditors Are "(1) Having obtained its registration by fraud;
Affected. – Where the dissolution of a cooperative may
"(2) Existing for an illegal purpose;
prejudice the rights of any creditor, the petition for
dissolution shall be filed with the Authority. The petition "(3) Willful violation, despite notice by the Authority, of
shall be signed by a majority of its board or directors or the provisions of this Code or its bylaws;
other officers managing its affairs, verified by its
chairperson or board secretary or one of its directors "(4) Willful failure to operate on a cooperative basis;
and shall set forth all claims and demands against it and and
that its dissolution was resolved upon by the affirmative
"(5) Failure to meet the required minimum number of
vote of at least three-fourths (3/4) of all the members
members in the cooperative.
with voting rights, present and constituting a quorum at
a meeting called for that purpose. "ART. 68. Dissolution by Failure to Organize and
Operate.- If a cooperative has not commenced business
"If the petition is sufficient in form and substance, the
and its operation within two (2) years after the issuance
Authority shall issue an order reciting the purpose of
of its certificate of registration or has not carried on its
the petition and shall fix a date which shall not be less
business for two (2) consecutive years, the Authority
than thirty (30) nor more than sixty (60) days after the
shall send a formal notice to the said cooperative to
entry of the order. Before such date, a copy of the order
show cause as to its failure to operate. Failure of the
shall be published at least once a week for three (3)
cooperative to promptly provide justifiable cause for its
consecutive weeks in a newspaper of general circulation
failure to operate shall warrant the Authority to delete
published in the municipality or city where the principal
its name from the roster of registered cooperatives and
office of the cooperative is situated or in the absence of
shall be deemed dissolved.
such local newspaper, in a newspaper of general
circulation in the Philippines, and a copy shall likewise "ART. 69. Liquidation of a Cooperative. – Every
be posted for three (3) consecutive weeks in three (3) cooperative whose charter expires by its own limitation
public places in the municipality or city where the or whose existence is terminated by voluntary
cooperative’s office is located. dissolution or through an appropriate judicial
proceeding shall nevertheless continue to exist for three
"Upon expiry of the five (5) day notice to file objections,
(3) years after the time it is dissolved; not to continue
the Authority shall proceed to hear the petition and try
the business for which it was established but for the
any issue raised in the objection filed; and if the
purpose of prosecuting and defending suits by or
objection is sufficient and the material allegations of the
against it; settlement and closure of its affairs;
petition are proven, it shall issue an order to dissolve
disposition, conveyance and distribution of its
the cooperative and direct the disposition of its assets in
properties and assets.
accordance with existing rules and regulations. The
order of dissolution shall set forth therein: "At any time during the said three (3) years, the
cooperative is authorized and empowered to convey all
"(1) The assets and liabilities of the cooperative;
of its properties to trustees for the benefit of its
"(2) The claim of any creditor; members, creditors and other persons in interest. From
and after any such conveyance, all interests which the
"(3) The number of members; and cooperative had in the properties are terminated.
"(4) The nature and extend of the interests of the "Upon the winding up of the cooperative affairs, any
members of the cooperative. asset distributable to any creditor, shareholder or
member who is unknown or cannot be found shall be is admitted as members of the
given to the federation or union to which the cooperative: Provided finally , That where the heir fails
cooperative is affiliated with. to qualify as a member or where his total share holding
exceeds ten per centum (10%) of the share capital , the
"A cooperative shall only distribute its assets or share or shares excess will revert to the cooperative
properties upon lawful dissolution and after payment of upon payment to the heir of the value of such shares.
all its debts and liabilities, except in the case of decrease
of share capital of the cooperative and as otherwise "ART. 74. Assignment of Share Capital Contribution or
allowed by this Code. Interest.- Subject to the provisions of this Code, no
member shall transfer his shares or interest in the
"ART. 70. Rules and Regulations on Liquidation. – The cooperative or any part thereof unless.
Authority shall issue the appropriate implementing
guidelines for the liquidation of cooperatives." "(1) He has held such share capital contribution or
interest for not less than one (1) year.
SEC. 8. Articles 72, 73, 74, 75, 76, 77, 78, 79 and 80 of
Chapter VIII on Capital, Property, and Funds of the same "(2) The assignment is made to the cooperative or to a
Code are hereby renumbered and amended to read, as member of the cooperative or to a person who falls
follows: within the field of the membership of the cooperative;
and
CHAPTER VIII
CAPITAL, PROPERTY, AND FUNDS "(3) The board of directors has approved such
assignment.
"ART. 71. Capital. - The capitalization of cooperatives
and the accounting procedures shall be governed by the "ART.75. Capital Build-Up.- Te bylaws of every
provisions of this Code and the regulations which shall cooperative shall be provided for a reasonable and
be issued. realistic member capital build-up program to allow the
continuing growth of the members’ investment in their
"ART. 72. Capital Sources.- Cooperatives registered cooperative as their economic conditions continue to
under this Code may derive their capital from any or all improve.
of the following sources:
"ART.76. Shares.- The term "share" refers to a unit of
"(1) Member’s share capital; capital in a primary cooperative the par value of which
"(2) Loans and barrowings including deposits; may be fixed to any figure not more than One thousand
pesos (P1,000.00). The share of capital of a cooperative
"(3) Revolving capital which consists of the deferred is the money paid or required to be paid for the
payment of patronage refunds, or interest on share operations of the cooperative. The method for the
capital; and issuance of share certificates shall prescribed in its
bylaws.
"(4) Subsidies, donations, legacies, grants, aids and such
other assistance from any local or foreign institution "ART.77. Fines. - The bylaws of a cooperative may
whether public or private: Provided, That capital coming prescribe a fine on unpaid subscribed share capital.
from such subsides, donations, legacies, grants, aids and Provided, that such fine is fair and reasonable under the
other assistance shall not be divided into individual circumstances.
share capital holdings at any time but shall instead form
part of the donated capital or fund of the cooperative. "ART.78. Investment of Capital. - A cooperative may
invest its capital in any of the following:
"Upon dissolution, such donated capital shall be subject
to escheat. "(a) In shares or debentures or securities of any other
cooperative;
"ART. 73. Limitation on Share Capital Holdings.- No
member of primary cooperative other than cooperative "(b) In any reputable bank in the locality, or any
itself shall own or hold more than ten per centum (10%) cooperative;
of the share capital of the cooperative. "(c) In securities issued or guaranteed by the
"Where a member of cooperative dies, his heir shall be Government;
entitled to the shares of the decedent: Provided, That "(d) In real state primarily for the use of the cooperative
the total share holding of the heir does not exceed or its members; or
ten per centum (10%) of the share capital of the
cooperative; Provided, further, That the heir qualify and "(e) In any other manner authorized in the bylaws.
"ART. 79. Revolving Capital. – The general assembly of in good faith in connection with any matter he is
any cooperative may authorize the board of directors to authorized or required to do pursuant to this Code.
raise a revolving capital to strengthen its capital
"ART. 83. Right to Examine. – A member shall have the
structure by deferring the payment of patronage
refunds and interest on share capital or by the right to examine the records required to be kept by the
cooperative under Article 52 of this Code during
authorized deduction of a percentage from the
proceeds of products sold or services rendered, or per reasonable hours on business days and he may demand,
in writing, for a copy of excerpts from said records
unit of product or services handled. The board of
directors shall issue revolving capital certificates with without charge except the cost of production.
serial number, name, amount, and rate of interest to be "Any officer of the cooperative who shall refuse to allow
paid and shall distinctly set forth the time of retirement any member of the cooperative to examine and copy
of such certificates and the amounts to be returned." excerpts from its records shall be liable to such member
SEC. 9. Articles 81, 82, 83, 84 and 85 of Chapter IX on for damages and shall be guilty of an offense which shall
be punishable under Article 140 of this Code: Provided,
Audit, Inquiry and Members’ Right to Examine of the
same Code are hereby renumbered and amended to That if such refusal is pursuant to a resolution or order
of the board of directors, the liability under this article
read, as follows:
shall be imposed upon the directors who voted for such
"ART. 80. Annual Audit. – Cooperatives registered under refusal: Provided, further, That it shall be a defense to
this Code shall be subject to an annual financial, any action under this article that the member
performance and social audit. The financial audit shall demanding to examine and copy excerpts from the
be conducted by an external auditor who satisfies all cooperative records has improperly used any
the following qualifications: information secured through any prior examination of
the records of such cooperative or was not acting in
"(1) He is independent of the cooperative or any of its good faith or for a legitimate purpose in making his
subsidiary that he is auditing; and demand.
"(2) He is a member in good standing of the Philippine "ART. 84. Safety of Records. – Every cooperative shall, at
Institute of Certified Public Accountants (PICPA) and is its principal office, keep and carefully preserve the
accredited by both the Board and Accountancy and the records required by this Code to be prepared and
Authority. maintained. It shall take all necessary precaution to
"The social audit shall be conducted by an independent prevent its loss, destruction or falsification."
social auditor accredited by the Authority. SEC. 10. Articles 86 and 87 of Chapter X on Allocation
"Performance and social audit reports which contain and Distribution of Net Surplus of the same Code are
the findings and recommendations of the auditor shall hereby renumbered and amended to read, as follows:
be submitted to the board of directors. CHAPTER X
"The Authority, in consultation with the cooperative ALLOCATION AND DISTRIBUTION OF NET SURPLUS
sector, shall promulgate the rules and standards for the "ART. 85. Net Surplus. – Notwithstanding the provisions
social audit of cooperatives. of existing laws, the net surplus of cooperatives shall be
"ART. 81. Audit Report. – The auditor shall submit to the determined in accordance with its bylaws. Every
board of directors and to the audit committee the cooperative shall determine its net surplus at the close
financial audit report which shall be in accordance with of every fiscal year and at such other times as may be
the generally accepted auditing standards for prescribed by the bylaws.
cooperatives as jointly promulgated by the Philippine "Any provision of law to the contrary notwithstanding,
Institute of Certified Public Accountants (PICPA) and the the net surplus shall not be construed as profit but as an
Authority. excess of payments made by the members for the loans
"Thereafter, the board of directors shall present the borrowed, or the goods and services availed by them
complete audit report to the general assembly in its from the cooperative or the difference of the rightful
next meeting. amount due to the members for their products sold or
services rendered to the cooperative including other
"ART. 82. Nonliability for Defamations. – The auditor is inflows of assets resulting from its other operating
not liable to any person in an action for defamation activities and which shall be deemed to have been
based on any act, done, or any statement made by him returned to them if the same is distributed as
prescribed herein.
"ART. 86. Order of Distribution. – The net surplus of "(i) List of cooperatives which have remitted their
every cooperative shall be distributed as follows: respective Cooperative Education and Training Funds
(CETF);
"(1) An amount for the reserve fund which shall be at
least ten per centum (10%) of net surplus: Provided, "(ii) Business consultancy assistance to include the
That, in the first five (5) years of operation after nature and cost; and
registration, this amount shall not be less than fifty per
centum (50%) of the net surplus: "(iii) Other training activities undertaken specifying
therein the nature, participants and cost of each
"(a) The reserve fund shall be used for the stability of activity.
the cooperative and to meet net losses in its operations.
"(b) Upon the dissolution of the cooperative, the
The general assembly may decrease the amount
allocated to the reserve fund when the reserve fund unexpended balance of the education and training fund
appertaining to the cooperative shall be credited to the
already exceeds the share capital.
cooperative education and training fund of the chosen
"Any sum recovered on items previously charged to the union or federation.
reserve fund shall be credited to such fund.
"(3) An amount for the community development fund,
"(b) The reserve fund shall not be utilized for which shall not be less than three per centum (3%) of
investment, other than those allowed in this Code. Such the net surplus. The community development fund shall
sum of the reserve fund in excess of the share capital be used for projects or activities that will benefit the
may be used at anytime for any project that would community where the cooperative operates.
expand the operations of the cooperative upon the
"(4) An optional fund, a land and building, and any other
resolution of the general assembly.
necessary fund the total of which shall not exceed
"(c) Upon the dissolution of the cooperative, the reserve seven per centum (7%).
fund shall not be distributed among the members. The
general assembly may resolves: "(5) The remaining net surplus shall be made available
to the members in the form of interest on share capital
"(i) To establish a usufructuary trust fund for the benefit not to exceed the normal rate of return our investments
of any federation or union to which the cooperative is and patronage refunds: Provided, That any amount
affiliated; and remaining after the allowable interest and the
patronage refund have been deducted shall be credited
"(ii) To donate, contribute, or otherwise dispose of the to the reserve fund.
amount for the benefit of the community where the
cooperative operates. If the members cannot decide "The sum allocated for patronage refunds shall be made
upon the disposal of the reserve fund, the same shall go available at the same rate to all patrons of the
to the federation or union to which the cooperative is cooperative in proportion to their individual
affiliated. patronage: Provided, That:

"(2) An amount for the education and training fund, "(a) In the case of a member patron with paid-up share
shall not be more than ten per centum (10%) of the net capital contribution, his proportionate amount of
surplus. The bylaws may provide that certain fees or a patronage refund shall be paid to him unless he agrees
portion thereof be credited to such fund. The fund shall to credit the amount to his account as additional share
provide for the training, development and similar other capital contribution;
cooperative activities geared towards the growth of the
cooperative movement: "(b) In the case of a member patron with unpaid share
capital contribution, his proportionate amount of
"(a) Half of the amounts transferred to the education patronage refund shall be credited to his account until
and training fund annually under this subsection shall his account until his share capital contribution has been
be spent by the cooperative for education and training fully paid;
purposes; while the other half may be remitted to a
"(c) In the case of a non-member patron, his
union or federation chosen by the cooperative or of
which it is a member. The said union or federation shall proportionate amount of patronage refund shall be set
aside in a general fund for such patrons and shall be
submit to the Authority and to its contributing
cooperatives the following schedules: allocated to individual non-member patrons only upon
request and presentation of evidence of the amount of
his patronage. The amount so allocated shall be
credited to such patron toward payment of the
minimum capital contribution for membership. When a "(4) To arrange and facilitate the expeditious transfer of
sum equal to this amount has accumulated at any time appropriate and suitable technology to beneficiaries
within a period specified in the bylaws, such patron and marginal farmers at the lowest possible cost;
shall be deemed and become a member of the
cooperative if he so agrees or requests and complies "(5) To provide social security benefits, health, medical
and social insurance benefits and other social and
with the provisions of the bylaws for admission to
membership; and economic benefits that promote the general welfare of
the agrarian reform beneficiaries and marginal farmers;
"(d) If within any period of time specified in the bylaws,
any subscriber who has not fully paid his subscribed "(6) To provide non-formal education,
vocational/technical training, and livelihood programs
share capital or any non-member patron who has
accumulated the sum necessary for membership but to beneficiaries and marginal farmers;
who does not request nor agree to become a member "(7) To act as conduits for external assistance and
or fails to comply with the provisions of the bylaws for services to the beneficiaries and marginal farmers;
admission to membership, the amount so accumulated
or credited to their account together with any part of "(8) To undertake a comprehensive and integrated
the general fund for nonmember patrons shall be development program in agrarian reform and
credited to the reserve fund or to the education and resettlement areas with special concern for the
training fund of the cooperative, at the option of the development of agro-based, marine-based, and cottage-
cooperative." based industries;

SEC. 11. Articles 88, 89, 90, 91, 92, 93, 94 and 95 of "(9) To represent the beneficiaries on any or all matters
Chapter XI on the Special Provisions Relating to Agrarian that affect their interest; and
Reform Cooperatives of the same Code are hereby
"(10) To undertake such other economic or social
renumbered retitled and amended to read, as follows:
activities as may be necessary or incidental in the
CHAPTER XI pursuit of the foregoing purposes.
AGRARIAN REFORM COOPERATIVES
"ART. 89. Cooperative Estate. – Landholdings like
"ART. 87. Coverage. – The provisions of this Chapter plantations, estates or haciendas acquired by the State
shall primarily govern agrarian reform for the benefit of the workers in accordance with the
cooperatives: Provided, That the provisions of the other Comprehensive Agrarian Reform Program which shall
chapters of this Code shall apply suppletorily except be collectively owned by the worker-beneficiaries under
insofar as this Chapter otherwise provides. a cooperative set-up.

"ART. 88. Definition and Purpose. – An agrarian reform "ART. 90. Infrastructure. – In agrarian reform and
cooperative is one organized by marginal farmers, resettlement areas, the Government shall grant to
majority of which are agrarian reform beneficiaries, for agrarian reform cooperatives preferential treatment in
the purpose of developing an appropriate system of the construction, maintenance and management of
land tenure, land development, land consolidation or roads, bridges, canals, wharves, ports, reservoirs,
land management in areas covered by agrarian reform. irrigation systems, waterworks systems, and other
infrastructures with government funding. For this
"An agrarian reform cooperative as defined shall be purpose, the Government shall provide technical
organized for any or all of the following purposes: assistance, facilities and equipment to such agrarian
"(1) To develop an appropriate system of land tenure, reform cooperatives.
land development, land consolidation or land "ART. 91. Lease of Public Lands. – The Government may
management in areas covered by agrarian reform; lease public lands to any agrarian reform cooperative
for a period not exceeding twenty-five (25%) years,
"(2) To coordinate and facilitate the dissemination of
scientific methods of production, and provide assistance subject to renewal for another twenty-five (25) years
only: Provided, That the application for renewal shall be
in the storage, transport, and marketing of farm
products for agrarian reform beneficiaries and their made one (1) year before the expiration of the
lease: Provided, further, That such lease shall be for the
immediate family, hereinafter referred to as
"beneficiaries"; exclusive use and benefit of the beneficiaries and
marginal farmers subject to the provisions of the
"(3) To provide financial facilities to beneficiaries for Comprehensive Agrarian Reform Program.
provident or productive purposes at reasonable costs;
"ART. 92. Preferential Right. – In agrarian reform areas, cooperatives to enable them to discharge effectively
an agrarian reform cooperative shall have the their purposes under this article. The DAR, the Authority
preferential right in the grant of franchise and and the BSP shall draw up a joint program for the
certificate of public convenience and necessity for the organization and financing of the agrarian reform
operation of public utilities and services: Provided, That cooperatives subject of this Chapter. The joint program
it meets the requirements and conditions imposed by shall be geared towards the beneficiaries gradual
the appropriate government agency granting the assumption of full ownership and management control
franchise or certificate of public convenience and of the agrarian reform cooperatives.
necessity. If there is an electric service provider in the
"ART. 94. Organization and Registration. – Agrarian
area, it shall upon the request of an agrarian reform
cooperative, immediately provide electric services to reform cooperatives may be organized and registered
under this Code only upon prior written verification by
the agrarian reform areas. If the electric service
provider fails to provide the services requested within a the DAR to the effect that the same is needed and
desired by the beneficiaries; results of a study that has
period of one (1) year, the agrarian reform cooperative
concerned may undertake to provide the electric been conducted fairly indicate the economic feasibility
of organizing the same and that it will be economically
services in the area through its own resources. All
investments made by the said agrarian reform viable in its operations; and that the same may now be
organized and registered in accordance with
cooperative for the electrification of the agrarian reform
resettlement areas shall be the subject of sale to the requirements of this Code.
electric service provider once it takes on the service. "The Authority, in consultation with the concerned
"ART. 93. Privileges. – Subject to such reasonable terms government agencies and cooperative sector, shall issue
appropriate rules and regulations pertaining to the
and conditions as the Department of Agrarian Reform
(DAR) and the Authority may impose, agrarian reform provisions of this Chapter."
cooperatives may be given the exclusive right to do any SEC. 12. Articles 96, 97 and 98 of Chapter XII on the
or all of the following economic activities in agrarian Special Provisions on Public Services Cooperatives of the
reform and resettlement areas; same Code are hereby transferred to another chapter.
"(1) Supply and distribution of consumer, agricultural, Chapter XII as amended shall now read, as follows:
aqua-cultural, and industrial goods, production inputs, CHAPTER XII
and raw materials and supplies, machinery, equipment, COOPERATIVE BANKS
facilities and other services and requirements of the
beneficiaries and marginal farmers at reasonable prices; "ART. 95. Governing Law. – The provisions of this
Chapter shall primarily govern cooperative banks
"(2) Marketing of the products and services of the registered under this Code and the other provisions of
beneficiaries in local and foreign markets; this Code shall apply to them only insofar as they are
not inconsistent with the provisions contained in this
"(3) Processing of the members’ products into finished
consumer or industrial goods for domestic consumption Chapter.
or for export; "ART. 96. Supervision. – The cooperative banks
"(4) Provision of essential public services at cost such as registered under this Code shall be under the
supervision of the BSP. The BSP, upon consultation with
power, irrigation, potable water, passenger and/or
cargo transportation by land or sea, communication the Authority and the concerned cooperative sector,
shall formulate guidelines regarding the operations and
services, and public health and medical care services;
the governance of cooperative banks. These guidelines
"(5) Management, conservation, and commercial shall give due recognition to the unique nature and
development of marine, forestry, mineral, water, and character of cooperative banks. To this end, cooperative
other natural resources subject to compliance with the banks shall provide financial and banking services to its
laws and regulations on environmental and ecological members.
controls; and
"ART. 97. Organization, Membership and Establishment
"(6) Provision of financial, technological, and other of a Cooperative Bank. – (1) Cooperative organizations
services and facilities required by the beneficiaries in duly established and registered under this Code may
their daily lives and livelihood. organize a cooperative bank, which shall likewise be
considered a cooperative registrable under provisions of
"The Government shall provide the necessary financial this Code subject to the requirements and requisite
and technical assistance to agrarian reform authorization from the BSP. Only one cooperative bank
may be established in each province: Provided, That an directors shall be defined in the articles of cooperation
additional cooperative bank may be established in the and bylaws of the cooperative bank.
same province to cater to the needs in the same
"ART. 99. Quorum and Voting Rights. – The quorum
province to cater to the needs of the locality depending
on the economic conditions of the province as may be requirement for general assembly meetings, whether
special or regular, shall be one half plus one of the
determined by the BSP: Provided, further, That the
additional cooperative bank shall be located in the City number of voting shares of all the members in good
standing. In the meetings of the board of directors,
or municipality other that the city or municipality where
the first cooperative bank is located. whether special or regular, the quorum requirement
shall be one-half plus one of all the members of the
"(2) Membership in a cooperative bank shall either be board of directors. Each director shall only have one
regular or associate. Regular membership shall be vote.
limited to cooperative organizations which are holders
of common shares of the bank. Associate members are "Notwithstanding the provisions of this Code to the
contrary, the quorum requirement for amendments of
those subscribing and holding preferred shares of the
bank, which may include but are not limited to the articles of cooperation and bylaws shall be three-
fourths (3/4) vote of all the members with voting rights,
following:
present and constituting a quorum. All other voting
"(a) Individual members of the bank’s member-primary requirements shall be as prescribed by the BSP.
cooperatives; and
"The voting rights of the members shall be
"(b) Samahang Nayon and Municipal Katipunan ng mga proportionate to the number of their paid-up shares.
Samahang Nayon (MKSN) which held common shares of
cooperative banks prior to the effectivity of this Act "ART. 100. Powers, Functions and Allied Undertakings of
Cooperative Banks. – A cooperative bank shall primarily
shall apply for conversion to full-pledged cooperatives
in order to maintain their status as regular members of provide financial, banking and credit services to
cooperative organizations and their members. However,
cooperative banks: Provided, That they shall notify the
cooperative bank concerned their intention to convert the BSP may prescribe appropriate guidelines, ceilings
and conditions on borrowing of a cooperative
within a period of ninety (90) days from the effectivity
of this Act. Samahang Nayon and MKSN are hereby organization from a cooperative bank.
given a period of one (1) year from the effectivity of this "The powers and functions of a cooperative bank shall
Act to complete their conversion as cooperatives. be subject to such rules and regulations as may be
Cooperative bank shall exert reasonable efforts to promulgated by the BSP.
inform their member Samahang Nayon and MKSN to
finally convert or to give the notice of conversion within "In addition to the powers granted by this Code and
the prescribed period. Upon the failure of the other existing laws, any cooperative bank may perform
Samahang Nayon and MKSN to finally convert to a full- any or all of the banking services offered by other types
pledged cooperative within the maximum period of one of banks subject to the prior approval of the BSP.
(1) year, the cooperative bank concerned may convert
"ART. 101. Capital Requirements of Cooperative Banks.
the common shares held by such associations to
– (1) A cooperative bank shall have a minimum paid-up
preferred shares.
capital in such amount as may be required by the BSP.
"(3) The articles of cooperative and bylaws of a
"The BSP may prescribe rules and regulations on the
cooperative bank, or any amendment thereto, shall be
types of shares a cooperative bank may issue, including
registered with the Authority only when accompanied
the terms thereof and rights appurtenant thereto to
by a certificate of authority issued by the BSP, under its
determine compliance with laws and regulations
official seal.
governing capital and equity structure of banks:
"ART. 98. Administration of Cooperative Banks. – To Provided, That cooperative banks shall issue par value
maintain the quality of bank management and accord shares only.
appropriate protection to depositors and the public in
"(2) The Barrio Savings Fund (BSF) and Barrio Guarantee
general, the BSP shall prescribed the fit and proper
Fund (BGF) collected/deducted by various banks
qualifications of bank directors and officers for the
throughout the country from the loan proceeds of
purposes of this article, giving due recognition to the
farmer-borrowers who were members of cooperatives
unique nature and character of cooperative banks.
and Samahang Nayon in compliance with Presidential
"Notwithstanding the provisions of this Code, the Decree No. 175 and accompanying letters of instruction,
number, computation and term of the board of which are still floating and outstanding either as active
or dormant deposit accounts in the books of those the sheriff or officer conducting the foreclosure sale or
banks, shall be deposited to the cooperative bank execution of judgment, and shall be attached to the
located in the province where the depository banks of record of the case.
BSF and BGF are located, or if there is no cooperative
bank in the province. The BSP, in coordination with the "(2) A cooperative bank shall be allowed to foreclosure
lands mortgaged to its subject to the provisions of
Authority, shall come up with the implementing
guidelines on how to credit the owners of the funds. Republic Act No. 6657, otherwise known as
Comprehensive Agrarian Reform Law of 1988.
"Those funds whose owners could not be located or
identified shall be subject to escheat. "ART. 103. Assistance to Cooperative Banks. – In
accordance with existing policies, government agencies,
"ART. 102. Privileges and Incentives of Cooperative government-owned or controlled corporations and
Banks. – The cooperative banks registered under this financial institutions shall provide assistance, technical
Code shall be given the same privileges and incentives or otherwise, to cooperative banks to permit them to
granted to the rural banks, private development bank, grow, develop and perform their role in countryside
commercial banks, and all other banks to rediscount development towards a sustainable national economic
notes with the BSP, the Land Bank of the Philippines, development. Whenever a cooperative bank organized
and other government banks without affecting in any under this Code is in a state of continuing inability or
way the provisions of this Code. unwillingness to maintain a period of liquidity, the BSP
may designate one of its officials or a person of
"(1) Subject to the approval of the BSP, a cooperative recognized competence, preferably with experience in
bank shall publish a statement of its financial statement cooperative banking and finance, as conservator of the
of its financial condition, including those of its said bank pursuant to the appropriate provisions of
subsidiaries and affiliates in such terms understandable existing banking laws.
to the layman and in such frequency as may be
prescribed by the BSP, in English or Filipino, at least "ART. 104. Applicability of Banking Laws and
once every quarter in a newspaper of local circulation in Regulations. – With respect to the provisions and
the city or province where the principal office is located governance of the cooperative banks, the provisions of
or, if no newspaper is published in the same provinces, the banking laws, rules and regulations shall prevail,
then in a newspaper published in the nearest city or notwithstanding Section 71 of Republic Act No. 8791,
province or in a newspaper of general circulation. The otherwise known as the General Banking Act of 2000.
BSP, however, may allow the posting of the financial
"The BSP and the Authority, in consultation with the
statements of the cooperative bank in conspicuous
places it may determine in lieu of the publication concerned cooperative sector, shall issue appropriate
rules and regulations pertaining to the provisions of this
required in the preceding sentence when warranted by
the circumstances. Chapter."

SEC. 13. Articles 99, 100, 101, 102, 103, 104, 105, 106,
"However, in cases of foreclosure of mortgages covering
loans granted by a cooperative bank, and the execution 107, 108 and 109 of Chapter XIII on Special Provisions
Relating to Cooperative Banks of the same Code are
of judgments thereon involving real properties and
levied upon by a sheriff, it shall be exempt from hereby transferred to another chapter. Chapter XIII as
amended shall now read, as follows
publication requirement where the total amount of the
loan, excluding interest and other charges due and CHAPTER XIII
unpaid, does not exceed Two hundred fifty thousand INSURANCE COOPERATIVE
(P250,000.00) or such amount as the BSP may prescribe,
as may be warranted by the prevailing economic "ART. 105. Cooperative Insurance Societies. – Existing
conditions and by the nature and character of the cooperatives may organize themselves into a
cooperative banks. It shall be sufficient publication in cooperative insurance entity for the purpose of
such cases if the notice of foreclosure and execution of engaging in the business of insuring life and property of
judgment are posted in conspicuous areas in the cooperatives and their members.
cooperative bank’s premises, the municipal hall, the
"ART. 106. Types of Insurance Provided. – Under the
municipal public market, the barangay hall, or the
cooperative insurance program established and formed
barangay public market, if there be any where the
by the virtue of the provisions of this Code, the
property mortgaged is situated, within a period of sixty
cooperative insurance societies shall provide its
(60) days immediately preceding the public auction or
constituting members different types of insurance
the execution of judgment. Proof of publication as
coverage consisting of, but not limited to, life insurance
required herein shall be accomplished by an affidavit of
with special group coverage, loan protection, "ART. 110. Registration Requirements. – Unless
retirement plans, endowment, motor vehicle coverage, otherwise provided in this Code, no public service
bonding, crop and livestock protection and equipment cooperative shall be registered unless it satisfies the
insurance. following requirements.

"ART. 107. Applicability of Insurance Laws. – The "(1) Its articles of cooperation and bylaws provide for
provisions of the Insurance Code and all other laws and the membership of the users and/or producers of the
regulations relative to the organization and operation of service of such cooperatives; and
an insurance company shall apply to cooperative
insurance entities organized under this Code. The "(2) Such other requirements as may be imposed by the
other pertinent government agencies concerned. In
requirements on capitalization, investments and
reserves of insurance firms may be liberally modified case there are two (2) or more applicants for the same
public service franchise or certificate of public
upon consultation with the Authority and the
cooperative sector, but in no case may be requirement convenience and necessity, all things being equal,
preference shall be given to a public service
to be reduced to less than half of those provided for
under the Insurance Code and other related laws. cooperative.

"ART. 111. Regulation of Public Service Cooperatives. –

"ART. 108. Implementing Rules. – The Insurance
Commission and the Authority, in consultation with the (1) The internal affairs of public service cooperatives
such as the rights and privileges of members, the rules
concerned cooperative sector, shall issue the
appropriate rules and regulations implementing the and procedures for meetings of the general assembly,
board of directors and committees; for the election and
provisions of this Chapter."
qualifications of officers, directors, and committee
SEC. 14. Articles 110, 111, 112, 113 and 114 of Chapter members; allocation and distribution of surpluses; and
XIV on Special Provisions relating to Credit Cooperative all other matters relating to their internal affairs shall be
of this Code are hereby transferred to another chapter. governed by this Code.
Chapter XIV as amended shall now read, as follows:
"(2) All matters relating to the franchise or certificate of
CHAPTER XIV public convenience and necessity of public service
PUBLIC SERVICE COOPERATIVES cooperatives such as capitalization and investment
requirements, equipment and facilities, frequencies,
"ART. 109. Definition and Coverage. – A public service rate-fixing and such other matters affecting their public
cooperative, within the meaning of this Code, is one service operations shall be governed by the proper
organized to render public services as authorized under government agency concerned.
a franchise or certificate of public convenience and
necessity duly issued by the appropriate government "(3) The Authority and the proper government agency
agency. Such services may include the following: concerned shall jointly issue the necessary rules and
regulations to implement this Chapter.
"(1) Power generation, transmission, and/or
distribution; "(4) The Authority shall establish a committee for the
monitoring of transportation service cooperatives
"(2) Ice plants and cold storage services; composed of representatives from the Authority, the
"(3) Communication services including telephone, Land Transportation Franchising and Regulatory Board
telegraph, and communications: (LTFRB), the Land Transportation Office (LTO), Office of
Transport Cooperatives (OTC), other concerned
"(4) Land and sea transportation cooperatives for government agencies, as may be necessary, and the
passenger and/or cargo. Transport cooperatives National Federation of Transportation Cooperatives. A
organized under the provisions of Executive Order No. local monitoring committee shall likewise be established
898, Series of 1983, shall be governed by this Chapter. at the extension offices of the Authority to facilitate the
monitoring of transportation cooperatives.
"(5) Public markets, slaughterhouses and other similar
services; and "ART. 112. Engagement in Allied Business by
Transportation Service Cooperatives. – Subject to
"(6) Such other types of public services as may be
pertinent national laws and local ordinances, primary
engaged in by any cooperative. Such cooperative shall
transportation service cooperatives including secondary
be primarily governed by this Chapter and the general
and tertiary federation of cooperatives may engage in a
provisions of this Code insofar as they may be
business related to transportation service, including but
applicable unless they are inconsistent herewith.
not limited to:
"(1) Importation, distribution and, marketing of join leagues and federations for the purpose of
petroleum products in accordance with existing laws; providing commonly needed essential services including
but not limited to the following:
"(2) Operation of gasoline stations and transportation
service centers; "(1) Interlending of surplus fund;"(2) Mutual
benefits;"(3) Deposit guarantee;"(4) Bonding;"(5)
"(3) Importation, distribution and marketing of spare Education and training;"(6) Professional and technical
parts and supplies; and assistance;"(7) Research and development;"(8)
"(4) Marketing of vehicle/drivers insurance policies. Representation; and "(9) Other services needed to
improve their performance.
"ART. 113. Renewal of Franchise and Vehicle
Registration. – Renewals of franchise and vehicle "Existing support organizations such as federations of
registration shall be granted to transportation service credit cooperatives, credit cooperatives at the
cooperatives: Provided, That such cooperative presents provincial, regional and national levels may continue as
a certificate of good standing issued by the Authority, such under this Code."
OTC, and the local government unit concerned as proof SEC. 16. A new Article is inserted in Chapter XV on
that it has continuously provided the required public Credit Cooperatives and shall now read, as follows:
transportation services.
"ART. 118. Conversion of Credit Cooperatives to
"The Authority, in consultation with the concerned Financial Service Cooperatives. – Existing credit and
government agencies and cooperative sector, shall issue multipurpose cooperatives with savings and credit
appropriate rules and regulations pertaining to the facilities shall formally inform the Authority of its
provisions of this Chapter." intention to continue performing its present functions.
SEC. 15. Articles 115, 116, 117 and 118 of Chapter XV on Should the said cooperatives decide to exercise
Special Provisions relating to Cooperative Insurance enhanced functions, it shall notify the Authority and
Societies of the same Code are hereby transferred to satisfy the requirements for conversion to financial
another chapter. Chapter XV as amended shall now service cooperative."
read, as follows: SEC. 17. A new Chapter on Financial Service
CHAPTER XV Cooperatives shall be inserted in this Chapter and shall
CREDIT COOPERATIVES read, as follows:

"ART. 114. Coverage. – This Chapter shall apply to credit CHAPTER XVI

cooperatives and other cooperatives, including FINANCIAL SERVICE COOPERATIVES
multipurpose cooperatives, that provide savings and "ART. 119. Definition and Functions of Financial Services
credit to their members only. The rest of the provisions Cooperatives. – A financial service cooperative is a
of this Code shall apply to them insofar as the same are financial organization owned and operated by its
not inconsistent with the provisions of this Chapter. members and authorized to provide the following
"ART. 115. Definition and Objectives. – A credit service, exclusively to its members:
cooperative is a financial organization owned and "(a) The functions of credit cooperatives and other
operated by its members with the following objectives: cooperatives, including multipurpose cooperatives, that
"(1) To encourage savings among its members; provide savings and credit to their members, and"(b)
Other financial services subject to regulation by the BSP.
"(2) To create a pool of such savings for which loans for
productive or provident purpose may be granted to its "The articles of cooperation and bylaws of any financial
members; and service cooperative, or any amendment thereto, shall
be registered with the Authority only if accompanied by
"(3) To provide related services to enable its members a certificate of authority issued by the BSP, under its
to maximize the benefit from such loans. official seal.

"ART. 116. Organization and Registration.- Credit "The authority granted this provision may be revoked by
cooperatives shall be organized and registered in the BSP if any of the grounds for receivership
accordance with the general provisions of this Code. mentioned under Section 53 and 56 of Republic Act No.
8791 is present or if the financial service cooperative
"ART. 117. Organizational Linkage. – Credit
has willfully violated this Code of any of the related
cooperatives may organize chapters or subsidiaries, or
rules and regulations.
"The BSP shall issue a cease and desist order to "(4) Investigate to determine whether a financial service
cooperatives exercising the function of a financial cooperative is conducting its business in a safe and
service cooperative without authority from the BSP. sound manner;

"The BSP may charge equitable rates or fees, as may be "(5) Conduct regular examination of the books of
prescribed by the Monetary Board for licensing, accounts, records and other documents of financial
examination and other services which it renders under service cooperatives;
this Code.
"(6) Inquire into the solvency and liquidity of a financial
"Upon the favorable certification of the BSP and the service cooperatives;
prior approval of the Authority, a cooperative, the main
"(7) Prescribe appropriate fees for supervision and
purpose of which is to perform savings and credit
functions, may convert to financial service cooperative examination of financial service cooperatives to among
others, monitor and oversee that existing laws and
subject to the required qualifications and procedures
provided under this Code and in the implementing rules regulations are complied with;
and regulations. "(8) Pass upon and review the qualifications and
"ART. 120. Membership and Affiliation. – A financial disqualifications of individuals elected or appointed
directors or officers and disqualify those found unfit;
service cooperative shall have the two (2) types of
members: "(9) Disqualify, suspend or remove any director or
officer who commits or omits an act which render him
"(1) Regular members, who are natural persons; and
unfit for the position;
"(2) Associate members, who are natural persons but
"(10) Select, designate and deputize federations,
who do not immediately qualify under the requirements
for membership set out in the bylaws of the through an approved accreditation criteria, that will
supervise primary financial service cooperatives and
cooperative. All associate members who are natural
persons shall be given two (2) years to become regular issue basic guidelines therefor;
members. Failure to convert within the said period shall "(11) Require the submission of relevant reports from
mean automatic withdrawal of their associate the deputized supervisor;
membership. They may, however, re-apply as regular
members after two (2) years. "(12) Provide remedial measures in the operations of
financial service cooperatives that are in a state of
"Minors who are dependents of regular members can continuing inability or unwillingness to maintain a
qualify as associate members. When they reach the age period of liquidity at the request of the deputized
of majority and within two (2) years from acceptances supervisor or when the deputized supervisor fails to
of their associate membership, they have the option to perform its functions;
convert into regular members. As associate members,
they may open accounts, deposit funds and withdraw "(13) Accredit external auditors in accordance with
from their account, subject to the bylaws and rules of standards for audit and financial reporting in
the cooperative, and the rules and regulations of the cooperation with the PICPA; and
Authority, notwithstanding the provisions of existing
"(14) Appoint a conservator or a receiver as may be
laws to the contrary.
necessary subject to the rules and regulations to be
"ART. 121. Regulation and Supervision. – The Authority promulgated by the Authority in coordination with the
shall exercise lead regulatory powers and supervision BSP, taking into consideration the grounds, powers and
over the operations of the financial service procedures under Sections 29 and 30 of Republic Act
cooperatives, to wit: No. 7653 as may be deemed appropriate to financial
service cooperatives.
"(1) Issue rules and regulations for the safe and sound
conduct of operations of financial service cooperatives; "The Authority shall include in its rules and regulations,
appropriate sanctions and penalties, on the financial
"(2) Establish standards of operation for uniform service cooperatives, its members, officers and
application to all financial service cooperatives; responsible persons, for any action that fails to adhere
to sound and prudent management practices or are
"(3) Prescribe ratios, ceilings, limitations, or other forms
of regulation on the different types of accounts and inconsistent with the provisions of this Code, other
applicable laws on cooperatives, rules, regulations,
practices of financial service cooperatives which shall,
conform to internationally accepted standards; circulars or orders issued by the Authority, and require
the cooperative to undertake corrective or remedial "The Authority and other government agencies,
measures relative thereto. government-owned or controlled corporations and
government financial institutions shall provide technical
"The BSP is authorized to conduct risk-based and such other assistance that may be allowed by their
supervision and examination of financial service charters to financial service cooperative federations for
cooperatives as it may deem necessary. the establishment and/or strengthening of their
"ART. 122. Promulgation of Rules and Regulations. – The respective cooperative savings guarantee system. The
BSP, in coordination with the Authority, shall prescribe technical assistance to be provided shall include, among
the appropriate prudential rules and regulations others, training supervision and examination.
applicable to the financial service cooperatives. "ART. 124. Designation of Existing Unit at the
"Subject to the regulations of the BSP, the banking laws, Cooperative Development Authority to Perform
rules and regulations shall have suppletory application Regulatory and Supervisory Functions. – Within six (6)
to financial services cooperatives: Provided, however, months from the approval of this Code, the Authority
That the provisions on access to borrowing or financial shall designate the unit to formulate and implement the
assistance to be extended by the BSP of the Philippine necessary regulations, rules, policies, guidelines and
Deposit Insurance Corporation (PIDC) shall not apply to standards applicable solely to financial service
financial service cooperatives: Provided, further, That cooperatives and deputized federations in the
the deposit liabilities of the financial service performance of their savings, credit and such other
cooperatives shall not be insured by the PDIC. related enhanced financial service operations.

"ART. 123. Financial Service Cooperative Federations. – "The Department of Finance, the BSP and other
Financial service cooperatives may organize themselves concerned government agencies shall provide technical
into financial service cooperative may organize and training support for the effective and efficient
themselves into financial service cooperative implementation of the regulatory and supervisory
federations, and register their federation with the functions and responsibilities of the Authority.
Authority. These financial service cooperative "ART. 125. Prohibition. – The terms credit cooperative,
federations may be deputized by the Authority as the financial service cooperative and financial service
supervisor of their members, and they shall have the cooperative federation shall be used exclusively by
following functions: those who are duly registered under this Code, and no
"(a) Develop standards and provide services for the person, group of persons, or organizations shall use the
benefit of its affiliates and their members in accordance said terms unless duly registered with the Authority.
with the rules and regulations of the Authority; Violations of this prohibition shall be punishable in
accordance with Article 140 of this Code."
"(b) Define common objectives and coordinate activities
for the financial service cooperative federation; SEC. 18. A new Chapter on Electric Cooperatives shall be
inserted and shall read, as follows:
"(c) Establish and administer funds such as liquidity
fund, loan fund, investment fund, stabilization fund and CHAPTER XVII
such other funds; ELECTRIC COOPERATIVE

"(d) Establish a savings guarantee system for the "ART. 126. Coverage. – The provisions of this Code shall
protection of their affiliates' member-depositors within apply to all electric cooperatives registered with the
three (3) years from the approval of this Code; Authority. This shall also cover new distribution utilities
that will register with the Authority.
"(e) Exercise on-site and off-site supervisory power over
its members; "Electric cooperatives may undertake power generation
utilizing renewable energy sources, including hybrid
"(f) Provide remedial assistance to its members systems, acquisition and operation of subtransmission
concerning their operations and management; or distribution as its primary purposes.

"(g) Act as the liquidator and when applicable, "ART. 127. Registration of Electric Cooperatives. – The
sequester properties to satisfy an obligation secured by registration of an electric cooperative with the
a mortgage when authorized by the Authority; and Authority under this Code shall be submitted for
approval to the members through a referendum, called
"(h) Transmit relevant and required information
for the purpose as provided for under Articles 183 and
regarding the operations and performance of member-
129 of this Code.
cooperatives to the Authority.
"ART. 128. Voting Requirement for Registration. – In Authority: Provided, however, That the security of
compliance with the referendum as a voting procedure, tenure and the collective bargaining agreement
the required number of votes for registration with the between the cooperative management and the
Authority shall be twenty percent (20%) of all members employees shall be respected, with no diminution of
in good standing. their existing salaries, emoluments, ranks and other
benefits;
"ART. 129. Documents to be Submitted for Registration
with the Authority. – For purposes of registration, "(2) The electric cooperatives registered with the
electric cooperatives shall submit the following Authority with existing loans obtained from NEA after
documents: June 26, 2001 shall continue to observe the terms of
such loans until full payment or settlement thereof;
"(a) Copy of the board resolution certifying to the result
of the vote approved through a referendum approving "(3) Except as provided in the immediately preceding
the registration of the cooperative with the Authority in paragraph, the NEA shall no longer exercise regulatory
compliance with Article 128; or supervisory powers on electric cooperatives duly
registered with the Authority;
"(b) Certified copy of the articles of
incorporation/cooperation and bylaws as required by "(4) Electric cooperatives registered with the Authority
the Authority; are entitled to congressional allocations, grants,
subsidiaries and other financial assistance for rural
"(c) Duly audited financial statements for the past two electrification which can be coursed through the
(2) years; Department of Energy, the Authority and/or local
"(d) List of names of incumbent board of directors and government units. The electric cooperatives registered
their addresses certified by the board secretary and under this Code can avail of the financial services and
attested by the chairperson; technical assistance provided by the government
financial institutions and technical development
"(e) Within six (6) months from the registration, the agencies on terms respecting their independence as
treasurer shall submit a sworn statement of the autonomous cooperatives;
authorized share capital, the subscribed share capital of
members and the amount of paid-up share capital "(5) All condoned loans, subsidies, grants and other
received by the treasurer; and assistance shall form part of the donated capital and
funds of the electric cooperatives and as such, it shall
"(f) Bonds of accountable officers. not be sold, traded nor be divided into shareholdings at
any time; these donated capital/fund shall be valuated
"ART. 130. Registration Options of Electric Cooperatives.
for the sole purpose of determining the equity
– Electric Cooperatives registered with the National
participation of the members: Provided, That in the case
Electrification Administration (NEA) under Presidential
of dissolution of the cooperative, said donated capital
Decree No. 269, as amended which opt not to register
shall be subject to escheat; and
with the Authority are allowed to retain the word
‘cooperative’ in their registered names: Provided, That "(6) Electric cooperatives registered and confirmed with
they shall not be entitled to the benefits and privileges the Authority under Republic Act No. 6938 and Republic
under this Code. Act No. 6939 are hereby deemed registered under this
Code.
"ART. 131. Role of the Energy Regulatory Commission. –
All rates and tariffs of electric cooperatives registered "ART. 133. Share Capital in the Electric Cooperatives. –
under the Authority shall be subject to the rules on The electric cooperative shall issue and distribute share
application and approval of and by the Energy certificates under the name of their members, taking
Regulatory Commission for distribution utilities. into consideration their previous equity contributions,
the amortization component through the payments
"ART. 132. Effects of Registration with the Authority. –
made, capital build-up and other capital contributions.
(1) Upon the effectivity of this Code, electric
cooperatives that are duly registered with the "ART. 134. Cancellation of Registration with the
Authority, and issued a certificate of registration, shall Authority. – The cancellation of the registration of an
no longer be covered by Presidential Decree No. 269, as electric cooperative shall be granted by the Authority as
amended by Presidential Decree No. 1645: Provided, provided under Articles 64 to 70 of this Code.
That electric cooperatives registered with the Authority
shall now be covered by the provisions of this Code as
well as future rules and issuances of the
"The Authority, in consultation with the concerned governing arbitration as the primary and exclusive
cooperative sector, shall issue appropriate rules and mode for dispute resolution in accordance with the
regulations pertaining to the provisions of this Chapter." Alternative Dispute Resolution Act of 2004.

SEC.19. Articles 119, 120 and 121 of Chapter XVI on "For this purpose, the Authority shall constitute a list of
Miscellaneous Provisions of the same Code are hereby qualified voluntary arbitrators."
amended and shall now read, as follows:
SEC. 20. A new article is inserted in Chapter XVIII on the
CHAPTER XVIII Miscellaneous Provisions of the same Code and shall
MISCELLANEOUS PROVISIONS read, as follows:

"ART. 135. Compliance With Other Laws. – The Labor "ART. 138. Joint Congressional Oversight Committee on
Code and all other labor laws, the Social Security Act, Cooperative (JCOCC). – There is hereby created a Joint
the Medical Care Act, and all other social legislations, Congressional Oversight Committee composed of the
and all other laws and executive orders shall apply to Chairman of the Senate Committee on Cooperatives and
cooperatives duly registered under this Code. the Chairman of the House Committee on Cooperatives
Development, with four (4) members each from both
"ART. 136. Register of Cooperatives. – The Authority Houses. The said members shall be duly appointed by
shall establish a register which shall contain a the Senate President and the Speaker of the House of
chronological entry of the name of every cooperative Representatives from the members of the respective
registered or dissolved under this Code together with committee based on the proportional representation of
the basic information required for registration or the parties or coalition therein.
dissolution and any other information considered
useful. The Authority shall publish annually a list of "The Joint Oversight Committee shall review and
existing cooperatives, cooperatives under dissolution approve the implementing rules and regulations of this
and those whose registration are cancelled during the Code and monitor its proper implementation.
year together with such information on each of them as
"The annual appropriate for the oversight committee
may be prescribed in the rules and regulations.
shall be charged to the budget of both Houses of
"ART. 137. Settlement of Disputes, Conciliation, and Congress in the General Appropriations Act (GAA)."
Mediation Proceedings. – Disputes among members,
officers, directors, and committee members, and intra- SEC. 21. Article 122 is hereby deleted. Articles 123, 124,
125, 126, 127, 128, 129 and 130 of Chapter XVII on Final
cooperative, inter-cooperative, intra-federation or inter-
federation disputes shall, as far as practicable, be Provisions of this Code are amended to read, as follows:
settled amicably in accordance with the conciliation or CHAPTER XIX
mediation mechanisms embodied in the bylaws of FINAL PROVISIONS
cooperatives and in such other applicable laws.
"ART. 139. Implementing Rules and Regulations. – The
"The conciliation and mediation committee of the Authority shall issue rules and regulations to implement
cooperative shall facilitate the amicable settlement of those provisions of this Code which expressly call for
intra-cooperative disputes and disputes among the issuance thereof. This paragraph shall not apply to
members, officers, directors, and committee members. those cases wherein a specific provision of this Code
"Should such conciliation or mediation proceeding fail, expressly designates particular government agencies
which shall issue the regulations called for by any
the matter shall be settled through voluntary
arbitration: Provided, however, That before any party provision of this Code.
can validly file a complaint with the Authority for "ART. 140. Penal Provisions. – The following acts or
voluntary arbitration, it must first secure a certification omissions affecting cooperatives are hereby prohibited:
from its conciliation and mediation committee and from
its conciliation and mediation committee and from the "(1) The use of the word ‘cooperative’ by any person or
cooperative union or federation to which it belongs that of persons or organizations, unless duly registered as a
despite all efforts to settle the issues, the same have cooperative under this Code except as provided for
failed. under Article 130 hereof. In case of violation, the
individual or individuals concerned, or in the case of an
"The jurisdiction of the voluntary arbitrators shall be organization, its officers and directors shall, upon
exclusive and original and their decisions shall be conviction, each suffer the penalty of imprisonment of
appealable to the Office of the President. The Authority not less than two (2) years nor more than five (5) years
shall issue and adopt the proper rules of procedure
and a fine not exceeding Twenty thousand pesos hundred thousand pesos (P500,000.00) or
(P20,000.00) or both at the discretion of the court; imprisonment of not less than five (5) years but not
more than ten (10) years or both at the court’s
"The Authority may motu proprio, initiate complaints discretion;
for violations of this provision.
"(6) The following are considered offenses punishable
"(2) Any person who willfully attempts in any manner to by a penalty of imprisonment of not less than one (1)
evade or defeat tax in violation of the provisions of year nor more than five (5) years or a fine of not more
Articles 60 and 61 of this Code shall in addition thereof, than Fifty thousand pesos (P50,000.00) or both at the
be punished by a fine of not less than Thirty thousand discretion of the court:
pesos (P30,000.00) but not more than One hundred
thousand pesos (P100,000.00) and suffer imprisonment "(a) Omission or refusal to furnish any information,
of not less than two (2) years but not more than four (4) report or other document that is required under this
years: Provided, That the conviction or acquittal Code;
obtained under this Article shall not be a bar to the
"(b) Providing information, reports or other documents
filing of a civil suit for the collection of taxes;
to the Authority that are required under this Code
"(3) Direct or indirect violation or circumvention of the which the person knows to be false or misleading;
provisions of Articles 60 and 61 of this Code committee
by any public official or employee of any bureau, office "(c) Omission or refusal to keep a book or register under
this Code or to make the required entry therein;
or agency of the government that deprives, diminishes
or in any manner hinders or restricts any duly registered "(d) Making an entry required under this Code in a book
cooperative from the full enjoyment of the exemption or register, which the person knows to be false or
from the payment of the taxes, fees and charges misleading;
enumerated therein, shall upon conviction, suffer a
penalty of not less that one (1) year but not more than "(e) Hindering an authorized person from making an
five (5) years imprisonment or a fine in the amount of inspection, audit, examination or investigation required
not less than Five thousand pesos (P5,000.00) or both at under this Code;
the discretion of the court and shall further be
"(f) Failure to comply with an order or written
disqualified to hold any other office;
instructions issued or given by the Authority;
"(4) Direct or indirect interference or intervention by
"(g) Violation of the provisions regarding transactions
any public official or employee into the internal affairs
with a restricted party; and
of a cooperative of which he is not a member, such as,
but not limited to, the following: "(h) Abetting, counseling, allowing, authorizing or
commanding another person to commit an offense
"(a) Influencing the election or appointment of officers,
punishable by this Code: Provided, That in case the
directors, committee members and employees through
violator is a cooperative or juridical person, the penalty
public or private endorsement or campaign for or
shall be imposed on its directors and officers.
against any person or group of persons;
"(7) Any violation of any provision of this Code for which
"(b) Requiring prior clearances for any policy or decision
no penalty is imposed shall be punished by
within the cooperative;
imprisonment of not less than six (6) months nor more
"(c) Requesting or demanding for the creation of than one (1) year and a fine of not less than One
positions or organizational units, or recommending any thousand pesos (P1,000.00), or both at the discretion of
person for appointment, transfer, or removal from his the court.
position; or
"In case of violation of any provision of this Code, the
"(d) Any other acts inimical or adverse to the autonomy individual or individuals, and in the case of
and independence of cooperatives. organizations or government agencies, its officers, and
directors shall, upon conviction by a Court, each suffer a
"(5) A director, officer or committee member who penalty of not less than two (2) years but not more than
violated the provisions of Article 45 on the Liability of five (5) years imprisonment or a fine in the amount of
Directors, Officers and Committee Members, Article 48 not less than Twenty thousand pesos (P20,000.00), or
on the Disloyalty of a Director, and Article 49 on the both at the discretion of the court. In the case of a
Illegal Use of Confidential Information shall upon public official or employee, the offender shall upon
conviction suffer a fine of not less than Five hundred
thousand pesos (P500,000.00) nor more than Five
conviction, suffer the accessory penalty of temporary from the date of issue: Provided, further, That all unpaid
absolute disqualification. assessments of previously registered cooperative shall
be the subject of compromise settlement on terms
"ART. 141. Printing and Distribution. – (1) The National favorable to such cooperative; and: Provided, finally,
Printing Office shall publish this Code in the Official That the BIR and the authority shall be jointly issue the
Gazette in full within sixty (60) days from the date of necessary regulations on this exemption and
approval thereof. Copies of this Code shall be given to compromise within ninety (90) days from the effectivity
every department, agency and instrumentality of the from this Code.
National Government, including regional, provincial
offices and local governments including government- "(3) Registration of electric cooperatives with the
owned and controlled corporations. Authority shall not be considered as a transferred of
ownership of its assets and liabilities nor shall it
"(2) All duly registered cooperatives and their constitute a change in the nature, structure, and status
federations, unions and associations, and cooperative of the cooperative. Said registration shall not result in
corporations shall be given one (1) copy each at cost. the revocation of the condoned loans under Republic
Thereafter, every newly registered cooperative shall be Act No. 9136, otherwise known as the Electric Power
issued at cost a copy of this Code and the regulations Industry Reform Act: Provided, That electric
promulgated thereon together with its certificate of cooperatives with existing loans shall not be subject to
registration. the control and supervisions of its creditors and shall
"ART. 142. Interpretation and Construction. – In case of only be limited to the fulfillment of each civil
doubt as to the meaning of any provision of his Code or obligations.
the regulations issued in pursuance thereof, the same "ART.145. Separabilty Clause. - Should any part of this
shall be resolved liberally in favor of the cooperatives code be declared unconstitutional, the validity of
and their members. remaining provision hereof shall remain in full and
"ART. 143. Repealing Clause. – Except as expressly effect.
provided by this Code, Presidential Decree No. 175 and "ART.146. Effectivity Clause. - This code shall take effect
all other laws, or parts thereof, inconsistent with any fifteen (15) days from its publication in a newspaper of
provision of this Code shall be deemed general circulation.
repealed: Provided, That the provisions of Sections 3, 5,
and 7 of Presidential Decree No. 1645, Executive Order
No. 623, series of 2007. Revenue Regulation No. 20-
2001, and all laws, decrees, executive orders,
implementing rules and regulations, BIR circulars,
memorandum orders, letters of instruction, local
government ordinances, or parts thereof inconsistent
with any of the provisions of this Act are hereby
repealed, amended or modified accordingly.

"ART.144. Transitory Provisions.- (1) All cooperatives

registered and confirmed with the Authority under
Republic Act No. 6938 and Republic Act No. 6939, are
hereby deemed registered under this code, and a new
certificate of registration shall be issued by the
authority: Provided, That such cooperative shall submit
to the nearest office of the authority a copy of their
certificate of registration or certificate of confirmation,
the articles of cooperation, their bylaws, and their latest
audited financial statement within one (1) year from the
effectivity of this code, otherwise the shall be deemed
cancelled motu proprio.

"(2) Following the issuance of the new certificate of

registration, the registered cooperatives shall secured
their certificate of tax exemption from the nearest
office of the Bureau of Internal Revenue (BIR): Provided,
That such exemptions shall be valid of five (5) years
REPUBLIC ACT No. 10846 “BOARD OF DIRECTORS: COMPOSITION
AND AUTHORITY
AN ACT ENHANCING THE RESOLUTION AND
LIQUIDATION FRAMEWORK FOR BANKS, AMENDING “SEC. 3. (a) The powers and functions of the
FOR THE PURPOSE REPUBLIC ACT NO. 3591, AS Corporation shall be vested in and exercised by a Board
AMENDED, AND OTHER RELATED LAWS of Directors which shall be composed of seven (7)
members as follows:
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress “(1) The Secretary of Finance who shall be the ex officio
assembled: Chairman of the Board without compensation;

SECTION 1. Section 1 of Republic Act No. 3591, as “(2) The Governor of the Bangko Sentral ng Pilipinas
amended, is hereby amended to read as follows: who shall be ex officio member of the Board without
compensation;
“THE CREATION OF THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION “(3) The President of the Corporation, who shall be
appointed by the President of the Philippines from a
“SECTION 1. — There is hereby created a Philippine shortlist prepared by the Governance Commission for
Deposit Insurance Corporation hereinafter referred to Government-Owned or -Controlled Corporations
as the ‘Corporation’ which shall insure as herein pursuant to Republic Act No. 10149 to serve on a full-
provided, the deposits of all banks which are entitled to time basis for a term of six (6) years. The President of
the benefits of insurance under this Act, and which shall the Corporation shall also serve as Vice Chairman of the
have the powers hereinafter granted. Board;
“The Corporation shall, as a basic policy, promote and “(4) Four (4) members from the private sector to be
safeguard the interests of the depositing public by appointed by the President of the Philippines from a
providing insurance coverage on all insured deposits shortlist prepared by the Governance Commission for
and helping maintain a sound and stable banking Government-Owned or -Controlled Corporations
system.” pursuant to Republic Act No. 10149. The appointive
SECTION 2. A new section entitled Section 2 of the same directors shall serve for a term of six (6) years unless
Act shall be inserted between Sections 1 and 3 which sooner removed for cause and shall be subject to only
shall read as follows: one (1) reappointment: Provided, That of those first
appointed, the first two (2) appointees shall serve for a
“STATE POLICY period of three (3) years: Provided, however, That the
appointive director shall continue to hold office until the
“SEC. 2. — It is hereby declared to be the policy of the
successor is appointed. An appointive director may be
State to strengthen the mandatory deposit insurance
nominated by the Governance Commission for
coverage system to generate, preserve, maintain faith
Government-Owned or -Controlled Corporations for
and confidence in the country’s banking system, and
reappointment by the President only if one obtains a
protect it from illegal schemes and machinations.
performance score of above average or its equivalent or
“Towards this end, the government must extend all higher in the immediately preceding year of tenure as
means and mechanisms necessary for the Corporation appointive director based on the performance criteria
to effectively fulfill its vital task of promoting and for appointive directors of the Corporation.
safeguarding the interests of the depositing public by
“Appointment to any vacancy shall be only for the
way of providing insurance coverage on bank deposits
unexpired term of the predecessor pursuant to Republic
and in helping develop a sound and stable banking
Act No. 10149.
system.
“No person shall be appointed as member of the Board
“In view of the crucial role and the nature of its
unless he or she be of good moral character, of
functions and responsibilities, the Corporation, while
unquestionable integrity and responsibility, of known
being a government instrumentality with corporate
probity and patriotism, and who is of recognized
powers, shall enjoy fiscal and administrative
competence in economics, banking and finance, law,
autonomy.”
management administration or insurance, and shall be
SECTION 3. Section 2 of the same Act is accordingly at least thirty-five (35) years of age. For the duration of
renumbered as Section 3 and is hereby amended to their tenure or term of office and for a period of one (1)
read as follows: year thereafter, the appointive members of the Board
shall be disqualified from holding any office, position or “(b) The Board of Directors shall have the authority:
employment in any insured bank.
“(1) To approve and issue rules and regulations for
“The Secretary of Finance and the Governor of the banks and the depositing public as it considers
Bangko Sentral ng Pilipinas may each designate an necessary for the effective discharge of its
alternate, who shall be an official with a rank not lower responsibilities;
than assistant secretary or its equivalent with written
authority from the Secretary of Finance or the Governor “(2) To act as the policy-making body of the Corporation
and constitute Board committees to oversee the
of the Bangko Sentral ng Pilipinas to attend such
meetings and to vote on behalf of their respective management, operations and administration of the
Corporation;
principals. Whenever the Chairman of the Board is
unable to attend a meeting of the Board, or in the event “(3) To establish a human resource management system
of a vacancy in the office of the Secretary of Finance, which shall govern the selection, hiring, appointment,
and in the absence of the Vice Chairman, the members transfer, promotion, or dismissal of personnel. Such
of the Board shall designate from among themselves system shall aim to establish professionalism and
who shall act as Chairman. excellence at all levels of the Corporation in accordance
with sound principles of management;
“The President of the Philippines may remove any
appointive member of the Board of Directors for any of “(4) To approve a compensation structure as an integral
the following reasons: component of the Corporation’s human resource
“(i) If the member is physically or mentally incapacitated development program based on job evaluation studies
and wage surveys, and revise the same as it may deem
that he or she cannot properly discharge his or her
duties and responsibilities, and such incapacity has necessary: Provided, That all positions in the
Corporation shall be governed by a compensation
lasted for more than six (6) months; or
package, position classification system and qualification
“(ii) If the member is guilty of acts or operations which standards approved by the Board based on a
are of fraudulent or illegal character or which are comprehensive job analysis and audit of actual duties
manifestly opposed to the aims and interests of the and responsibilities. The compensation structure shall
Corporation; or be comparable to that of other financial institutions
based on prevailing market standards, and shall provide
“(iii) If the member no longer possesses the for yearly merit reviews or increases based on
qualifications specified in this Act; or productivity. The Corporation shall therefore be exempt
“(iv) If the member does not meet the standards for from existing laws, rules and regulations on
performance based on the evaluation by the compensation package, position classification and
Governance Commission for Government-Owned or qualification standards. It shall however endeavor to
-Controlled Corporations under Republic Act No. 10149. make its system conform as closely as possible with the
principles under Republic Act No. 6758, as amended;
“The presence of four (4) members shall constitute a
quorum. All decisions of the Board of Directors shall “(5) To appoint, establish the rank, fix the
require the concurrence of at least four (4) members. remuneration, benefits, including health care services
through a Health Maintenance Organization (HMO) and
“The compensation, per diems, allowances, incentives, medical benefits other than those provided for under
and other benefits for board members shall be Republic Act No. 7875, as amended, and remove any
determined by the Governance Commission for officer or employee of the Corporation, for cause,
Government-Owned or -Controlled Corporations. subject to pertinent civil service laws: Provided, That
the Board of Directors may delegate this authority to
“In addition to the requirements of Republic Act No.
the President subject to specific guidelines: Provided,
6713, otherwise known as the ‘Code of Conduct and
further, That in no case shall there be any diminution of
Ethical Standards for Public Officials and Employees’,
existing salaries, benefits and other emoluments;
any member of the Board of Directors with personal or
pecuniary interest in any matter in the agenda of the “(6) To approve policy on local and foreign travel, and
Board of Directors shall disclose his or her interest to the corresponding expenses, allowances and per diems,
the Board and shall recuse from the meeting when the of officers, employees, agents of the Corporation, which
matter is taken up. The minutes shall reflect the shall be comparable with the expenses, allowances and
disclosure made and the recusal of the member per diems of personnel of other financial institutions
concerned. based on prevailing market standards, notwithstanding
the provisions of Presidential Decree No. 1177,
Executive Order No. 292, Executive Order No. 248, as the compensation package of the next highest ranking
amended, Executive Order No. 298, and similar laws; executive of the Corporation.”

“(7) To adopt an annual budget for, and authorize such SECTION 6. Section 4, paragraphs (d), (f) and (h) of the
expenditures by the Corporation, as are in the interest same Act, as renumbered, are hereby amended to read
of the effective administration and operation of the as follows:
Corporation;
“(d) To represent the Corporation in all dealings with
“(8) To approve the target level of the Deposit other offices, agencies and instrumentalities of the
Insurance Fund (DIF) and the methodology for government and with all other persons or entities,
determining reserves for insurance and financial public or private, whether domestic, foreign or
assistance losses; international;

“(9) To review the organizational set-up of the “(f) To represent the Corporation, either personally or
Corporation and adopt a new or revised organizational through counsel, including private counsel, as may be
structure as it may deem necessary for the Corporation authorized by the PDIC Board, in any legal proceeding or
to undertake its mandate and functions; action;

“(10) To design, adopt and revise, as it may deem “(h) x x x. The President shall be assisted by a Vice
necessary, an early separation plan for employees of President and other officials whose appointment and
the Corporation to ensure availability of a human removal for cause shall be approved and whose salary
resource pool qualified and capable of implementing shall be fixed by the Board of Directors upon
the Corporation’s authorities under this Charter in a recommendation of the President of the Corporation.
manner responsive and attuned to market During the absence or temporary incapacity of the
developments, and to provide incentives for all those President, or in case of vacancy or permanent incapacity
who shall be separated from the service. and pending appointment of a new President of the
Notwithstanding any law to the contrary, these Corporation by the President of the Philippines, the
incentives shall be in addition to all gratuities and Board of Directors shall designate the officer-in-charge
benefits the employee is entitled to under existing laws; of the Corporation.”
and
SECTION 7. Section 4 of the same Act is accordingly
“(11) To promote and sponsor the local or foreign renumbered as Section 5, and is hereby amended to
training or study of personnel in the fields of banking, read as follows:
finance, management, information technology and law.
“DEFINITION OF TERMS
Towards this end, the Corporation is hereby authorized
to defray the costs of such training or study. The Board “SEC. 5. As used in this Act –
shall prescribe rules and regulations to govern the
training or study programs of the Corporation.” “(a) The term asset refers to movable, immovable,
tangible, or intangible resources or properties over
SECTION 4. Section 3 of the same Act is accordingly which a bank has an established or equitable interest,
renumbered as Section 4. including the proceeds of the sale of its bank and
branch licenses subject to the approval of the Bangko
SECTION 5. The first paragraph of Section 4 of the same
Act, as renumbered, is hereby amended to read as Sentral ng Pilipinas.
follows: “(b) The term asset distribution plan refers to the plan
“PRESIDENT OF THE CORPORATION of distribution of the assets of a closed bank to its
creditors, based on its estimated realizable value as of a
COMPENSATION, POWERS AND DUTIES
certain cut-off date, prepared in accordance with the
“SEC. 4. The President of the Corporation shall be its Rules on Concurrence and Preference of Credits under
Chief Executive Officer and the Vice Chairman of its the Civil Code or other laws.
Board of Directors and his or her salary shall be fixed by
“An asset distribution plan may be partial when it
the President of the Philippines upon the
recommendation of the Governance Commission for pertains to the distribution of a portion or some of the
assets of the closed bank, or final when it pertains to
Government-Owned or -Controlled Corporations, at a
sum commensurate to the importance and the distribution of all the assets of the closed bank.
responsibility attached to the position. The sum total of “(c) The term Board of Directors means the Board of
the salary, allowances, benefits and other emoluments Directors of the Corporation.
of the President of the Corporation shall be higher than
“(d) The term bank and banking institution shall be “(4) Deposits that are determined to be the proceeds of
synonymous and interchangeable and shall include an unlawful activity as defined under Republic Act No.
banks, commercial banks, savings banks, mortgage 9160, as amended.
banks, rural banks, development banks, cooperative
banks, stock savings and loan associations and branches “The actions of the Corporation taken under Section
5(g) shall be final and executory, and may only be
and agencies in the Philippines of foreign banks and all
other corporations authorized to perform banking restrained or set aside by the Court of Appeals, upon
appropriate petition for certiorari on the ground that
functions in the Philippines.
the action was taken in excess of jurisdiction or with
“(e) The term closed bank refers to a bank placed under such grave abuse of discretion as to amount to a lack or
liquidation by the Monetary Board. excess of jurisdiction. The petition for certiorari may
only be filed within thirty (30) days from notice of denial
“(f) The term creditor refers to any individual or entity of claim for deposit insurance.
with a valid claim against the assets of the closed bank.
“(h) The term disputed claim refers to a claim or suit
“(g) The term deposit means the unpaid balance of against the assets of a closed bank, or for specific
money or its equivalent received by a bank in the usual performance, or breach of contract, or damages, of
course of business and for which it has given or is whatever nature or character, whether for money or
obliged to give credit to a commercial, checking, otherwise, liquidated or unliquidated, fixed or
savings, time or thrift account, evidenced by a contingent, matured or current, denied by the receiver.
passbook, certificate of deposit, or other evidence of
deposit issued in accordance with Bangko Sentral ng “(i) The term insured bank means any bank the deposits
Pilipinas rules and regulations and other applicable of which are insured in accordance with the provisions
laws, together with such other obligations of a bank, of this Act.
which, consistent with banking usage and practices, the
Board of Directors shall determine and prescribe by “(j) The term insured deposit means the amount due to
any bonafide depositor for legitimate deposits in an
regulations to be deposit liabilities of the bank:
Provided, That any obligation of a bank which is payable insured bank as of the date of closure but not to exceed
Five hundred thousand pesos (P500,000.00). Such
at the office of the bank located outside of the
Philippines shall not be a deposit for any of the amount shall be determined according to such
regulations as the Board of Directors may prescribe. In
purposes of this Act or included as part of the total
deposits or of insured deposit: Provided, further, That determining such amount due to any depositor, there
shall be added together all deposits in the bank
subject to the approval of the Board of Directors, any
insured bank which is incorporated under the laws of maintained in the same right and capacity for his or her
benefit either in his or her own name or in the name of
the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit others. A joint account regardless of whether the
conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be insured
obligations payable only at such branch.
separately from any individually-owned deposit
“The Corporation shall not pay deposit insurance for the account: Provided, That (1) if the account is held jointly
following accounts or transactions: by two or more natural persons, or by two or more
juridical persons or entities, the maximum insured
“(1) Investment products such as bonds and securities, deposit shall be divided into as many equal shares as
trust accounts, and other similar instruments; there are individuals, juridical persons or entities, unless
“(2) Deposit accounts or transactions which are a different sharing is stipulated in the document of
fictitious or fraudulent as determined by the deposit, and (2) if the account is held by a juridical
Corporation; person or entity jointly with one or more natural
persons, the maximum insured deposit shall be
“(3) Deposit accounts or transactions constituting, presumed to belong entirely to such juridical person or
and/or emanating from, unsafe and unsound banking entity: Provided, further, That the aggregate of the
practice/s, as determined by the Corporation, in interest of each co-owner over several joint accounts,
consultation with the Bangko Sentral ng Pilipinas, after whether owned by the same or different combinations
due notice and hearing, and publication of a directive to of individuals, juridical persons or entities, shall likewise
cease and desist issued by the Corporation against such be subject to the maximum insured deposit of Five
deposit accounts, transactions or practices; and hundred thousand pesos (P500,000.00): Provided,
furthermore, That the provisions of any law to the
contrary notwithstanding, no owner/holder of any
passbook, certificate of deposit, or other evidence of
deposit shall be recognized as a depositor entitled to “(1) Protect depositors, creditors and the DIF;
the rights provided in this Act unless the passbook,
certificate of deposit, or other evidence of deposit is “(2) Safeguard the continuity of essential banking
services or maintain financial stability; and
determined by the Corporation to be an authentic
document or record of the issuing bank: Provided, “(3) Prevent deterioration or dissipation of bank assets.
finally, That in case of a condition that threatens the
monetary and financial stability of the banking system “(t) The term risk-based assessment system pertains to
that may have systemic consequences, as defined in a method for calculating an insured bank’s assessment
Section 22 hereof, as determined by the Monetary on the probability that the DIF will incur a loss with
Board, the maximum deposit insurance cover may be respect to the bank, and the likely amount of any such
adjusted in such amount, for such a period, and/or for loss, based on its risk rating that takes into
such deposit products, as may be determined by a consideration the following:
unanimous vote of the Board of Directors in a meeting
“(1) Quality and concentration of assets;
called for the purpose and chaired by the Secretary of
Finance, subject to the approval of the President of the “(2) Categories and concentration of liabilities, both
Philippines. insured and uninsured, contingent and noncontingent;
“(k) The term liquidation refers to the proceedings “(3) Capital position;
under Sections 12 to 16 of this Act.
“(4) Liquidity position;
“(1) The term liquidation court refers to the Regional
Trial Court (RTC) of general jurisdiction where the “(5) Management and governance; and
petition for assistance in the liquidation of a closed bank
“(6) Other factors relevant to assessing such probability,
is filed and given due course.
as may be determined by the Corporation:
“(m) The term payout refers to the payment of insured
“(u) The term statement of affairs refers to a report of
deposits.
financial condition of the closed bank at a given date,
“(n) The term petition for assistance in the liquidation of showing the: (1) estimated realizable value of assets; (2)
a closed bank refers to the petition filed by the receiver classification of credits; and (3) estimated liabilities to
with the RTC in accordance with Section 16 of this Act. be settled.

“(o) The term purchase of assets and assumption of “(v) The term surplus dividends refers to the remaining
liabilities refers to a transaction where an insured bank assets of the closed bank after satisfaction in full of all
purchases any or all assets and assumes any or all the liquidation costs, fees and expenses, and valid
liabilities of another bank under resolution or claims. The surplus dividends shall be computed at the
liquidation, as provided in this Act. legal rate of interest from the date of takeover to cut-
off date of the distribution plan, and shall be paid, in
“(p) The term receiver refers to the Corporation or any cash or in kind, to creditors of the closed bank in
of its duly authorized agents acting as receiver of a accordance with the Rules on Concurrence and
closed bank. Preference of Credits under the Civil Code or other laws.
“(q) The term records include all documents, titles, “(w) The term takeover refers to the act of physically
papers and electronic data of the closed bank, including taking possession and control of the premises, assets
those pertaining to deposit accounts of and with the and affairs of a closed bank for the purpose of
closed bank, its assets, transactions and corporate liquidating the bank.
affairs.
“(x) The term transfer deposit means, a deposit in an
“(r) The term residual assets refer to assets, in cash or in insured bank made available to a depositor by the
kind, to be turned over to the closed bank’s Corporation as payment of insured deposit of such
stockholders of record, in proportion to their interest in depositor in a closed bank and assumed by another
the closed bank as of date of closure, after payment in insured bank.
full of liquidation costs, fees and expenses, and the valid
claims and surplus dividends to all the creditors. “(y) The term trust funds means funds held by an
insured bank in a fiduciary capacity and includes
“(s) The term resolution refers to the actions without being limited to, funds held as trustee,
undertaken by the Corporation under Section 11 of this executor, administrator, guardian or agent.
Act to:
“(z) The term valid claim refers to the claim recognized the assessment base of the bank as of the close of
by the receiver or allowed by the liquidation court. business on September thirty and December thirty-one:
Provided, That when any of said days is a nonbusiness
“(aa) The term winding up period refers to the period day or legal holiday, either national or provincial, the
provided in Section 16 of this Act.” preceding business day shall be used. The certified
SECTION 8. Section 5 of the same Act is accordingly statements required to be filed with the Corporation
renumbered as Section 6, and is hereby amended to under subsections (b) and (c) of this section shall be in
read as follows: such form and set forth such supporting information as
the Board of Directors shall prescribe. The assessment
“DEPOSIT INSURANCE COVERAGE payments required from the insured banks under
subsections (b) and (c) of this section shall be made in
“SEC. 6. The deposit liabilities of any bank which is
such manner and at such time or times as the Board of
engaged in the business of receiving deposits as herein
Directors shall prescribe.”
defined on the effective date of this Act, or which
thereafter may engage in the business of receiving SECTION 11. Section 7, paragraphs (d) and (h), of the
deposits, shall be insured with the Corporation. same Act, as renumbered, are hereby amended to read
as follows:
“Whenever a bank is determined by the Bangko Sentral
ng Pilipinas to be capital deficient, the Corporation may “(d) All assessment collections and income from
conduct an insurance risk evaluation on the bank to operations after expenses and charges shall be added to
enable it to assess the risks to the DIF. Such evaluation the DIF under Section 17 hereof. Such expenses and
may include the determination of: (i) the fair market charges are: (1) the operating costs and expenses of the
value of the assets and liabilities of a bank; or (ii) the Corporation for the calendar year; (2) additions to
risk classification of a bank; or (iii) possible resolution reserve to provide for insurance and financial assistance
modes under Section 11 of this Act, subject to such losses, net of recoverable amounts from applicable
terms and conditions as the PDIC Board may prescribe.” assets and collaterals, during the calendar year; and (3)
the net insurance and financial assistance losses
SECTION 9. Section 6 of the same Act is accordingly
sustained in said calendar year.
renumbered as Section 7.
“(h) Should any insured bank fail or refuse to pay any
SECTION 10. Section 7 paragraph (a) of the same Act, as
assessment required to be paid by such bank under any
renumbered, is hereby amended to read as follows:
provision of this Act, and should the bank not correct
“ASSESSMENT OF MEMBER BANKS such failure or refusal within thirty (30) days after
written notice has been given by the Corporation to an
“SEC. 7. (a) The assessment rate shall be determined by officer of the bank citing this subsection, and stating
the Board of Directors: Provided, That the assessment that the bank has failed or refused to pay as required by
rate shall not exceed one-fifth (1/5) of one per centum the law, the Corporation may, at its discretion, file a
(1%) per annum. The semi-annual assessment for each case for collection before the appropriate court without
insured bank shall be in the amount of the product of prejudice to the imposition of administrative sanctions
one-half (1/2) the assessment rate multiplied by the allowed under the provisions of this law on the bank
assessment base but in no case shall it be less than Five officials responsible for the nonpayment of assessment
thousand pesos (P5,000.00). The assessment base shall fees.”
be the amount of the liability of the bank for deposits as
defined under subsection (g) of Section 5 without any SECTION 12. An additional paragraph to Section 7 of the
deduction for indebtedness of depositors. same Act, as renumbered, is hereby inserted after
paragraph (h) which shall read as follows:
“In addition, the Board of Directors may establish a risk-
based assessment system and impose a risk-based “(i) The Corporation shall have the authority to collect a
assessment rate which shall not exceed two-fifth (2/5) special assessment from any member bank and
of one per centum (1%) per annum multiplied by the prescribe the terms and conditions thereof to maintain
assessment base. the target level of the DIF set by the Board of Directors
in accordance with this Act.”
“The semi-annual assessment base for one semi-annual
period shall be the average of the assessment base of SECTION 13. Section 7 of the same Act is accordingly
the bank as of the close of business on March thirty-one renumbered as Section 8, and is hereby amended to
and June thirty and the semi-annual assessment base read as follows:
for the other semi-annual period shall be the average of
“SANCTIONS AGAINST UNSAFE AND insured up to the maximum deposit insurance coverage
UNSOUND BANKING PRACTICES for a period of one hundred eighty (180) days. Additions
to, or renewal of, existing deposits and new deposits in
“SEC. 8. (a) Whenever upon examination by the such bank after the effective date of termination of
Corporation into the condition of any insured bank, it insured status of the bank shall not be insured by the
shall be disclosed that an insured bank or its directors or Corporation.
agents have committed, are committing or about to
commit unsafe or unsound practices in conducting the “The bank shall not advertise or represent that
business of the bank, or have violated, are violating or additions to, or renewal of, existing deposits and new
about to violate any provisions of any law or regulation deposits made after the effective date of termination
to which the insured bank is subject, the Board of aye covered by deposit insurance.”
Directors shall submit the report of the examination to
SECTION 14. Section 8 of the same Act is accordingly
the Monetary Board to secure corrective action
thereon. If no such corrective action is taken by the renumbered as Section 9.
Monetary Board within forty-five (45) days from the SECTION 15. Section 9, paragraph Twelfth of the same
submission of the report, the Board of Directors shall, Act, as renumbered, is hereby amended to read as
motu proprio, institute corrective action which it deems follows:
necessary. The Board of Directors may thereafter issue a
cease and desist order, and require the bank or its “Twelfth – The provisions of Presidential Decree No.
directors or agents concerned to correct the practices 1445, as amended, Executive Order No. 292, and other
or violations within forty-five (45) days. However, if the similar laws notwithstanding, to compromise, condone
practice or violation is likely to cause insolvency or or release, in whole or in part, any claim or settled
substantial dissipation of assets or earnings of the bank, liability to the Corporation, regardless of the amount
or is likely to seriously weaken the condition of the bank involved, under such terms and conditions as may be
or otherwise seriously prejudice the interests of its imposed by the Board of Directors to protect the
depositors and the Corporation, the period to take interest of the Corporation, and to write off the
corrective action shall not be more than fifteen (15) Corporation’s receivables and assets which are no
days. The order may also include the imposition of fines longer recoverable or realizable;”
provided in Section 26(g) hereof. The Board of Directors
SECTION 16. Section 9 of the same Act, as renumbered,
shall duly inform the Monetary Board of the Bangko
is further amended by inserting additional paragraphs
Sentral ng Pilipinas of action it has taken under this
after paragraph Twelfth, which shall read as follows:
subsection with respect to such practices or violations.
“Thirteenth – To determine qualified interested
“(b) The actions and proceedings provided in the
acquirers or investors for any of the modes of resolution
preceding subsections may be undertaken by the
or liquidation of banks;
Corporation if, in its opinion, an insured bank or its
directors or agents have violated, are violating or about “Fourteenth – To determine the appropriate resolution
to violate any provision of this Act or any order, rule or method and to implement the same for a bank subject
instruction issued by the Corporation or any written of resolution; and
condition imposed by the Corporation in connection
with any transaction with or grant by the Corporation. “Fifteenth – To determine the appropriate mode of
liquidation of a closed bank and to implement the
“(c) The Corporation may terminate the insured status same.”
of any bank that fails or refuses to comply, within thirty
(30) days from notice, with any cease-and-desist order SECTION 17. Section 9 of the same Act is accordingly
issued by the Corporation, or with any corrective action renumbered as Section 10.
imposed by the Monetary Board, under this section
SECTION 18. Section 10 paragraph (b-1) of the same
pertaining to a deposit-related unsafe and/or unsound
Act, as renumbered, is hereby amended to read as
banking practice.
follows:
“Such termination shall be final and executory, and shall
“(b-1) The investigators appointed by the Board of
be effective upon publication of the notice of
Directors shall have the power on behalf of the
termination in a newspaper of general circulation.
Corporation to conduct investigations on frauds,
“The deposits of each depositor in the bank on the irregularities and anomalies committed in banks, based
effective date of the termination of insurance coverage, on reports of examination conducted by the
less all subsequent withdrawals, shall continue to be Corporation and Bangko Sentral ng Pilipinas or
complaints from depositors or from other government provided with such legal protection in connection with
agency. Each such investigator shall have the power to any act done or omitted to be done by them in good
administer oaths, and to examine and take and preserve faith during their tenure or employment with the
the testimony of any person relating to the subject of Corporation: Provided, finally, That in the event of a
investigation. For this purpose, the Corporation may settlement or compromise, indemnification shall be
appoint or hire persons or entities of recognized provided only in connection with such matters covered
competence in forensic and fraud investigations as its by the settlement as to which the Corporation is advised
agents.” by counsel that the persons to be indemnified did not
commit any negligence or misconduct.”
SECTION 19. Section 10 paragraph (c) of the same Act,
as renumbered, is hereby amended to read as follows: SECTION 22. The second paragraph of Section 10
paragraph (i) of the same Act, as renumbered, is hereby
“(c) Each insured bank shall make to the Corporation amended to read as follows:
reports of condition in such form and at such times as
the Board of Directors may require such reports to be “(i) Notwithstanding the provisions of this section and
published in such manner, not inconsistent with any Section 3 of this Act, members of the Board of Directors
applicable law, as it may direct. Every such bank which and personnel of the Corporation may become directors
fails to make or publish any such report within such and officers of any bank and banking institution and of
time, as the Board of Directors may require, shall be any entity related to such institution in connection with
subject to a penalty of not more than Ten thousand financial assistance extended by the Corporation to
pesos (P10,000.00) for each day of such failure such institution and when, in the opinion of the Board,
recoverable by the Corporation for its use.” it is appropriate to make such designation to protect the
interest of the Corporation.”
SECTION 20. Section 10 paragraph (d-1) of the same
Act, as renumbered, is hereby amended to read as SECTION 23. A new section entitled Section 11 of the
follows: same Act is hereby inserted between Sections 10 and 12
which shall read as follows:
“(d-1) Each insured bank shall keep and maintain a true
and accurate record or statement of its daily deposit “BANK RESOLUTION
transactions consistent with the standards set by the
Bangko Sentral ng Pilipinas and the Corporation. “SEC. 11. (a) The Corporation, in coordination with the
Bangko Sentral ng Pilipinas, may commence the
Compliance with such standards shall be duly certified
by the president of the bank and the compliance officer: resolution of a bank under this section upon:
Provided, That refusal or willful failure to issue the “(1) Failure of prompt corrective action as declared by
required certification shall constitute a violation of this the Monetary Board; or
section and shall subject such officers of the bank to the
sanctions provided for under Section 26(f) of this Act.” “(2) Request by a bank to be placed under resolution.

SECTION 21. Section 10 paragraph (f) of the same Act, “The Corporation shall inform the hank of its eligibility
as renumbered, is hereby amended to read as follows: for entry into resolution.

“(f) The Corporation shall underwrite or advance all “(b) The Bangko Sentral ng Pilipinas shall inform the
legal costs and expenses, including legal fees and other Corporation of the initiation of prompt corrective action
expenses of external counsel, or provide legal assistance on any bank and shall be authorized to share with the
to, directors, officers, employees or agents of the Corporation all information, agreements or documents,
Corporation in connection with any civil, criminal, including any order of the Monetary Board, in relation
administrative or any other action or proceeding, to to the prompt corrective action. The Corporation shall
which such director, officer, employee or agent is made have the authority to inquire and monitor the status of
a party by reason of, or in connection with, the exercise banks under prompt corrective action.
of authority or performance of functions and duties
“(c) When there is a failure of prompt corrective action
under this Act: Provided, That such legal protection shall
as declared by the Monetary Board due to capital
not apply to any civil, criminal, administrative or any
deficiency, the Corporation, its duly authorized officers
action or proceeding that may be initiated by the
or employees, may examine, inquire or look into the
Corporation, in whatever capacity, against such
deposit records of a bank: Provided, That such authority
director, officer, employee or agent: Provided, further,
may not be exercised when the failure of prompt
That directors, officers, employees or agents who shall
corrective action is due to grounds other than capital
resign, retire, transfer to another agency or be
deficiency. For this purpose, banks, their officers and
separated from the service, shall continue to be
employees are hereby mandated to disclose and report assets and liabilities, and assessment of risks or events
to the Corporation or its duly authorized officers and that may affect its valuation; and
employees, deposit account information in said bank.
“(4) Conduct a bidding to determine the acquirer of the
“The Corporation, its duly authorized officers or bank.
employees are prohibited from disclosing information
“(f) In determining the appropriate resolution method
obtained under this section to any person, government
official, bureau or office. Any act done pursuant to this for a bank, the Corporation shall consider the:
section shall not be deemed as a violation of Republic “(1) Fair market value of the assets of the bank, its
Act No. 1405, as amended, Republic Act No. 6426, as franchise, as well as the amount of its liabilities;
amended, Republic Act No. 8791, and other similar laws
protecting or safeguarding the secrecy or confidentiality “(2) Availability of a qualified investor;
of bank deposits: Provided, That any unauthorized
“(3) Least cost to the DIF; and
disclosure of the information under this section shall be
subject to the same penalty under the foregoing laws “(4) Interest of the depositing public.
protecting the secrecy or confidentiality of bank
deposits. “(g) The Corporation may appoint or hire persons or
entities of recognized competence in banking, finance,
“(d) The stockholders, directors, officers or employees asset management or remedial management, as its
of the bank shall have the following obligations: agents, to perform such powers and functions of the
Corporation in the resolution of a bank, or assist in the
“(1) Ensure bank compliance with the terms and
performance thereof.
conditions prescribed by the Corporation for the
resolution of the bank; “(h) The PDIC Board shall prescribe the guidelines or
criteria for a bank to be placed under resolution.
“(2) Cause the engagement, with the consent of the
Corporation, of an independent appraiser or auditor for “(i) Upon a determination by the Corporation that the
the purpose of determining the valuation of the bank bank may not be resolved, the Monetary Board may act
consistent with generally accepted valuation standards; in accordance with Section 30 of Republic Act No. 7653
or the New Central Bank Act.
“(3) Ensure prudent management and administration of
the bank’s assets, liabilities and records; and “(j) Bank resolution involving the purchase of all assets
and assumption of all liabilities of a bank shall be
“(4) Cooperate with the Corporation in the conduct or
exempt from the provisions of Act No. 3952, otherwise
exercise of any or all of its authorities under this Act and
known as ‘The Bulk Sales Law’.
honor in good faith its commitment or undertaking with
the Corporation on the resolution of the bank. “(k) The provisions of this section are without prejudice
to any action that the Monetary Board may take under
“(e) Within a period of one hundred eighty (180) days
existing laws.”
from a bank’s entry into resolution, the Corporation,
through the affirmative vote of at least five (5) members SECTION 24. Sections 10, 11 and 12 of the same Act are
of the PDIC Board, shall determine whether the bank hereby deleted.
may be resolved through the purchase of all its assets
and assumption of all its liabilities, or merger or SECTION 25. A new section entitled Section 12 of the
consolidation with, or its acquisition, by a qualified same Act is hereby inserted between Sections 11 and 13
investor. which shall read as follows:

“For this purpose, the Corporation may: “LIQUIDATION OF A CLOSED BANK

“(1) Determine a resolution package for the bank; “SEC. 12. (a) Whenever a bank is ordered closed by the
Monetary Board, the Corporation shall be designated as
“(2) Identify and, with the approval of the Monetary receiver and it shall proceed with the takeover and
Board, pre-qualify possible acquirers or investors; liquidation of the closed bank in accordance with this
Act. For this purpose, banks closed by the Monetary
“(3) Authorize pre-qualified acquirers or investors to
Board shall no longer be rehabilitated.”
conduct due diligence on the bank, for purposes of
determining the valuation of a bank through an SECTION 26. A new section entitled Section 13 of the
objective and thorough review and appraisal of its same Act is hereby inserted between Sections 12 and 14
which shall read as follows:
“AUTHORITIES OF A RECEIVER AND EFFECTS OF redeem foreclosed assets of the closed bank, or to
PLACEMENT OF A BANK UNDER LIQUIDATION minimize losses to its depositors and creditors;

“SEC. 13. (a) The receiver is authorized to adopt and “(11) If the stipulated interest rate on deposits is
implement, without need of consent of the unusually high compared with prevailing applicable
stockholders, board of directors, creditors or depositors interest rates, the Corporation as receiver, may exercise
of the closed bank, any or a combination of the such powers which may include a reduction of the
following modes of liquidation: interest rate to a reasonable rate: Provided, That any
modifications or reductions shall apply only to earned
“(1) Conventional liquidation; and and unpaid interest;
“(2) Purchase of assets and/or assumption of liabilities. “(12) Utilize available funds of the bank, including funds
“(b) In addition to the powers of a receiver provided generated by the receiver from the conversion of assets
under existing laws, the Corporation, as receiver of a to pay for reasonable costs and expenses incurred for
closed bank, is empowered to: the preservation of the assets, and liquidation of, the
closed bank, without need for approval of the
“(1) Represent and act for and on behalf of the closed liquidation court;
bank;
“For banks with insufficient funds, the Corporation is
“(2) Gather and take charge of all the assets, records authorized to advance the foregoing costs and
and affairs of the closed bank, and administer the same expenses, and collect payment, as and when funds
for the benefit of its creditors; become available.

“(3) Convert the assets of the closed bank to cash or “(13) Charge reasonable fees for the liquidation of the
other forms of liquid assets, as far as practicable; bank from the assets of the bank: Provided, That
payment of these fees, including any unpaid advances
“(4) Bring suits to enforce liabilities of the directors,
under the immediately preceding paragraph, shall be
officers, employees, agents of the closed bank and
subject to approval by the liquidation court;
other entities related or connected to the closed bank
or to collect, recover, and preserve all assets, including “(14) Distribute the available assets of the closed bank,
assets over which the bank has equitable interest; in cash or in kind, to its creditors in accordance with the
Rules on Concurrence and Preference of Credits under
“(5) Appoint or hire persons or entities of recognized
the Civil Code or other laws;
competence in banking, finance, asset management or
remedial management, as its deputies, assistants or “(15) Dispose records of the closed bank that are no
agents, to perform such powers and functions of the longer needed in the liquidation in accordance with
Corporation as receiver of the closed bank, or assist in guidelines set by the PDIC Board of Directors,
the performance thereof; notwithstanding the laws on archival period and
disposal of records; and
“(6) Appoint or hire persons or entities of recognized
competence in forensic and fraud investigations; “(16) Exercise such other powers as are inherent and
necessary for the effective discharge of the duties of the
“(7) Pay accrued utilities, rentals and salaries of
Corporation as receiver.
personnel of the closed bank for a period not exceeding
three (3) months, from available funds of the closed “The Board of Directors shall adopt such policies and
bank; guidelines as may be necessary for the performance of
the above powers by personnel, deputies, assistants
“(8) Collect loans and other claims of the closed bank
and agents of the Corporation.
and for this purpose, modify, compromise or
restructure the terms and conditions of such loans or “(c) After the payment of all liabilities and claims against
claims as may be deemed advantageous to the interests the closed bank, the Corporation shall pay surplus, if
of the creditors of the closed bank; any, dividends at the legal rate of interest from date of
takeover to date of distribution to creditors and
“(9) Hire or retain private counsel as may be necessary;
claimants of the closed bank in accordance with the
“(10) Borrow or obtain a loan, or mortgage, pledge or Rules on Concurrence and Preference of Credits under
encumber any asset of the closed bank, when necessary the Civil Code or other laws before distribution to the
to preserve or prevent dissipation of the assets, or to shareholders of the closed bank.
“(d) The officers, employees, deputies, assistants and of the amount secured shall be returned by the Bangko
agents of the receiver shall have no liability and shall Sentral ng Pilipinas to the receiver.
not be subject to any action, claim or demand in
“Any preliminary attachment or garnishment on any of
connection with any act done or omitted to be done by
them in good faith in connection with the exercise of the assets of the closed bank existing at the time of
closure shall not give any preference to the attaching or
their powers and functions under this Act and other
applicable laws, or other actions duly approved by the garnishing party. Upon motion of the receiver, the
preliminary attachment or garnishment shall be lifted
court.
and/or discharged.
“(e) The placement of a bank under liquidation shall
“(4) On labor relations
have the following effects:

“(1) On the corporate franchise or existence “Notwithstanding the provisions of the Labor Code, the
employer-employee relationship between the closed
“Upon placement by the Monetary Board of a bank bank and its employees shall be deemed terminated
under liquidation, it shall continue as a body corporate upon service of the notice of closure of the bank in
until the termination of the winding-up period under accordance with this Act. Payment of separation pay or
Section 16 of this Act. Such continuation as a body benefits provided for by law shall be made from
corporate shall only be for the purpose of liquidating, available assets of the bank in accordance with the
settling and closing its affairs and for the disposal, Rules on Concurrence and Preference of Credits under
conveyance or distribution of its assets pursuant to this the Civil Code or other laws.
Act. The receiver shall represent the closed bank in all
‘(5) Contractual obligations
cases by or against the closed bank and prosecute and
defend suits by or against it. In no case shall the bank be “The receiver may cancel, terminate, rescind or
reopened and permitted to resume banking business repudiate any contract of the closed bank that is not
after being placed under liquidation. necessary for the orderly liquidation of the bank, or is
grossly disadvantageous to the closed bank, or for any
“(2) On the powers and functions of its directors,
officers and stockholders ground provided by law.

“(6) On interest payments

“The powers, voting rights, functions and duties, as well
as the allowances, remuneration and perquisites of the “The liability of a bank to pay interest on deposits and
directors, officers, and stockholders of such bank are all other obligations as of closure shall cease upon its
terminated upon its closure. Accordingly, the directors, closure by the Monetary Board without prejudice to the
officers, and stockholders shall be barred from first paragraph of Section 85 of Republic Act No. 7653
interfering in any way with the assets, records, and (the New Central Bank Act): Provided, That the receiver
affairs of the bank. shall have the authority, without need for approval of
“The receiver shall exercise all authorities as may be the liquidation court, to assign, as payment to secured
creditors, the bank assets serving as collaterals to their
required to facilitate the liquidation of the closed bank
for the benefit of all its creditors. respective loans up to the extent of the outstanding
obligations, including interest as of date of closure of
“(3) On the assets the hank, as validated by the receiver. The valuation of
the asset shall be based on the prevailing market value
“Upon service of notice of closure as provided in Section of the collaterals as appraised by an independent
14 of this Act, all the assets of the closed bank shall he appraiser on an ‘as is where is’ basis.
deemed in custodia legis in the hands of the receiver,
and as such, these assets may not be subject to “(7) Liability for penalties and surcharges for late
attachment, garnishment, execution, levy or any other payment and nonpayment of taxes
court processes. A’ judge, officer of the court or any
person who shall issue, order, process or cause the “From the time of closure, the closed bank shall not be
liable for the payment of penalties and surcharges
issuance or implementation of the garnishment order,
levy, attachment or execution, shall be liable under arising from the late payment or nonpayment of real
property tax, capital gains tax, transfer tax and similar
Section 27 of this Act: Provided, however, That
collaterals securing the loans and advances granted by charges.
the Bangko Sentral ng Pilipinas shall not be included in “(8) Bank charges and fees on services
the assets of the closed bank for distribution to other
creditors: Provided, further, That the proceeds in excess
“The receiver may impose, on behalf of the closed bank, “SEC. 14. (a) Upon the designation of the Corporation as
charges and fees for services rendered after bank receiver of a closed bank, it shall serve a notice of
closure, such as, but not limited to, the execution of closure to the highest-ranking officer of the bank
pertinent deeds and certifications. present in the bank premises, or in the absence of such
officer, post the notice of closure in the bank premises
“(9) Actions pending for or against the closed bank or on its main entrance. The closure of the bank shall be
“Except for actions pending before the Supreme Court, deemed effective upon the service of the notice of
actions pending for or against the closed bank in any closure. Thereafter, the receiver shall takeover the bank
court or quasi-judicial body shall, upon motion of the and exercise the powers of the receiver as provided in
receiver, be suspended for a period not exceeding one this Act.
hundred eighty (180) days and referred to mandatory “(b) The receiver shall have authority to use reasonable
mediation. Upon termination of the mediation, the case force, including the authority to force open the
shall be referred back to the court or quasi-judicial body premises of the bank, and exercise such acts necessary
for further proceedings. to take actual physical possession and custody of the
“(10) Final decisions against the closed bank bank and all its assets, records, documents, and take
charge of its affairs upon the service of the notice of
“The execution and enforcement of a final decision of a closure.
court other than the liquidation court against the assets
of a closed bank shall be stayed. The prevailing parly “(c) Directors, officers, employees or agents of a bank
shall file the final decision as a claim with the liquidation hold money and other assets of the bank in trust or
court and settled in accordance with the Rules on under administration or management by them for the
Concurrence and Preference of Credits under the Civil bank in their fiduciary capacity.
Code or other laws. Upon service of the notice of closure to the bank, all
“(11) Docket and other court fees directors, officers, employees or agents of the closed
bank shall have the duty to immediately account for,
“Payment of docket and other court fees relating to all surrender and turn over to the receiver, and provide
cases or actions filed by the receiver with any judicial or information relative to, the assets, records, and affairs
quasi-judicial bodies shall be deferred until the action is of the closed bank in their possession, custody,
terminated with finality. Any such fees shall constitute administration or management.
as a first Hen on any judgment in favor of the closed
bank or in case of unfavorable judgment, such fees shall “(d) When the circumstances so warrant, the local
be paid as liquidation costs and expenses during the government unit and law enforcement agencies
distribution of the assets of the closed bank. concerned shall, upon request, immediately provide
assistance to the receiver during the service of notice of
“(12) All assets, records, and documents in the closure and actual takeover operations to ensure the
possession of the closed bank at the time of its closure orderly conduct thereof and the security and safety of
are presumed held by the bank in the concept of an the personnel of the receiver and the employees of the
owner. closed bank.”

“(13) The exercise of authority, functions, and duties by SECTION 28. A new section entitled Section 15 of the
the receiver under this Act shall be presumed to have same Act is hereby inserted between Sections 14 and 16
been performed in the regular course of business. which shall read as follows:

“(14) Assets and documents of the closed bank shall “PURCHASE OF ASSETS AND
retain their private nature even if administered by the ASSUMPTION OF LIABILITIES
receiver. Matters relating to the exercise by the receiver
of the functions under this Act shall be subject to “SEC. 15. (a) The receiver shall have the authority to
visitorial audit only by the Commission on Audit.” facilitate and implement the purchase of the assets of
the closed bank and the assumption of its liabilities by
SECTION 27. A new section entitled Section 14 of the another insured bank, without need for approval of the
same Act is hereby inserted between Sections 13 and 15 liquidation court. The exercise of this authority shall be
which shall read as follows: in accordance with the Rules on Concurrence and
Preference of Credits under the Civil Code or other laws,
“NOTICE OF CLOSURE AND
subject to such terms and conditions as the Corporation
TAKEOVER ACTIVITIES
may prescribe. The disposition of the branch licenses
and other bank licenses of the closed bank shall be
subject to the approval of the Bangko Sentral ng “(2) Conduct a physical or ocular inspection of the
Pilipinas. properties owned by, or mortgaged to, the closed bank,
to determine their existence and present condition;
“(b) Such action of the receiver to determine whether a
bank may be the subject of a purchase of assets and “(3) Determine the disposal price of assets in
assumption of liabilities transaction shall be final and accordance with generally accepted valuation
executory, and may not be set aside by any court.” principles, standards and practices, subject to such
guidelines as the receiver may determine;
SECTION 29. A new section entitled Section 16 of the
same Act is hereby inserted between Sections 15 and 17 “(4) Dispose real or personal properties of the closed
which shall read as follows: bank through bidding, negotiated sale or any other
mode including lease with option to purchase, whether
“CONVENTIONAL LIQUIDATION by piece or by lot, as may be reasonably determined by
“A. ASSET MANAGEMENT AND CONVERSION the receiver based on cost-benefit considerations and
“SEC. 16. (a) The assets gathered by the receiver shall to allow efficient distribution of assets to creditors; and
be evaluated and verified as to their existence, “(5) Engage third parties to assist in the liquidation,
ownership, condition, and other factors to determine manage and/or dispose the assets, handle cases filed
their realizable value. In the management, preservation against or by the closed bank, subject to such guidelines
and disposition of assets, the receiver shall be guided by as determined by the receiver.
cost-benefit considerations, resources of the closed
bank, and potential asset recovery. “(d) Notwithstanding any provision of law to the
contrary, the following rules shall apply to the
“(b) The conversion of the assets of the closed bank management and/or conversion by the receiver of the
shall be carried out in a fair and transparent manner in assets of the closed bank:
accordance with the rules and procedures as may be
determined by the receiver. “(1) Upon notification of the closure of a bank, the LRA,
the Bureau of Lands, the Register of Deeds, the LTO, the
“(c) In the management and/or conversion of the assets assessor’s office or other appropriate office of the local
of the closed bank, the receiver shall have the authority government unit, or such other similar government
to: agencies shall not allow any transaction affecting the
“(1) Represent the closed bank before the Land assets of the closed bank without the consent of the
Registration Authority (LRA), the Bureau of Lands, the receiver.
Register of Deeds, the Land Transportation Office (LTO), “(2) Upon issuance by the Monetary Board of the
the Assessor’s Office or other appropriate office of the resolution ordering the closure of a bank, any person or
local government unit, the Securities and Exchange entity in custody or possession of assets or records of
Commission (SEC), or such other similar government the closed bank, including, but not limited to, the closed
agencies or private entities in: bank’s deposit accounts, titles to real property,
“(i) Verifying the authenticity of ownership documents; collaterals, promissory notes, evidence of indebtedness
or investments shall immediately turn over custody of
“(ii) Registering the interest of the closed bank on a said assets and records to the receiver. Such obligation
specific property; shall cover evidences of deposit such as passbooks or
certificates of deposit issued by the bank to its
“(iii) Consolidating ownership over an asset of the
depositors. Pending turnover, all persons or entities in
closed bank;
custody or possession of any asset or record of the
“(iv) Securing certified true copies of documents held by closed bank shall hold the said assets or records in trust
the foregoing agencies/entities in relation to an asset of for the receiver.
the closed bank;
“(3) The persons or entities in custody or possession of
“(v) Securing the appropriate certification from the such asset shall not allow, authorize or cause the
foregoing agencies/entities in relation to an asset of the withdrawal, transfer, disposition, removal, conversion,
closed bank; and concealment, or other transaction involving or relating
to the subject asset, unless otherwise directed by the
“(vi) Performing other related activities; receiver.

“(e) The receiver shall have the authority to invest funds

received from the conversion of the assets of the closed
bank in government securities, other government- “(m) A claim whose validity has not yet been
guaranteed marketable securities or investment-grade determined with finality at the time of the submission
debt instruments. of the final asset distribution plan, either by reason of a
pending suit or for whatever reason, shall be considered
“(f) The proceeds of the sale of the bank and branch as contingent claim and shall not be paid under the
licenses shall be for the benefit of the creditors of the proposed final asset distribution plan.
closed bank which shall be distributed in accordance
with this Act and the Rules on Concurrence and “(n) Upon finality of the order approving the final asset
Preference of Credits under the Civil Code or other laws. distribution plan, the petition for assistance in the
liquidation of a closed bank shall henceforth be, for all
“B. PETITION FOR ASSISTANCE IN THE intents and purposes, considered closed and terminated
LIQUIDATION OF A CLOSED BANK and the receiver, its officers, employees or agents, are
“(g) A petition for assistance in the liquidation is a forever discharged from any and all claims and/or
special proceeding for the liquidation of a closed bank, liability arising from or in connection with the
and includes the declaration of the concomitant right of liquidation of the closed bank.
its creditors and the order of payment of their valid “(o) The receiver shall submit a final report on the
claims in the disposition of its assets. implementation of the approved final asset distribution
“Any proceeding initiated under this section shall be plan to the Monetary Board and the SEC after the
considered in rem. Jurisdiction over all persons affected expiration of the winding-up period provided in this Act.
by the proceeding shall be considered as acquired upon “(p) The Supreme Court shall promulgate the
publication of the order setting the case for initial appropriate procedural rules to implement this section.
hearing in any newspaper of general circulation in the
Philippines. “C. WINDING-UP

“(h) The liquidation court shall have exclusive “(q) The creditors shall have a period of six (6) months
jurisdiction to adjudicate disputed claims against the from the date of publication of notice of the approval by
closed banks, assist in the enforcement of individual the court of the final asset distribution plan of the
liabilities of the stockholders, directors and officers and closed bank within which to claim payment of the
decide on all other issues as may be material to principal obligations and surplus dividends. During this
implement the distribution plan adopted by the six-month period, the receiver shall hold as trustee the
Corporation for general application to all closed banks. assets allocated in the final asset distribution plan for
said creditors.
“(i) The provisions of Republic Act No. 8799, otherwise
known as ‘The Securities Regulation Code’, and “Failure by the creditor to comply with the
Supreme Court Administrative Matter No. 00-8-10-SC, documentary requirements within the prescribed
entitled, ‘The Rules of Procedure on Corporate period and/or refusal to accept the asset as payment
Rehabilitation’, shall not be applicable to the petition shall be deemed as abandonment or waiver of his or her
for assistance in the liquidation of the closed bank. right to payment.

“(j) The petition shall be filed in the RTC which has “(r) The individual stockholders of record or their duly-
jurisdiction over the principal office of the closed bank authorized representative or the court-appointed
or the principal office of the receiver, at the option of stockholders’ representative shall have a period of six
the latter. (6) months from publication of notice of the approval by
the court of the final asset distribution plan of the
“(k) The petition shall be filed ex parte within a closed bank within which to claim the residual assets.
reasonable period from receipt of the Monetary Board During this six-month period, the receiver shall hold as
Resolution placing the bank under liquidation. trustee the assets allocated in the final asset
“(1) All persons or entities with claims against the assets distribution plan for said stockholders of record.
of the closed bank shall file their claims with the “Failure by the individual stockholders of record or their
receiver within sixty (60) days from the date of duly-authorized representative or the court-appointed
publication of the notice of closure. Claims filed outside stockholders’ representative to comply with the
the foregoing prescribed period shall be disallowed. documentary requirements within the prescribed
“Claims denied by the receiver shall be filed with the period and/or refusal to accept the residual assets in
liquidation court within sixty (60) days from receipt of kind shall be deemed as abandonment or waiver of
the final notice of denial of claim. right to receive the residual assets.
“(s) After the lapse of the six-month period provided in not satisfied as to the validity of a claim for an insured
paragraphs (q) and (r) of this section, all assets which deposit, it may require final determination of a court of
remain unclaimed by the creditors and/or stockholders competent jurisdiction before paying such claim:
of record shall be turned over to the Bureau of Provided, further, That failure to settle the claim, within
Treasury. six (6) months from the date of filing of claim for
insured deposit, where such failure was due to grave
“(t) The receiver shall continue to keep all the pertinent abuse of discretion, gross negligence, bad faith, or
records of the closed bank for a period of six (6) months malice, shall, upon conviction, subject the directors,
from the date of publication of the approval of the final officers or employees of the Corporation responsible for
asset distribution plan. the delay, to imprisonment from six (6) months to one
After the lapse of this period, the receiver is authorized (1) year: Provided, furthermore, That the period shall
to dispose of the same in accordance with the rules and not apply if the validity of the claim requires the
regulations to be prescribed by the receiver.” resolution of issues of facts and or law by another
office, body or agency including the case mentioned in
SECTION 30. Section 13 of the same Act is hereby the first proviso or by the Corporation together with
renumbered as Section 17. such other office, body or agency.”

SECTION 31. A new section entitled Section 18 of the SECTION 33. Section 15 of the same Act is accordingly
same Act is hereby inserted between Sections 17 and 19 renumbered as Section 20 and is hereby amended to
which shall read as follows: read as follows:

“DIVIDEND DECLARATION “SEC. 20. The Corporation, upon payment of any

depositor as provided for in Section 19 of this Act, shall
“SEC. 18. Consistent with the policy of the State to
be subrogated to all rights of the depositor against the
generate, preserve, maintain faith and confidence in the
closed bank to the extent of such payment. Such
country’s banking system, the Corporation shall build up
subrogation shall include the right on the part of the
and maintain the DIF at the target level set by the PDIC
Corporation to receive the same dividends and
Board of Directors. Such target level shall be subject to
payments from the proceeds of the assets of such
periodic review and may be adjusted as necessary.
closed bank and recoveries on account of stockholders’
“The Corporation is exempt from Republic Act No. 7656; liability as would have been payable to the depositor on
instead, the Corporation shall remit dividends to the a claim for the insured deposits: Provided, That such
national government only if the target DIF level for the depositor shall retain his or her claim for any uninsured
applicable year has been reached. For purposes of portion of his or her deposit, which legal preference
computing the amount of dividends to be declared and shall be the same as that of the subrogated claim of the
remitted to the national government, all assessment Corporation for its payment of insured deposits. All
collections shall not be considered as income. The payments by the Corporation of insured deposits in
dividend rate shall be at least fifty percent (50%) of the closed banks partake of the nature of public funds, and
income from other sources only.” as such, must be considered a preferred credit in the
order of preference under Article 2244 (9) of the New
SECTION 32. Section 14 of the same Act is accordingly Civil Code.”
renumbered as Section 19 and is hereby amended to
read as follows: SECTION 34. Section 16 of the same Act is accordingly
renumbered as Section 21 and paragraph (c) thereof is
“PAYMENT OF INSURED DEPOSITS hereby amended to read as follows:

“SEC. 19. Whenever an insured bank shall have been “(c) Except as otherwise prescribed by the Board of
closed by the Monetary Board pursuant to Section 30 of Directors, neither the Corporation nor such other
Republic Act No. 7653, or upon expiration or revocation insured bank shall be required to recognize as the
of a bank’s corporate term, payment of the insured owner of any portion of a deposit evidenced by a
deposits on such closed bank shall be made by the passbook, certificate of deposit or other evidence of
Corporation as soon as possible either (1) by cash or (2) deposit determined by the Corporation to be an
by making available to each depositor a transferred authentic document or record of the closed bank under
deposit in another insured bank in an amount equal to a name other than that of the claimant, any person
insured deposit of such depositor: Provided, however, whose name or interest as such owner is not disclosed
That the Corporation, in its discretion, may require on the passbook, certificate of deposit or other
proof of claims to be filed before paying the insured evidence of deposit of such closed bank as part owner
deposits, and that in any case where the Corporation is of said deposit, if such recognition would increase the
aggregate amount of the insured deposits in such closed “(e) In the exercise of its authorities under Section 11 of
bank.” this Act, the Corporation is authorized to make loans to,
or purchase the assets of, or assume liabilities of, or
SECTION 35. Section 17 of the same Act is accordingly make deposits in:
renumbered as Section 22.
“(1) A bank in danger of closing, upon its acquisition by
SECTION 36. Section 22 paragraph (a) of the same Act, a qualified investor; or
as renumbered, is hereby amended to read as follows:
“(2) A qualified investor, upon its purchase of all assets
“CORPORATE FUNDS AND ASSETS and assumption of all liabilities of a bank in danger of
“SEC. 22. (a) Subject to guidelines and limits as closing; or
approved by the Board of Directors, money of the “(3) A surviving or consolidated institution that has
Corporation denominated in the local currency, not merged or consolidated with a bank in danger of
otherwise employed, shall be invested in obligations of closing; upon such terms and conditions as the Board of
the Republic of the Philippines or in obligations Directors may prescribe, when in the opinion of the
guaranteed as to principal and interest by the Republic Board of Directors, such acquisition, purchase of assets,
of the Philippines. assumption of liabilities, merger or consolidation, is
“The Corporation may also invest in debt instruments essential to provide adequate banking service in the
denominated in foreign currencies issued or guaranteed community or maintain financial stability in the
by the Republic of the Philippines, or debt instruments economy.
denominated in freely convertible foreign currencies “The Corporation, prior to the exercise of the powers
issued by supranationals, multilateral agencies, or under this section, shall determine that actual payoff
foreign governments with at least an investment grade and liquidation thereof will be more expensive than the
credit rating. exercise of this power: Provided, That when the
“The Corporation shall likewise be authorized to buy Monetary Board has determined that there are systemic
and/or sell debt instruments and foreign currencies consequences of a probable failure or closure of an
from any government securities eligible dealers or any insured bank, the Corporation may grant financial
counterparties or brokers, accredited by the PDIC assistance to such insured bank in such amount as may
Board. be necessary to prevent its failure or closure and/or
restore the insured bank to viable operations, under
“For this purpose, the Corporation shall be authorized such terms and conditions as may be deemed necessary
to open securities custodianship and settlement by the Board of Directors, subject to concurrence by the
accounts.” Monetary Board and without additional cost to the DIF.

SECTION 37. Section 22 paragraph (b) of the same Act, “A systemic risk refers to the possibility that failure of
as renumbered, is hereby amended to read as follows: one bank to settle net transactions with other banks will
trigger a chain reaction, depriving other banks of funds
“(b) The banking or checking accounts of the
leading to a general shutdown of normal clearing and
Corporation shall be kept with the Bangko Sentral ng
settlement activity. Systemic risk also means the
Pilipinas, or with any other bank designated as
likelihood of a sudden, unexpected collapse of
depository or fiscal agent of the Philippine
confidence in a significant portion of the banking or
government.”
financial system with potentially large real economic
SECTION 38. An additional paragraph to Section 22 of effects. Finally, the Corporation may not use its
the same Act, as renumbered, is hereby inserted after authority under this subsection to purchase the voting
paragraph (c) which shall read as follows: or common stock of an insured bank but it can enter
into and enforce agreements that it determines to be
“(d) Assets of the Corporation shall be exempt from necessary to protect its financial interests: Provided,
attachment, garnishment or any other order or process That the financial assistance may take the form of
of any court, agency or any other administrative body.” equity or quasi-equity of the insured bank as may be
deemed necessary by the Board of Directors with
SECTION 39. Section 17 paragraph (d) of the same Act is
concurrence by the Monetary Board: Provided, further,
accordingly renumbered as Section 22 paragraph (e)
That the Corporation shall dispose of such equity as
and is hereby amended to read as follows:
soon as practicable.”
“FINANCIAL ASSISTANCE
SECTION 40. Section 18 of the same Act is accordingly guaranteed by the Government of the Republic of the
renumbered as Section 23 and is hereby amended to Philippines. Such guarantee, which in no case shall
read as follows: exceed two times the DIF as of date of the debt
issuance, shall be expressed on the face thereof.
“AUTHORITY TO BORROW
“The Corporation may issue notes, debentures, bonds,
“SEC. 23. The Corporation is authorized to borrow from or other debt instruments without the approval of the
the Bangko Sentral ng Pilipinas and the Bangko Sentral President of the Philippines, as long as these shall not
ng Pilipinas is authorized to lend to the Corporation on be guaranteed by the national government.
such terms as may be agreed upon by the Corporation
and the Bangko Sentral ng Pilipinas, such funds as in the “The Board of Directors shall have the power to
judgment of the Board of Directors of the Corporation prescribe the terms and conditions, rules and
are from time to time required for insurance purposes regulations for the issuance, reissuance, servicing,
and financial assistance provided for in Section 22(e) of placement and redemption of the bonds herein
this Act: Provided, That any such loan as may be granted authorized to be issued as well as the registration of
by the Bangko Sentral ng Pilipinas shall be consistent such bonds at the request of the holders thereof.”
with monetary policy: Provided, further, That the rate of
SECTION 42. Section 20 of the same Act is accordingly
interest thereon shall be fixed by the Monetary Board.
renumbered as Section 25.
“When in the judgment of the Board of Directors the
SECTION 43. Section 21 of the same Act is accordingly
funds of the Corporation are not sufficient to provide
for an emergency or urgent need to attain the purposes renumbered as Section 26.
of this Act, the Corporation is likewise authorized to SECTION 44. Section 26 paragraph (f) of the same Act,
borrow money, obtain loans or arrange credit lines or as renumbered, is hereby amended to read as follows:
other credit accommodations from any bank: Provided,
That such loan shall be of short-term duration: “(f) The penalty of imprisonment of not less than six (6)
Provided, further, That no prior Monetary Board years but not more than twelve (12) years or a fine of
opinion shall be required for the Corporation and its not less than Fifty thousand pesos (P50,000.00) but not
counterparties on individual drawdowns or borrowings more than Ten million pesos (P10,000,000.00), or both,
within an approved borrowing program where prior at the discretion of the court, shall be imposed upon:
Monetary Board opinion has already been obtained,
“(1) Any director, officer, employee or agent of a bank
pursuant to Section 123 of Republic Act No. 7653.”
for:
SECTION 41. Section 19 of the same Act is accordingly
“(a) Any willful refusal to submit reports as required by
renumbered as Section 24 and is hereby amended to
law, rules and regulations;
read as follows:
“(b) Any unjustified refusal to permit examination and
“ISSUANCE OF BONDS, DEBENTURES
audit of the deposit records or the affairs of the
AND OTHER OBLIGATIONS
institution;
“SEC. 24. With the approval of the President of the
“(c) Any willful making of a false statement or entry in
Philippines, upon the recommendation of the
any bank report or document required by the
Department of Finance, the Corporation is authorized to
Corporation;
issue bonds, debentures, and other obligations, both
local or foreign, as may be necessary for purposes of “(d) Submission of false material information in
providing liquidity for settlement of insured deposits in connection with or in relation to any financial assistance
closed banks, to facilitate the implementation of bank of the Corporation extended to the bank;
resolution under Section 11 of this Act, as well as for
financial assistance as provided herein: Provided, That “(e) Splitting of deposits or creation of fictitious or
the Board of Directors shall determine the interest fraudulent loans or deposit accounts.
rates, maturity and other requirements of said
“Splitting of deposits occurs whenever a deposit
obligations: Provided, further, That the Corporation may
account with an outstanding balance of more than the
provide for appropriate reserves for the redemption or
statutory maximum amount of insured deposit
retirement of said obligation.
maintained under the name of natural or juridical
“All notes, debentures, bonds, or such obligations persons is broken down and transferred into two (2) or
issued by the Corporation shall be exempt from taxation more accounts in the name/s of natural or juridical
both as to principal and interest, and shall be fully persons or entities who have no beneficial ownership
on transferred deposits in their names within one “(i) Verification of authenticity of the ownership
hundred twenty (120) days immediately preceding or documents;
during a bank-declared bank holiday, or immediately
“(ii) Registration of interest of the closed bank on a
preceding a closure order issued by the Monetary Board
of the Bangko Sentral ng Pilipinas for the purpose of specific property;
availing of the maximum deposit insurance coverage; “(iii) Consolidation of ownership over an asset of the
“(f) Refusal to receive the notice of closure as provided closed bank;
under Section 14 of this Act; “(iv) Act of securing certified true copies of documents
“(g) Refusal to allow the Corporation to take over a in relation to an asset of the closed bank;
closed bank or obstructing such action of the “(v) Act of securing the appropriate certification from
Corporation; the agencies or entities stated in Section 16 of this Act
in relation to an asset of the closed bank;
“(h) Refusal to turn over or destroying or tampering
bank records; “(vi) Conduct of a physical or ocular inspection of the
properties owned by, or mortgaged to, the closed bank,
“(i) Fraudulent disposal, transfer or concealment of any
asset, property or liability of the closed bank; to determine their existence and present condition; or

“(vii) Other related activities of the receiver; or

“(j) Violation of, or causing any person to violate, the
exemption from garnishment, levy, attachment or “(d) Allowing the withdrawal from deposits or
execution provided under this Act and the New Central disposition of any asset of the closed bank other than by
Bank Act; the receiver;
“(k) Any willful failure or refusal to comply with, or “(e) Willfully violating any provision of this Act;
violation of any provision of this Act, or commission of
any other irregularities, and/or conducting business in “(f) Conspiring or willfully participating in any of the
an unsafe or unsound manner as may be determined by offenses enumerated in Paragraph 1 of this section;
the Board of Directors in relation to Section 56 of
“(3) Any law enforcement officer or local government
Republic Act No. 8791, or ‘The General Banking Law of
official who refuses or fails to assist the receiver in the
2000’.
service of the notice of closure, as provided under
“Notwithstanding any law to the contrary, the foregoing Section 14 of this Act.”
acts of directors, officers, employees or agents of the
SECTION 45. Additional paragraphs to Section 26 of the
bank shall be considered as additional grounds for
same Act, as renumbered, are hereby inserted after
disqualification under the fit and proper rules of the
paragraph (g) which shall read as follows:
Bangko Sentral ng Pilipinas.
“(h) The penalty of imprisonment of not less than ten
“(1) Other acts inimical to the interest of the bank or
(10) years but not more than twelve (12) years, or a fine
the Corporation, such as, but not limited to, conflict of
of not less than Five hundred thousand pesos
interest, disloyalty, authorizing related party
(P500,000.00) but not more than Ten million pesos (P
transactions with terms detrimental to the bank and its
10,000,000.00), or both, at the discretion of the court,
stakeholders, and unauthorized disclosure of
shall be imposed upon:
confidential information, as may be determined by the
Corporation. “(1) Any depositor who files a fictitious and/or
fraudulent claim for deposit insurance; and
“(2) Any person for:
“(2) Any bank officer who certifies to the validity of the
“(a) Refusal to disclose information, records or data
deposit liabilities which is subsequently verified to be
pertaining to the bank accounts of a closed bank to the
fictitious and/or fraudulent.
receiver;
“(i) The penalty of imprisonment of not less than twelve
“(b) Refusal to turn over possession or custody of the
(12) years but not more than fourteen (14) years shall
asset and record of the closed bank to the receiver,
be imposed upon any person who participates, or
notwithstanding any agreement to the contrary;
attempts to participate, in a scheme to defraud a bank.
“(c) Refusal or delaying the:
“If the offense shall have been committed by a director
or officer of the bank, the penalty of imprisonment of
not less than fifteen (15) years, but not more than “(d) The provisions in Section 10 of this Act, as
seventeen (17) years shall be imposed. amended, on legal assistance, protection and
indemnification shall apply to all cases pending before
“If the offense shall have resulted in systemic the effectivity of this Act.”
consequences, as determined by the Bangko Sentral ng
Pilipinas, the penalty of imprisonment of not less than SECTION 49. Section 25 of the same Act is accordingly
eighteen (18) years but not more than twenty (20) years renumbered as Section 30.
shall be imposed.”
SECTION 50. The Corporation may be reorganized by its
SECTION 46. Section 22 of the same Act is accordingly Board of Directors by adopting if it so desires, an
renumbered as Section 27. entirely new staffing pattern or organizational structure
to suit the operations of the Corporation under this Act.
SECTION 47. Section 23 of the same Act is hereby No preferential or priority right shall be given to or
renumbered as Section 28 and amended to read as enjoyed by any personnel for appointment to any
follows: position in the new staffing pattern nor shah any
“SEC. 28. Exempting Clause. – The Corporation shall be personnel be considered as having prior or vested rights
exempt from Presidential Decree No. 985, Presidential with respect to retention in the Corporation or in any
Decree No. 1597, Republic Act No. 6758, as amended, position which may be created in the new staffing
Joint Resolution No. 4 (2009) and other laws on salary pattern, even if he or she should be the incumbent of a
standardization, Presidential Decree No. 1177, similar position prior to reorganization. The
Executive Order No. 248, as amended, Executive Order reorganization shall be completed within six (6) months
No. 298 and the provisions of Republic Act No. 10149 after the effectivity of this Act. Personnel who are not
with regard to position classification, qualification retained are deemed separated horn the service.
standards, and the compensation package of the SECTION 51. The Board of Directors is hereby
employees of the Corporation: Provided, That the PDIC authorized to provide separation incentives, and all
shall be subject to all other policies under Republic Act those who shall retire or be separated from the service
No. 10149, including, but not limited to, performance on account of reorganization under the preceding
evaluation by the Governance Commission for section shall be entitled to such incentives which may
Government-Owned or -Controlled Corporations, be in addition to all gratuities and benefits to which
selection and nomination of appointive directors, and they may be entitled under existing laws.
limitations on the creation of subsidiaries and the
acquisition of affiliates except in the case of acquisition SECTION 52. Separability Clause. – If any provision or
of shares in the grant of financial assistance under this section of this Act or the application thereof to any
Act.” person or circumstances is held invalid, the other
provisions or sections of this Act, in the application of
SECTION 48. Section 24 of the same Act is deleted and a such provision or section to other persons or
new Section 29 is added to read as follows: circumstances, shall not be affected thereby.
“SEC. 29. Transitory Provisions. — (a) The incumbent SECTION 53. Repealing Clause. – All acts or parts of acts
President of the Corporation and private sector and executive orders, administrative orders, or parts
members of the Board of Directors shall continue to thereof which are inconsistent with the provisions of
exercise their respective duties and functions until this Act are hereby repealed.
replaced by the President of the Philippines: Provided,
That such new appointees shall be subject to the term SECTION 54. Effectivity Clause. – This Act shall take
of office provided under Section 3 of this Act, as effect fifteen (15) days following the completion of its
amended. publication in the Official Gazette or in two (2)
newspapers of general circulation.
“(b) Payment of surplus dividends under Section 13(c) of
this Act, as amended, shall be applicable to banks
without a court-approved final asset distribution plan at
the time of the effectivity of this Act.

“(c) The preference indicated under Section 15 of this

Act, as amended, shall be likewise effective upon
liquidation proceedings already commenced and
pending as of the effectivity of this Act, where no
distribution of assets has been made.1âwphi1
 3.2. "Issuer" is the originator, maker, obligor, or
creator of the security.

3.3. "Broker" is a person engaged in the business of

buying and selling securities for the account of others.

3.4. "Dealer" means many person who buys sells

securities for his/her own account in the ordinary
course of business.

3.5. "Associated person of a broker or dealer" is an

employee therefor whom, directly exercises control of
supervisory authority, but does not include a
REPUBLIC ACT NO. 8799 salesman, or an agent or a person whose functions
are solely clerical or ministerial.
THE SECURITIES REGULATION CODE
3.6. "Clearing Agency" is any person who acts as
Be it enacted by the Senate and the House of intermediary in making deliveries upon payment effect
settlement in securities transactions.
Representative of the Philippines in the Congress
assembled: 3.7. "Exchange" is an organized market place or
facility that brings together buyers and sellers and
CHAPTER I executes trade of securities and/or commodities.
TITLE AND DEFINITIONS
3.8. "Insider" means (a) the issuer; (b) a director or
Section 1. Title. - This shall be known as "The officer (or any person performing similar functions) of,
Securities Regulation Code" or a person controlling the issuer; gives or gave him
access to material information about the issuer or the
Section 2. Declaration of State Policy. – The State security that is not generally available to the public;
shall establish a socially conscious, free market that (d) A government employee, director, or officer of an
regulates itself, encourage the widest participation of exchange, clearing agency and/or self-regulatory
ownership in enterprises, enhance the organization who has access to material information
democratization of wealth, promote the development about an issuer or a security that is not generally
of the capital market, protect investors, ensure full and available to the public; or (e) a person who learns
fair disclosure about securities, minimize if not totally such information by a communication from any
eliminate insider trading and other fraudulent or forgoing insiders.
manipulative devices and practices which create
distortions in the free market. To achieve these ends, 3.9. "Pre-need plans" are contracts which provide for
this Securities Regulation Code is hereby enacted. the performance of future services of or the payment
of future monetary considerations at the time actual
Section 3. Definition of Terms. - 3.1. "Securities" are need, for which plan holders pay in cash or
shares, participation or interests in a corporation or in installment at stated prices, with or without interest or
a commercial enterprise or profit-making venture and insurance coverage and includes life, pension,
evidenced by a certificate, contract, instruments, education, interment, and other plans which the
whether written or electronic in character. It includes: Commission may from time to time approve.

(a) Shares of stocks, bonds, debentures, 3.10. "Promoter" is a person who, acting alone or with
notes evidences of indebtedness, asset- others, takes initiative in founding and organizing the
backed securities; business or enterprise of the issuer and receives
consideration therefor.
(b) Investment contracts, certificates of
interest or participation in a profit sharing 3.11. "Prospectus" is the document made by or an
agreement, certifies of deposit for a future behalf of an issuer, underwriter or dealer to sell or
subscription; offer securities for sale to the public through
registration statement filed with the Commission.
(c) Fractional undivided interests in oil, gas or
other mineral rights; 3.12. "Registration statement" is the application for
the registration of securities required to be filed with
(d) Derivatives like option and warrants; the Commission.

(e) Certificates of assignments, certificates of 3.13. "Salesman" is a natural person, employed as

participation, trust certificates, voting trust such as an agent, by a dealer, issuer or broker to buy
certificates or similar instruments and sell securities.

(f) Proprietary or nonproprietary membership 3.14. "Uncertificated security" is a security evidenced

certificates in corporations; and by electronic or similar records.

(g) Other instruments as may in the future be 3.15. "Underwriter" is a person who guarantees on a
determined by the Commission. firm commitment and/or declared best effort basis the
distribution and sale of securities of any kind by Section 5. Powers and Functions of the
another company. Commission.– 5.1. The commission shall act with
transparency and shall have the powers and functions
CHAPTER II provided by this code, Presidential Decree No. 902-A,
SECURITIES AND EXCHANGE COMMISSION the Corporation Code, the Investment Houses law,
the Financing Company Act and other existing laws.
Section 4. Administrative Agency. – 4.1. This Code Pursuant thereto the Commission shall have, among
shall be administered by the Security and Exchange others, the following powers and functions:
Commission (hereinafter referred to as the
"Commission") as a Collegial body, composed of a (a) Have jurisdiction and supervision over all
chairperson and (4) Commissioners, appointed by the corporations, partnership or associations who
President for a term of (7) seven years each and who are the grantees of primary franchises and/or
shall serves as such until their successor shall have a license or a permit issued by the
been appointed and qualified. A Commissioner Government;
appointed to fill a vacancy occurring prior to the
expiration of the term for which his/her predecessor (b) Formulate policies and recommendations
was appointed, shall serve only for the unexpired on issues concerning the securities market,
portion of their terms under Presidential Decree No. advise Congress and other government
902-A. Unless the context indicates otherwise, the agencies on all aspect of the securities market
term "Commissioner" includes the Chairperson. and propose legislation and amendments
thereto;
4.2. The Commissioners must be natural-born citizens
of the Philippines, at least forty (40) years of age for (c) Approve, reject, suspend, revoke or
the Chairperson and at least thirty-five (35) years of require amendments to registration
age for the Commissioners, of good moral character, statements, and registration and licensing
or unquestionable integrity, of known probity and applications;
patriotism, and with recognized competence in social
and economic disciplines: Provided, That the majority (d) Regulate, investigate or supervise the
of Commissioners, including the Chairperson, shall be activities of persons to ensure compliance;
members of the Philippine Bar.
(e) Supervise, monitor, suspend or take over
4.3. The chairperson is chief executive officer of the the activities of exchanges, clearing agencies
Commission. The Chairperson shall execute and and other SROs;
administer the policies, decisions, orders and
resolutions approved by the Commission and shall (f) Impose sanctions for the violation of laws
have the general executive direction and supervision and rules, regulations and orders, and issued
of the work and operation of the Commission and it’s pursuant thereto;
members, bodies, boards, offices, personnel and all
its administrative business.
(g) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions
4.4. The salary of the Chairperson and the and provide guidance on and supervise
Commissioners shall be fixed by the President of the compliance with such rules, regulation and
Philippines based on the objective classification orders;
system, at a sum comparable to the members of the
Monetary Board and commensurate importance and
(h) Enlist the aid and support of and/or
responsibilities attached to the position.
deputized any and all enforcement agencies
of the Government, civil or military as well as
4.5. The Commission shall hold meetings at least any private institution, corporation, firm,
once a week for the conduct of business or as often association or person in the implementation of
as may be necessary upon the call of the Chairperson its powers and function under its Code;
or upon the request of (3) Commissioners. The notice
of the meeting shall be given to all Commissioners
(i) Issue cease and desist orders to prevent
and the presence of three (3) Commissioners shall
fraud or injury to the investing public;
constitute a quorum. In the absence of the
Chairperson, the most senior Commissioner shall act
as presiding officer of the meeting. (j) Punish for the contempt of the Commission,
both direct and indirect, in accordance with
the pertinent provisions of and penalties
4.6. The Commission may, for purposes of efficiency,
prescribed by the Rules of Court;
delegate any of its functions to any department of
office of the Commission, an individual Commissioner
or staff member of the Commission except its review (k) Compel the officers of any registered
or appellate authority and its power to adopt, alter and corporation or association to call meetings of
supplement any rule or regulation. stockholders or members thereof under its
supervision;
The commission may review upon its own initiative or
upon the petition of any interested party any action of (l) Issue subpoena duces tecum and summon
any department or office, individual Commissioner, or witnesses to appear in any proceedings of the
staff member of the Commission. Commission and in appropriate cases, order
the examination, search and seizure of all
documents, papers, files and records, tax
 returns and books of accounts of any entity or any information, discussion or resolution of the
person under investigation as may be Commission of a confidential nature, or about the
necessary for the proper disposition of the confidential operations of the Commission unless the
cases before it, subject to the provisions of disclosure is in connection with the performance of
existing laws; official functions with the Commission or prior
authorization of the Commissioners; or (2) the use of
(m) Suspend, or revoke, after proper notice such information for personal gain or to the detriment
and hearing the franchise or certificate of of the government, the Commission or third parties:
registration of corporations, partnership or Provided, however, That any data or information
associations, upon any of the grounds required to be submitted to the President and/or
provided by law; and Congress or its appropriate committee, or to be
published under the provisions of this Code shall not
(n) Exercise such other powers as may be be considered confidential.
provided by law as well as those which may
be implied from, or which are necessary or Section 7. Reorganization. – 7.1. To achieve the
incidental to the carrying out of, the express goals of this Code, consistent with the Civil Service
powers granted the Commission to achieve laws, the Commission is hereby authorized to provide
the objectives and purposes of these laws. for its reorganization, to streamline its structure and
operations, upgrade its human resource component
5.2. The Commission’s jurisdiction over all cases and enable it to more efficiently and effectively
enumerated under section 5 of Presidential Decree perform its functions and exercise its power under this
No. 902-A is hereby transferred to the Courts of Code.
general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the 7.2. All positions of the Commissions shall be
exercise of its authority may designate the Regional governed by a compensation and position
Trial Court branches that shall exercise jurisdiction classification system and qualification standards
over the cases. The Commission shall retain approved by the Commission based on
jurisdiction over pending cases involving intra- comprehensive job analysis and audit of actual duties
corporate disputes submitted for final resolution which and personal responsibilities. The compensation plan
should be resolved within one (1) year from the shall be comparable with the prevailing compensation
enactment of this Code. The Commission shall retain plan in the Bangko Sentral ng Pilipinas and other
jurisdiction over pending suspension of government financial institutions and shall be subject
payment/rehabilitation cases filed as of 30 June 2000 to periodic review by the Commission no more than
until finally disposed. once every two (2) years without prejudice to yearly
merit review or increases based on productivity and
Section 6. Indemnification and Responsibilities of efficiency. The Commission shall, therefore, be
Commissioners.– 6.1. The Commission shall exempt from laws, rules, and regulations on
indemnify each Commissioner and other officials of compensation, position classification and
the Commission, including personnel performing qualifications standards. The Commission shall,
supervision and examination functions for all cost and however, endeavor to make its system conform as
expenses reasonably incurred by such persons in closely as possible with the principles under the
connection with any civil or criminal actions, suits or Compensation and Position Classification Act of 1989
proceedings to be liable for gross negligence or (Republic Act. 6758, as amended).
misconduct. In the event of settlement or compromise,
indemnification shall be provided only in connection CHAPTER III
with such matters covered by the settlement as to REGISTRATION OF SECURITIES
which the Commission is advised by external counsel
that the persons to be indemnified did not commit any Section 8. Requirement of Registration of
gross negligence or misconduct. The costs and Securities.– 8.1. Securities shall not be sold or offered
expenses incurred in defending the aforementioned for sale or distribution within the Philippines, without a
action, suit or proceeding may be paid by the registration statement duly filed with and approved by
Commission in advance of the final disposition of such the Commission. Prior to such sale, information on the
action, suit or proceeding upon receipt of an securities, in such form and with such substance as
undertaking by or on behalf of the Commissioner, the Commission may prescribe, shall be made
officer or employee to repay the amount advanced available to each prospective purchaser.
should it ultimately be determined by the Commission
that he/she is not entitled to be indemnified as 8.2. The Commission may conditionally approve the
provided in this subsection. registration statement under such terms as it may
deem necessary.
6.2. The Commissioners, officers and employees of
the Commission who willfully violate this Code or who 8.3. The Commission may specify the terms and
are guilty of negligence, abuse or acts of malfeasance conditions under which any written communication,
or fail to exercise extraordinary diligence in the including any summary prospectus, shall be deemed
performance of their duties shall be held liable for any not to constitute an offer for sale under this Section.
loss or injury suffered by the Commission or other
institutions such as a result of such violation, 8.4. A record of the registration of securities shall be
negligence, abuse, or malfeasance, or failure to kept in Register Securities in which shall be recorded
exercise extraordinary diligence. Similar responsibility orders entered by the Commission with respect such
shall apply to the Commissioners, officers and securities. Such register and all documents or
employees of the Commission for (1) the disclosure of information with the respect to the securities
registered therein shall be open to public inspection at (c) An isolated transaction in which any
reasonable hours on business days. security is sold, offered for sale, subscription
or delivery by the owner therefore, or by his
8.5. The Commission may audit the financial representative for the owner’s account, such
statements, assets and other information of firm sale or offer for sale or offer for sale,
applying for registration of its securities whenever it subscription or delivery not being made in the
deems the same necessary to insure full disclosure or course of repeated and successive
to protect the interest of the investors and the public in transaction of a like character by such owner,
general. or on his account by such representative and
such owner or representative not being the
Section 9. Exempt Securities. – 9.1. The requirement underwriter of such security.
of registration under Subsection 8.1 shall not as a
general rule apply to any of the following classes of (d) The distribution by a corporation actively
securities: engaged in the business authorized by its
articles of incorporation, of securities to its
(a) Any security issued or guaranteed by the stockholders or other security holders as a
Government of the Philippines, or by any stock dividend or other distribution out of
political subdivision or agency thereof, or by surplus.
any person controlled or supervised by, and
acting as an instrumentality of said (e) The sale of capital stock of a corporation to
Government. its own stockholders exclusively, where no
commission or other remuneration is paid or
(b) Any security issued or guaranteed by the given directly or indirectly in connection with
government of any country with which the the sale of such capital stock.
Philippines maintains diplomatic relations, or
by any state, province or political subdivision (f) The issuance of bonds or notes secured by
thereof on the basis of reciprocity: Provided, mortgage upon real estate or tangible
That the Commission may require compliance personal property, when the entire mortgage
with the form and content for disclosures the together with all the bonds or notes secured
Commission may prescribe. thereby are sold to a single purchaser at a
single sale.
(c) Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the (g) The issue and delivery of any security in
proper adjudicatory body. exchange for any other security of the same
issuer pursuant to a right of conversion
(d) Any security or its derivatives the sale or entitling the holder of the security surrendered
transfer of which, by law, is under the in exchange to make such
supervision and regulation of the Office of the conversion: Provided, That the security so
Insurance Commission, Housing and Land surrendered has been registered under this
Use Rule Regulatory Board, or the Bureau of Code or was, when sold, exempt from the
Internal Revenue. provision of this Code, and that the security
issued and delivered in exchange, if sold at
the conversion price, would at the time of such
(e) Any security issued by a bank except its
conversion fall within the class of securities
own shares of stock.
entitled to registration under this Code. Upon
such conversion the par value of the security
9.2. The Commission may, by rule or regulation after surrendered in such exchange shall be
public hearing, add to the foregoing any class of deemed the price at which the securities
securities if it finds that the enforcement of this Code issued and delivered in such exchange are
with respect to such securities is not necessary in the sold.
public interest and for the protection of investors.
(h) Broker’s transaction, executed upon
Section 10. Exempt Transactions. – 10.1. The customer’s orders, on any registered
requirement of registration under Subsection 8.1 shall Exchange or other trading market.
not apply to the sale of any security in any of the
following transactions:
(i) Subscriptions for shares of the capitals
stocks of a corporation prior to the
(a) At any judicial sale, or sale by an executor, incorporation thereof or in pursuance of an
administrator, guardian or receiver or trustee increase in its authorized capital stocks under
in insolvency or bankruptcy. the Corporation Code, when no expense is
incurred, or no commission, compensation or
(b) By or for the account of a pledge holder, or remuneration is paid or given in connection
mortgagee or any of a pledge lien holder with the sale or disposition of such securities,
selling of offering for sale or delivery in the and only when the purpose for soliciting,
ordinary course of business and not for the giving or taking of such subscription is to
purpose of avoiding the provision of this Code, comply with the requirements of such law as
to liquidate a bonafide debt, a security to the percentage of the capital stock of a
pledged in good faith as security for such corporation which should be subscribed
debt. before it can be registered and duly
 incorporated, or its authorized, capital a sworn registration statement with the respect to
increase. such securities, in such form and containing such
information and document as the Commission
(j) The exchange of securities by the issuer prescribe. The registration statement shall include any
with the existing security holders exclusively, prospectus required or permitted to be delivered
where no commission or other remuneration is under Subsections 8.2, 8.3, and 8.4.
paid or given directly or indirectly for soliciting
such exchange. 12.2. In promulgating rules governing the content of
any registration statement (including any prospectus
(k) The sale of securities by an issuer to fewer made a part thereof or annex thereto), the
than twenty (20) persons in the Philippines Commission may require the registration statement to
during any twelve-month period. contain such information or documents as it may, by
rule, prescribe. It may dispense with any such
(l) The sale of securities to any number of the requirements, or may require additional information or
following qualified buyers: documents, including written information from an
expert, depending on the necessity thereof or their
applicability to the class of securities sought to be
(i) Bank;
registered.
(ii) Registered investment house;
12.3. The information required for the registration of
any kind, and all securities, shall include, among
(iii) Insurance company; others, the effect of the securities issue on ownership,
on the mix of ownership, especially foreign and local
(iv) Pension fund or retirement plan ownership.
maintained by the Government of the
Philippines or any political subdivision 12.4. The registration statement shall be signed by
thereof or manage by a bank or other the issuer’s executive officer, its principal operating
persons authorized by the Bangko officer, its principal financial officer, its comptroller, its
Sentral to engage in trust functions; principal accounting officer, its corporate secretary, or
persons performing similar functions accompanied by
(v) Investment company or; a duly verified resolution of the board of directors of
the issuer corporation. The written consent of the
(vi) Such other person as the expert named as having certified any part of the
Commission may rule by determine as registration statement or any document used in
qualified buyers, on the basis of such connection therewith shall also be filed. Where the
factors as financial sophistication, net registration statement shares to be sold by selling
worth, knowledge, and experience in shareholders, a written certification by such selling
financial and business matters, or shareholders as to the accuracy of any part of the
amount of assets under management. registration statement contributed to by such selling
shareholders shall be filed.
10.2. The Commission may exempt other
transactions, if it finds that the requirements of 12.5. (a) Upon filing of the registration statement, the
registration under this Code is not necessary in the issuer shall pay to the Commission a fee of not more
public interest or for the protection of the investors than one-tenth (1/10) of one per centum (1%) of the
such as by the reason of the small amount involved or maximum aggregate price at which such securities
the limited character of the public offering. are proposed to be offered. The Commission shall
prescribe by the rule diminishing fees in inverse
10.3. Any person applying for an exemption under this proportion the value of the aggregate price of the
Section, shall file with the Commission a notice offering.
identifying the exemption relied upon on such form
and at such time as the Commission by the rule may (b) Notice of the filing of the registration
prescribe and with such notice shall pay to the statement shall be immediately published by
Commission fee equivalent to one-tenth (1/10) of one the issuer, at its own expense, in two (2)
percent (1%) of the maximum value aggregate price newspapers of general circulation in the
or issued value of the securities. Philippines, once a week for two (2)
consecutive weeks, or in such other manner
Section 11. Commodity Futures Contracts. - No as the Commission by the rule shall prescribe,
person shall offer, sell or enter into commodity futures reciting that a registration statement for the
contracts except in accordance with the rules, sale of such securities has been filed, and that
regulations and orders the Commission may prescribe aforesaid registration statement, as well as
in the public interest. The Commission shall the papers attached thereto are open to
promulgate rules and regulations involving commodity inspection at the Commission during business
futures contracts to protect investors to ensure the hours, and copies thereof, photostatic or
development of a fair and transparent commodities otherwise, shall be furnished to interested
market. parties at such reasonable charge as the
Commission may prescribe.
Section 12. Procedure of Registration Securities.
- 12.1. All securities required to be registered under 12.6. Within forty-five (45) days after the date of filing
Subsection 8. I shall be registered through the filing of the registration statement, or by such later date to
by the issuer in the main office of the Commission, of which the issuer has consented, the Commission shall
declare the registration statement effective or functions, or any under writer has been
rejected, unless the applicant is allowed to amend the convicted, by a competent judicial or
registration statement as provided in Section 14 administrative body, upon plea of guilty, or
hereof. The Commission shall enter an order otherwise, of an offense involving moral
declaring the registration statement to be effective if it turpitude and /or fraud or is enjoined or
finds that the registration statement together with all restrained by the Commission or other
the other papers and documents attached thereto, is competent or administrative body for
on its face complete and that the requirements have violations of securities, commodities, and
been complied with. The Commission may impose other related laws.
such terms and conditions as may be necessary or
appropriate for the protection of the investors. For the purposes of this subsection, the term
"competent judicial or administrative body" shall
12.7. Upon affectivity of the registration statement, the include a foreign court of competent jurisdiction as
issuer shall state under oath in every prospectus that provided for under Rules of Court.
all registration requirements have been met and that
all information are true and correct as represented by 13.2. The Commission may compel the production of
the issuer or the one making the statement. Any all the books and papers of such issuer, and may
untrue statement of fact or omission to state a administer oaths to, and examine the officers of such
material fact required to be stated herein or necessary the issuer or any other person connected therewith as
to make the statement therein not misleading shall to its business and affairs.
constitute fraud.
13.3. If any issuer shall refuse to permit an
Section 13. Rejection and Revocation of Registration examination to be made by the Commission, its
of Securities. – 13.1. The Commission may reject a refusal shall be ground for the refusal or revocation of
registration statement and refuse registration of the the registration of its securities.
security there-under, or revoke the affectivity of a
registration statement and the registration of the 13.4. If the Commission deems its necessary, it may
security there-under after the due notice and hearing issue an order suspending the offer and sale of the
by issuing an order to such effect, setting forth its securities pending any investigation. The order shall
finding in respect thereto, if it finds that: state the grounds for taking such action, but such
order of suspension although binding upon the
(a) The issuer: persons notified thereof, shall be deemed confidential,
and shall not be published. Upon the issuance of the
(i) Has been judicially declared suspension order, no further offer or sale of such
insolvent; security shall be made until the same is lifted or set
aside by the Commission. Otherwise, such sale shall
(ii) Has violated any of the provision of be void.
this Code, the rules promulgate
pursuant thereto, or any order of the 13.5. Notice of issuance of such order shall be given
Commission of which the issuer has to the issuer and every dealer and broker who shall
notice in connection with the offering have notified the Commission of an intention to sell
for which a registration statement has such security.
been filed
13.6. A registration statement may be withdrawn by
(iii) Has been or is engaged or is the issuer only with the consent of the Commission.
about to engage in fraudulent
transactions; Section 14. Amendment to the Registration
Statement. – 14.1. If a registration statement is on its
(iv) Has made any false or misleading face incomplete or inaccurate in any material respect,
representation of material facts in any the Commission shall issue an order directing the
prospectus concerning the issuer or its amendment of the registration statement. Upon
securities; compliance with such order, the amended registration
statement shall become effective in accordance with
(v) Has failed to comply with any the procedure mentioned in Subsection 12.6 hereof.
requirements that the Commission
may impose as a condition for 14.2. An amendment filed prior to the effective date of
registration of the security for which the registration statement shall recommence the forty-
the registration statement has been five (45) day period within which the Commission shall
filed; or act on a registration statement. An amendment filed
after the effective date of the registration statement
(b) The registration statement is on its face shall become effective only upon such date as
incomplete or inaccurate in any material determined by the Commission.
respect or includes any untrue statements of a
material fact required to be stated therein or 14.3. If any change occurs in the facts set forth in a
necessary to make the statement therein not registration statement, the issuer shall file an
misleading; or amendment thereto setting forth the change.

(c) The issuer, any officer, director or 14.4. If, at any time, the Commission finds that the
controlling person performing similar registration statement contains any false statement or
omits to state any fact required to be stated therein or Commission shall prescribe. Such rules shall regulate
necessary to make the statements therein not the sale of pre-need plans by, among other things,
misleading, the Commission may conduct an requiring the registration of pre-need plans, licensing
examination, and, after due notice and hearing, issue persons involved in the sale of pre- need plans,
an order suspending the affectivity registration requiring disclosures to prospective plan holders,
statement. If the statement is duly amended, the prescribing advertising guidelines, providing for
suspension order may be lifted. uniform accounting system, reports and recording
keeping with respect to such plans, imposing capital,
14.5. In making such examination the Commission or bonding and other financial responsibility, and
any officer or officers designated by it may administer establishing trust funds for the payment of benefits
oaths and affirmations and shall have access to, and under such plans.
may demand the production of, any books, records or
documents relevant to the examination. Failure of the CHAPTER V
issuer, underwriter, or any other person to cooperate, REPORTORIAL REQUIREMENTS
or his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of a Section 17. Periodic and Other Reports of
suspension order. Issuer. 17.1. Every issuer satisfying the requirements
in Subsection 17.2 hereof shall file with the
Section 15. Suspension of Registration. - 15.1. If at Commission:
any time, the information contained in the registration
statement filed is or has become misleading, (a) Within one hundred thirty-five (135) days,
incorrect, inadequate or incomplete in any material after the end of the issuer’s fiscal year, or
respect, or the sale or offering for sale of the security such other time as the Commission may
registered thereunder may work or tend to work a prescribe, an annual report which shall
fraud, the Commission may require from the issuer include, among others, a balance sheet, profit
such further information as may in its judgement be and loss statement and statement of cash
necessary to enable the Commission to ascertain flows, for such last fiscal year, certified public
whether the registration of such security should be accountant, an a management discussion and
revoked on any ground specified in this Code. The analysis of results of operation; and
Commission may also suspend the right to sell and
offer for the sale such security pending further (b) Such other periodical reports for interim
investigation, by entering an order specifying the fiscal periods and current reports on
grounds for such action, and by notifying the issuer, significant developments of the issuer as the
underwriter, dealer or broker known as participating in Commission may prescribe as necessary to
such offering. keep current information on the operation of
the business and financial condition of the
15.2. The refusal to furnish information required by issuer.
the Commission may be a ground for the issuance of
an order of suspension pursuant to Subsection 15.1. 17.2. The reportorial requirements of Subsection 17.1
Upon the issuance of any such order and notification shall apply to the following:
to the issuer, underwriter, dealer or broken know as
participating in such offering, no further offer or sale of
(a) An issuer which has sold a class of its
any such security shall be made until the same is
securities pursuant to a registration under
lifted or set aside by the Commission. Otherwise such
section 12 hereof: Provided however, That the
sale shall be void.
obligation of such issuer to file reports shall be
suspended for any fiscal year after the year
15.3. Upon issuance of an order of suspension, the such registration became effective if such
Commission shall conduct a hearing. If the issuer, as of the first day of any such fiscal
Commission determines that the sale of any security year, has less than one hundred (100) holder
should be revoked is shall issue an order prohibiting of such class securities or such other number
sale of such security. as the Commission shall prescribe and it
notifies the Commission of such;
15.4. Until the issuance of a final order, the
suspension of the right to sell, though binding upon (b) An issuer with a class of securities listed
the persons notified there of, shall be deemed for trading on an Exchange; and
confidential, and shall not be published, unless it shall
appear that the order of suspension has been violated
(c) An issuer with assets of at least Fifty
after notice. If, however, the Commission finds that
million pesos (50,000,000.00) or such other
the sale of the security will neither be fraudulent nor
amount as the Commission shall prescribe,
result in fraud, it shall forthwith issue an order
and having two hundred (200) or more holder
revoking the order of suspension, and such security
each holding at least one hundred (100) share
shall be restored to its status as a registered security
of a class of its equity securities: Provided,
as of the date of such order of suspension.
however, That the obligation of such issuer to
file report shall be terminate ninety (90) days
CHAPTER IV after notification to the Commission by the
REGULATION OF PRE-NEED PLANS issuer that the number of its holders holding at
least one hundred (100) share reduced to less
Section 16. Pre-Need Plans. – No person shall sell or than one hundred (100).
offer for sale to the public any pre-need plan except in
accordance with rules and regulations which the
17.3. Every issuer of a security listed for trading on an person with respect to any securities of the
Exchange a copy of any report filed with the issuer including but not limited to transfer, joint
Commission under Subsection 17.1. hereof. ventures, loan or option arrangements, puts or
call guarantees or division of losses or profits,
17.4. All reports (including financial statements) or proxies naming the persons with whom
required to be filed with the Commission pursuant to such contracts, arrangements, or
Subsection 17.1 hereof shall be in such form, contain understanding have been entered into, and
such information and be filed at such times as the giving the details thereof.
Commission shall prescribe, and shall be in lieu of
any periodical or current reports or financial 18.2. If any change occurs in the facts set forth in the
statements otherwise required to be filed under the statements, an amendment shall be transmitted to the
Commission shall prescribe. issuer, the Exchange and the Commission.

17.5. Every issuer which has a class of equity 18.3. The Commission, may permit any person to file
securities satisfying any of the requirements in in lieu of the statement required by subsection 17.1
Subsection 17.2 shall furnish to each holder of such hereof, a notice stating the name of such person, the
equity security an annual report in such form and shares of any equity securities subject to Subsection
containing such information as the Commission shall 17.1 which are owned by him, the date of their
prescribe. acquisition and such other information as the
commission may specify, if it appears to the
17.6. Within such period as the Commission may commission that such securities were acquired by
prescribe preceding the annual meeting of the holders such person in the ordinary course of his business
of any equity security of a class entitled to vote at and were not acquired for the purpose of and do not
such meeting , the issuer shall transmit to such have the effect of changing or influencing the control
holders an annual report in conformity with subsection of the issuer nor in connection with any transaction
17.5. having such purpose or effect.

Section 18. Reports by five per centum (5%) Holders CHAPTER VI

of Equity Securities. – 18.1. In every case in which an PROTECTION OF SHAREHOLDERS INTERESTS
issuer satisfies the requirements of Subsection 17.2
hereof any person who acquires directly or indirectly Section 19. Tender Offers. – Any person or group of
the beneficial ownership of more than five of per persons acting in concert who intends to acquire at
centum (5%) of such class or in excess of such lesser least 15% of any class of any equity security of a
per centum as the Commission by rule may prescribe, listed corporation of any class of any equity security of
shall, within ten (10) days after such acquisition or a corporation with assets of at least fifty million pesos
such reasonable time as fixed by the Commission, (50,000,000.00) and having two hundred(200) or
submit to the issuer of the securities, to the Exchange more stockholders at least one hundred shares each
where the security is traded, and to the Commission a or who intends to acquire at least thirty percent(30%)
sworn statement containing the following information of such equity over a period of twelve months(12)
and such order information as the Commission may shall make a tender offer to stockholders by filling with
require in the public interest or for the protection of the Commission a declaration to that effect; and
investors. furnish the issuer, a statement containing such of the
information required in Section 17 of this Code as the
(a) The personal background, identity, Commission may prescribe. Such person or group of
residence, and citizenship of, and the nature persons shall publish all request or invitations or
of such beneficial ownership by, such person tender offer or requesting such tender offers
and all other person by whom or on whose subsequent to the initial solicitation or request shall
behalf the purchases are effected; in the event contain such information as the Commission may
the beneficial owner is a juridical person, the prescribe, and shall be filed with the Commission and
of business of the beneficial owner shall also sent to the issuer not alter than the time copies of
be reported; such materials are first published or sent or given to
security holders.
(b) If the purpose of the purchases or
prospective purchases is to acquire control of (a) Any solicitation or recommendation to the
the business of the issuer of the securities, holders of such a security to accept or reject a
any plans or proposals which such persons tender offer or request or invitation for tenders
may have that will effect a major change in its shall be made in accordance with such rules
business or corporate structure; and regulations as may be prescribe.

(c) The number of shares of such security (b) Securities deposited pursuant to a tender
which are beneficially owned, and the number offer or request or invitation for tenders may
of shares concerning which there is a right to be withdrawn by or on behalf of the depositor
acquire, directly or indirectly, by; (i) such at any time throughout the period that tender
person, and (ii) each associate of such offer remains open and if the securities
person, giving the background, identity, deposited have not been previously accepted
residence, and citizenship of each such for payment, and at any time after sixty (60)
associate; and days from the date of the original tender offer
to request or invitation, except as the
(d) Information as to any contracts, Commission may otherwise prescribe.
arrangements, or understanding with any
 (c) Where the securities offered exceed that issuer of security, to the exchange where the security
which person or group of persons is bound or is traded and to the Commission.
willing to take up and pay for, the securities
that are subject of the tender offers shall be Section 21. Fees of Tender Offers and Certain Proxy
taken up us nearly as may be pro data, Solicitations. – At the time of filling with the
disregarding fractions, according to the Commission of any statement required under Section
number of securities deposited to each 19 for any tender offer or Section 72.2 for issuer
depositor. The provision of this subject shall purchases, or Section 20 for proxy or consent
also apply to securities deposited within ten solicitation, The Commission may require that the
(10) days after notice of increase in the person making such filing pay a fee of not more than
consideration offered to security holders, as one-tenth (1/10)(1%) of;
described in paragraph (e) of this subsection,
is first published or sent or given to security 21.1. The propose aggregate purchase price in the
holders. case of a transaction under Section 20 or 72.2; or

(d) Where any person varies the terms of a 21.2. The proposed payment in cash, and ion value of
tender offer or request or invitation for tenders any securities or property to be transferred in the
before the expiration thereof by increasing the acquisition, merger or consolidating, or the cash and
consideration offered to holders of such value of any securities proposed to be received upon
securities, such person shall pay the the sale disposition of such assets in the case of a
increased consideration to each security solicitation under Section 20. The Commission shall
holder whose securities are taken up and paid prescribe by rule diminishing fees in inverse
for whether or not such securities have been proportion to the value of the aggregate price of the
taken up by such person before the variation offering.
of the tender offer or request or invitation.
Section 22. Internal Record Keeping and Accounting
19.2. It shall be lawful for any person to make any Control. - Every issuer which has a class of securities
untrue statement of a material fact or omit to state any that satisfies the requirements of Subsection 17.2
material fact necessary in order to make the shall:
statements made in the light of the circumstances
under which they are made, not mis-leading, or to
22.1. Device and maintain a system of internal
engaged to any fraudulent, deceptive or manipulative
accounting controls sufficient to provide reasonable
acts or practices, in connection with any tender offer
assurance that: (a) Transactions and access to assets
or request or invitation for tenders, or any solicitation
are pursuant to management authorization; (b)
for any security holders in opposition to or in favor of
Financial statements are provided in conformity with
any such favor of any such offer, request, or invitation.
generally accepted accounting principles that are
The Commission shall, for the purposes of this
adopted by the Accounting standards council and the
subsection, define and prescribe means reasonably
rules promulgated by the Commission with the regard
designed to prevent, such acts and practices as are
to the preparation of the financial statements; and (c)
fraudulent, deceptive and manipulative.
Recorded assets are compared with existing assets at
reasonable intervals and differences are reconciled.
Section 20. Proxy solicitations. - 20.1. Proxies must
be issued and proxy solicitation must be made in
Section 23. Transactions of Directors officers and
accordance with rules and regulations to be issued by
Principal Stockholders. – 23.1. Every person who is
the Commission;
directly or indirectly the beneficial owner of more than
ten per centum (10%) of any class of any equity
20.2. Proxies must be in writing, signed by the security which satisfies the requirements of
stockholder or his duly authorized representative and subsection 17.2, or who is a director or an officer of
file before the scheduled meeting with the corporate the issuer of such security, shall file, at the time either
secretary. such requirement is first satisfied or after ten days
after he becomes such a beneficial owner, director, or
20.3. Unless otherwise provided in the proxy, it shall officer, a statement form the Commission and, if such
be valid only for the meeting for which it is intended. security is listed for trading on an exchange, also with
No proxy shall be valid only for the meting for which it the exchange of the amount of all the equity security
is intended. No proxy shall be valid and effective for a of such issuer of which he is the beneficial owner, and
period longer than five (5) years at one time. within ten days after the close of each calendar month
thereafter, if there has been a change in such
20.4. No broker or dealer shall give any proxy, ownership at the close of the calendar month and
consent or any authorization, in respect of any such changes in his ownership as have occurred
security carried for the account of the customer, to a during such calendar month.
person other than the customer, without written
authorization of such customer. 23.2. For the purpose of preventing the unfair use of
information which may have been obtained by such
20.5. A broker or dealer who holds or acquire the beneficial owner, director or officer by reason of his
proxy for at least ten percent (10%) or such relationship to the issuer, any profit realized by him
percentage as the commission may prescribe of the from any purchase or sale, or any sale or purchase, of
outstanding share of such issuer, shall submit a report any equity security of such issuer within any period of
identifying the beneficial owner of ten days after such less than (6) months unless such security was
acquisition, for its own account or customer, to the acquired in good faith in connection with a debt
previously contracted, shall inure to and be
recoverable by the issuer, irrespective of any intention (ii) By entering an order or orders for
of holding the security purchased or of not the purchase or sale of such security
repurchasing the security sold for a period exceeding with the knowledge that a
six (6) months. Suit to recover such profit may be simultaneous order or orders of
instituted before the Regional Trial Court by the substantially the same size, time and
issuer, or by the owner of any security of the issuer in price, for the sale or purchase of any
the name and in behalf of the issuer if the issuer shall such security, has or will be entered
fail or refuse to bring such suit within sixty (60) days by or for the same or different parties;
after request or shall fail diligently to prosecute the or
same thereafter, but not such shall be brought more
than two years after the date such profit was realized. (iii) By performing similar act where
This Subsection shall not be construed to cover any there is no change in beneficial
transaction were such beneficial owner was not such ownership.
both time of the owner or the sale, or the sale of
purchase, of the security involved, or any transaction (b) To affect, alone or with others, a securities
or transactions which the Commission by rules and or transactions in securities that: (I) Raises
regulations may exempt as not comprehended within their price to induce the purchase of a
the purpose of this subsection. security, whether of the same or a different
class of the same issuer or of controlling,
23.3. It shall be unlawful for any such beneficial controlled, or commonly controlled company
owner, director or officer, directly or indirectly, to sell by others; or (iii) Creates active trading to
any equity security of such issuer if the person selling induce such a purchase or sale through
the principal: (a) Does not own the security sold: or (b) manipulative devices such as marking the
If owning the security, does not deliver not deliver it close, painting the tape, squeezing the float,
against such sale within 20 days thereafter, or does hype and dump, boiler room operations and
not within five days after such sale deposit in the such other similar devices.
mails or the unusual channels of transportation; but
no person shall be deemed to have violated this (c) To circulate or disseminate information that
subsection if he proves not withstanding the exercise the price of any security listed in an Exchange
of good faith he was unable to make such delivery in will or is likely to rise or fall because of
such time, or that to do so would cause undue manipulative market operations of any one or
inconvenience or expense. more persons conducted for the purpose of
raising or depressing the price of the security
23.4. The provisions of subsection 23.2 shall not for the purpose of inducing the purpose of
apply to any purchase and sale, or sale and purchase, sale of such security.
and the provisions of Subsection 23.3 shall not apply
to any sale, of an equity security not then or thereafter (d) To make false or misleading statement
held by him and an investment account, by a dealer in with respect to any material fact, which he
the ordinary course of his business and incident to the knew or had reasonable ground to believe
establishment or maintenance by him of a primary or was so false or misleading, for the purpose of
secondary market, otherwise than on an Exchange, inducing the purchase or sale of any security
for such security. The Commission may, by such rules listed or traded in an Exchange.
and regulations as it deems necessary or appropriate
in the public interest, define and prescribe terms and
(e) To effect, either alone or others, any series
conditions with respect to securities held in an
of transactions for the purchase and/or sale of
investment account and transactions made in the
any security traded in an Exchange for the
ordinary course of business and incident to the
purpose of pegging, fixing or stabilizing the
establishment or maintenance of a primary or
price of such security; unless otherwise
secondary market.
allowed by this Code or by rules of the
Commission.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION
24.2. No person shall use or employ, in connection
AND INSIDER TRADING
with the purchase or sale of any security any
manipulative or deceptive device or contrivance.
Section 24. Manipulation of Security Prices; Devices Neither shall any short sale be effected nor any stop-
and Practices. – 24.1 It shall be unlawful for any loss order be executed in connection with the
person acting for himself or through a dealer or purchase or sale of any security except in accordance
broker, directly or indirectly: with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the
(a) To create a false or misleading public interest for the protection of investors.
appearance of active trading in any listed
security traded in an Exchange of any other 24.3. The foregoing provisions notwithstanding, the
trading market (hereafter referred to purposes Commission, having due regard to the public interest
of this Chapter as "Exchange"): and the protection of investors, may, by rules and
regulations, allow certain acts or transactions that
(i) By effecting any transaction in such may otherwise be prohibited under this Section.
security which involves no change in
the beneficial ownership thereof; Section 25. Regulation of Option Trading. – No
member of an Exchange shall, directly or indirectly
endorse or guarantee the performance of any put,
call, straddle, option or privilege in relation to any 27.4. (a) It shall be unlawful where a tender offer has
security registered on a securities exchange. The commenced or is about to commence for:
terms "put", "call", "straddle", "option", or "privilege"
shall not include any registered warrant, right or (i) Any person (other than the tender offeror)
convertible security. who is in possession of material nonpublic
information relating to such tender offer, to
Section 26. Fraudulent Transactions. – It shall be buy or sell the securities of the issuer that are
unlawful for any person, directly or indirectly, in sought or to be sought by such tender offer if
connection with the purchase or sale of any securities such person knows or has reason to believe
to: that the information is nonpublic and has been
acquired directly or indirectly from the tender
26.1. Employ any device, scheme, or artifice to offeror, those acting on its behalf, the issuer of
defraud; the securities sought or to be sought by such
tender offer, or any insider of such issuer; and
26.2. Obtain money or property by means of any
untrue statement of a material fact of any omission to (ii) Any tender offeror, those acting on its
state a material fact necessary in order to make the behalf, the issuer of the securities sought or to
statements made, in the light of the circumstances be sought by such tender offer, and any
under which they were made, not misleading; or insider of such issuer to communicate material
nonpublic information relating to the tender
26.3. Engage in any act, transaction, practice or offer to any other person where such
course of business which operates or would operate communication is likely to result in a violation
as a fraud or deceit upon any person. of Subsection 27.4 (a)(I).

Section 27. Insider’s Duty to Disclose When Trading. (b) For purposes of this subsection the term
– 27.1. It shall be unlawful for an insider to sell or buy "securities of the issuer sought or to be sought by
a security of the issuer, while in possession of such tender offer" shall include any securities
material information with respect to the issuer or the convertible or exchangeable into such securities or
security that is not generally available to the public, any options or rights in any of the foregoing securities.
unless: (a) The insider proves that the information
was not gained from such relationship; or (b) If the CHAPTER VIII
other party selling to or buying from the insider (or his REGULATION OF SECURITIES MARKET
agent) is identified, the insider proves: (I) that he PROFESSIONALS
disclosed the information to the other party, or (ii) that
he had reason to believe that the other party Section 28. Registration of Brokers, Dealers,
otherwise is also in possession of the information. A Salesmen and Associated Persons. – 28.1. No person
purchase or sale of a security of the issuer made by shall engage in the business of buying or selling
an insider defined in Subsection 3.8, or such insider’s securities in the Philippine as a broker or dealer, or
spouse or relatives by affinity or consanguinity within act as a salesman, or an associated person of any
the second degree, legitimate or common-law, shall broker or dealer unless registered as such with the
be presumed to have been effected while in Commission.
possession of material nonpublic information if
transacted after such information came into existence 28.2. No registered broker or dealer shall employ any
but prior to dissemination of such information to the salesman or any associated person, and no issuer
public and the lapse of a reasonable time for market shall employ any salesman, who is not registered as
to absorb such information: Provided, however, That such with the Commission.
this presumption shall be rebutted upon a showing by
the purchaser or seller that he was aware of the 28.3. The Commission, by rule or order, may
material nonpublic information at the time of the conditionally or unconditionally exempt from
purchase or sale. subsection 28.1 and 28.2 any broker, dealer,
salesman, associated person of any broker or dealer,
27.2. For purposes of this Section, information is or any class of the foregoing, as it deems consistent
"material nonpublic" if: (a) It has not been generally with the public interest and the protection of investors.
disclosed to the public and would likely affect the
market price of the security after being disseminated 28.4. The Commission shall promulgate rules and
to the public and the lapse of a reasonable time for regulation prescribing the qualifications for registration
the market to absorb the information; or (b) would be of each category of applicant, which shall, among
considered by a reasonable person important under other things, require as a condition for registration
the circumstances in determining his course of action that:
whether to buy, sell or hold a security.
(a) If a natural person, the applicant
27.3. It shall be unlawful for any insider to satisfactorily pass a written examination as to
communicate material nonpublic information about the his proficiency and knowledge in the area of
issuer or the security to any person who, by virtue of activity for which registration is sought;
the communication, becomes an insider as defined in
Subsection 3.8, where the insider communicating the
(b) In the case of a broker or dealer, the
information knows or has reason to believe that such
applicant satisfy a minimum net capital as
person will likely buy or sell a security of the issuer
prescribed by the Commission, and provide a
whole in possession of such information.
bond or other security as the Commission
 may prescribe to secure compliance with the cessation of his affiliation with said registered broker
provisions of this Code; and or dealer or with an issuer in the case of a salesman
employed, appointed or authorized by such issuer.
(c) If located outside of the Philippines, the Promptly following any such cessation of affiliation,
applicant files a written consent to service of the registered broker or dealer, issuer as the case
process upon the Commission pursuant to may be, shall file with the Commission a notice of
Section 65 hereof. separation of such salesman or associated person.

28.5. A broker or dealer may apply for registration by Section 29. Revocation, Refusal or Suspension of
filing with the Commission a written application in Registration of Brokers, Dealers, Salesmen and
such forms and containing such information and Associated Persons. – 29.1. Registration under
documents concerning such broker or dealer as the Section 28 of this Code may be refused , or any
Commission by rule shall prescribe. registration granted thereunder may be revoked,
suspended, or limitations placed thereon, by the
28.6. Registration of a salesman or of an associated Commission if, after due notice and hearing the
person of a registered broker or dealer may be made Commission determines the application or registrant.
upon written application filed with the Commission by
such salesman or associated person. The application (a) Has willfully violated any provision of this
shall be separately signed and certified by the Code, any rule, regulation or order made
registered broker or dealer to which such salesman or hereunder, or any other law administered by
associated person is to become affiliated, or by the the Commission, or in the case of a registered
issuer in the case of a salesman employed appointed broker, dealer or associated persons has
or authorized solely by such issuer. The application failed to supervise, with a view to preventing
shall be in such form and contain such information such violation, another person who commits
and documents concerning the salesman or such violation;
associated person as the Commission by rule shall
prescribe. For purposes of this Section, a salesman (b) Has willfully made or caused to be made a
shall not include any employee of an issuer whose materially false or misleading statement in any
compensation is not determined directly or indirectly application for registration or report filed with
on sales of securities if the issuer. the Commission or a self-regulatory
organization, or has willfully omitted to state
28.7. Applications filed pursuant to Subsections 28.5 any material fact that is required to be stated
and 28.6 shall be accompanied by a registration fee in therein;
such reasonable amount prescribed by the
Commission. (c) Has failed to satisfy the qualifications or
requirements for registration prescribed under
28.8. Within thirty (30) days after the filing of any Section 28 and the rules and regulations of
application under this Section, the Commission shall the Commission promulgated thereunder;
by order: (a) Grant registrations if it determines that
the requirements of this Section and the qualifications (d) Has been convicted, by a competent
for registrations set forth in its rules and regulations judicial or administrative body of an offense
have been satisfied ; or (b) Deny said registration. involving moral turpitude, fraud,
embezzlement, counterfeiting, theft, estafa,
28.9. The names and addresses of all persons misappropriation, forgery, bribery, false oath,
approved for the registration as brokers, dealers, or perjury, or of a violation of securities,
associated persons or salesman and all orders of the commodities, banking, real state or insurance
Commission with respect thereto shall be recorded in laws;
a Register of Securities Market Professionals kept in
the office of the Commission which shall be open to (e) Is enjoined or restrained by a competent
public inspection. judicial or administrative body from engaging
in securities, commodities, banking, real state
28.10. Every person registered pursuant to this or insurance activities or from willfully violating
Section shall file with the Commission, in such form laws governing such activities;
as the Commission shall prescribe, information
necessary to keep the application for registration (f) Is subject to an order of a competent
current and accurate, including in the case of a broker judicial or administrative body refusing,
or dealer changes in salesmen, associated persons revoking or suspending any registration,
and owners thereof. licensed or other permit under this Code, the
rules and regulations promulgated thereunder,
28.11. Every person registered pursuant to this any other law administered by the
Selection shall pay to the Commission an annual fee Commission;
at such time and in such reasonable amount as the
Commission shall prescribe. Upon notice by the (g) Is subject to an order of a self-regulatory
Commission that such annual fee has not been paid organization suspending or expelling him from
as required, the registration of such person shall be membership or participating therein or from
suspended until payment has been made. association with a member or participant
thereof;
28.12. The registration of a salesman or associated
person shall be automatically terminated upon the
 (h) Has been found by a competent judicial or president, vice-president, manager, treasurer,
administrative body to have willfully violated comptroller, secretary or any office trust and
any provisions of securities, commodities, responsibility, or is a controlling of the issuer.
banking, real state or insurance laws, or has
willfully aided, abetted, counseled, 30.2. No broker or dealer shall effect any transaction
commanded, induced or procured such in securities or induce or attempt to induce the
violation; or purchase or sale of any security except in compliance
with such rules and regulations as the Commission
(i) Has been judicially declared insolvent. shall prescribe to ensure fair and honest dealings in
securities and provide financial safeguards and other
For purposes of this subsection, the term "competent standards for the operations of brokers and dealers,
judicial or administrative body" shall include a foreign including the establishments of minimum net capital
court of competent jurisdiction and a foreign financial requirements, the acceptance of custody and use of
regulator. securities of customers, and the carrying and use of
deposits and credit balances of customers.
29.2. (a) In case of charges against a salesman or
associated person, notice thereof shall also be given Section 31. Development of Securities Market
the broker, dealer or issuer employing such salesman Professionals. – The Commission in joint undertaking
or associated person. with self regulatory organizations, organizations and
associations of finance professionals as well as
(b) Pending the hearing, the Commission shall private educational and research institute shall
have the power to order the suspensions of undertake or facilitate/organize continuing training,
such broker’s, dealers, associated person’s or conferences/seminars, updating programs, research
salesman’s registration: Provided, That such and developments as well as technology transfer at
order shall state the cause for such the latest and advance trends in issuance and trading
suspension. Until the entry of a final order, the of securities, derivatives, commodity trades and other
suspension of such registration, though financial instruments, as well as securities markets of
binding upon the persons notified thereof, other countries.
shall be deemed confidential, and shall not be
published, unless it shall appear that the order CHAPTER IX
of suspension has been violated after notice. EXCHANGES AND OTHER SECURITIES TRADING
MARKETS
29.3. The orders of the Commission refusing,
revoking, suspending or placing limitations on a Section 32. Prohibition on Use of Unregistered
registration as herein above provided, together with its Exchange; Regulation of Over-the-Counter Markets. –
findings, shall be entered in the Register of Securities 32.1. No broker, dealer, salesman, associated person
Market Professionals. The suspension or revocation of a broker or dealer, or Exchange, directly or
of the registration of a dealer or broker shall also indirectly shall make use of any facility of an
automatically suspend the registration of all salesmen Exchange in the Philippines to effect any transaction
and associated persons affiliated with such broker or in a security, or to report such transaction, unless
dealer. The order of the Commission refusing, such Exchange is registered as such under Section
revoking, suspending or placing limitations on a 33 of this Code.
registration as herein above provided, together with its
findings, shall be entered in the Register of Securities 32.2. (a) No broker, dealer, salesman or associated
Market Professionals. The suspension or revocation person of a broker or dealer, singly or in concert with
of the registration of a dealer or broker shall also any other person, shall make, create or operate, or
automatically suspend the registration of a dealer or enable another to make, create or operate, any
broker shall also automatically suspend the trading market, otherwise than on a registered
registration of all salesmen and associated persons Exchange, for the buying and selling of any security,
affiliated with such broker or dealer. except in accordance with rules and regulations the
Commission may prescribe.
29.4. It shall be sufficient cause for refusal, revocation
or suspension of a broker’s or dealer’s registrations, if (b) The Commission may promulgate rules
any associated person thereof or any juridical entity and regulations governing transactions by
controlled by such associated person has committed brokers, dealers, salesmen or associated
any act or omission or is subject to any disability persons of a broker or dealer, over any
enumerated in paragraphs (a) through (i) of facilities of such trading market and may
Subsection 29. I hereof. require such market to be administered by a
self-regulatory organization determined by the
Section 30. Transactions and Responsibility of Commission as capable of insuring the
Brokers and Dealers. – 30.1 No brokers or dealer protection of investors comparable to that
shall deal in or otherwise buy or sell, for its own provided in the case of a registered
account or for its own account or for the account of Exchange. Such self-regulatory organization
customers, securities listed on an Exchange issued by must provide a centralized marketplace for
any corporation where any stockholders, director, trading and must satisfy requirements
associated person or salesman, or authorized clerk of comparable to those prescribed for
said broker or dealer and all the relatives of the registration of Exchanges in Section 33 of this
foregoing within the fourth civil degree of Code.
consanguinity or affinity, is at the same time holding
office in said issuer corporation as a director,
Section 33. Registration of Exchanges. – 33.1. Any (d) The expulsion, suspension, or disciplining
Exchange may be registered as such with the of a member and persons associated with a
Commission under the terms and conditions member for conduct or proceeding
hereinafter provided in this Section and Section 40 inconsistent with just and equitable principles
hereof, by filing an application for registration in such of fair trade, and for violations of provisions of
form and containing such information and supporting this Code, or any other Act administered by
documents as the Commission by rule shall prescribe, the Commission, the rules, regulations and
including the following: orders thereunder, or the rules of the
Exchange;’
(a) An undertaking to comply and enforce by
its members with the provisions of this Code, (e) A fair procedure for the disciplining of
its implementing rules and regulations and the members and persons associated with
rules of the Exchange; members, the denial of membership to any
person seeking to be a member, the barring of
(b) The organizational charts of the Exchange, any person from association with a member,
rules of procedure, and a list of its officers and and the prohibition or limitation of any person
members; from association with member, and the
prohibition or limitation of any person from
(c) Copies of the rules of the Exchange; and access to services offered by the Exchange;

(d) An undertaking that in the event a member (f) That the brokers in the board of the
firm becomes insolvent or when the Exchange Exchange shall comprise of not more than
shall have found that the financial condition of forty-nine percent (49%) of such board and
its member firm has so deteriorated that it shall proportionately represent the Exchange
cannot readily meet the demands of its membership in terms of volume/value or trade
customers for the delivery of securities and/or and paid up capital, and that any natural
payment of sales proceeds, the Exchange person associated with a juridical entity that is
shall, upon order of the Commission, take a member for this purpose; Provide, That any
over the operation of the insolvent member registered Exchange existing prior to the
firm and immediately proceed to settle the affectivity of this Code shall immediately
member firm’s liabilities to its customers. comply with this requirement;

33.2. Registrations of an Exchange shall be granted (g) For the board of the Exchange to include
upon compliance with the following provisions: in its composition (1) the president of the
Exchange, and (ii) no less than fifty one
percent (51%) of the remaining members of
(a) That the applicant is organized as a stock
the board to be comprised of three (3)
corporation: Provided, That any registered
independent directors and persons who
Exchange existing prior to the effectivity of this
represent the interests of issuers, investors,
Code shall within one (1) year reorganize as a
and other market participants, who are not
stock corporation pursuant to a
associated with any broker or dealer or
demutualization plan approved by the
member of the Exchange for a period of two
Commission;
(2) years prior to his/her appointment. No
officer or employee of a member, its
(b) That the applicant is engaged solely in the subsidiaries or affiliates or related interests
business of operating an exchange: Provided, shall become an independent director:
however, That the Commission may adopt Provided, however, That the Commission may
rules, regulations or issue an order, upon by rule, regulation, or order upon application,
application, exempting an Exchange permit the exchange organized as a stock
organized as a stock corporation and owned corporation to use a different governance
and controlled by another juridical person from structure: Provided, further, That the
the restriction. Commission is satisfied that the Exchange is
acting in the public interest and is able to
(c) Where the Exchange is organized as a effectively operate as a self-regulatory
stock corporation, that no person may organization under this Code: Provided,
beneficially own or control, directly or finally, That any registered exchange existing
indirectly, more than five percent (5%) of the prior to the affectivity of this Code shall
voting rights of the Exchange and no industry immediately comply with this requirement.
or business group may beneficially own or
control, directly or indirectly, more than twenty (h) The president and other management of
percent (20%) of the voting rights of the the Exchange to consist only of persons who
Exchange: Provided, however, That the are not members and are not associated in
Commission may adopt rules, regulations or any capacity, directly or indirectly with any
issue an order, upon application from this broker or dealer or member or listed company
prohibition where it finds that such ownership of the Exchange: Provided, That the
or control will not negatively impact on the Exchange may only appoint, and a person
exchange’s ability to effectively operate in the may only serve, as an officer of the exchange
public interest. if such person has not been a member or
affiliated with any broker, dealer, or member
 of the Exchange for a period of at least two (2) (b) Any transaction reasonably necessary to
years prior to such appointment; carry on an odd-lot transactions;

(i) The transparency of transactions on the (c) Any transaction to offset a transaction
Exchange; made in error; and

(j) The equitable allocation of reasonable (d) Any other transaction of a similar nature as
dues, fees, and other charges among may be defined by the Commission.
members and issuers and other persons using
any facility or system which the Exchange 34.2. In all instances where the member-broker
operates or controls; effects a transaction on an Exchange for its own
account or the account of an associated person or an
(k) Prevention of fraudulent and manipulative account with the respect to which it exercises
acts and practices, promotion of just and investment discretion, it shall disclose to such
equitable principles of trade, and, in general, customer at or before the completion of the
protection of investors and the public interest; transaction it is acting for its own account: Provided,
and further, That this fact shall be reflected in the order
ticket and the confirmation slip.
(l) The transparent, prompt and accurate
clearance and settlement of transactions 34.3. Any member-broker who violates the provisions
effected on the Exchange. of this Section shall be subject to the administrative
sanctions provided in Section 54 of this Code.
33.3. If the Commission finds that the applicant
Exchange is capable of complying and enforcing Section 35. Additional Fees of Exchanges. – In
compliance by its members, and persons associated addition to the registration fee prescribed in Section
with such members, with the provisions of this Code, 33 of this Code, every Exchange shall pay to the
and the rules of the Exchange, and that the rules of Commission, on a semestral basis on or before the
Exchange are fair, just and adequate, the tenth day of the end of the end of every semester of
Commission shall cause such Exchange to be the calendar year, a fee in such an amount as the
registered. If, after notice due and hearing, the Commission shall prescribe, but not more than one-
Commission finds otherwise, the application shall be hundredth of one per centum (1%) of the aggregate
denied. amount of the sales of securities transacted on such
Exchange during the preceding calendar year for the
33.4. Within ninety (90) days after the filing of the privilege of doing business, during the preceding
application the Commission may issue an order either calendar year or any part thereof.
granting or denying registration as an Exchange,
unless the Exchange applying for registration shall Section 36. Powers with Respect to Exchanges and
withdraw its application or shall consent to the Other Trading Market. – 36.1. The Commission is
Commission’s deferring action on its application for a authorized, if in its opinion such action is necessary or
stated longer period after the date of filing. The filing appropriate for the protection of investors and the
with the Commission of an application for registration public interest so requires, summarily to suspend
by an Exchange shall be deemed to have taken place trading in any listed security on any Exchange or
upon the receipt thereof. Amendments to an other trading market for a period not exceeding thirty
application may be made upon such terms as the (30) days but not exceeding ninety (90)
Commission may prescribe. days: Provided, however, That the Commission
promptly following the issuance of the order of
33.5. Upon the registration of an Exchange, it is shall suspension, shall notify the affected issuer of the
pay a fee in such amount and within such period as reasons for such suspension and provide such issuer
the Commission may fix. with an opportunity for hearing to determine whether
the suspension should be lifted.
33.6. Upon appropriate application in accordance with
the rules and regulations of the Commission and upon 36.2. Wherever two (2) or more Exchanges or other
such terms as the Commission may deemed trading markets exist, the Commission may require
necessary for the protection of investors, an exchange and enforce uniformity of trading regulations in and/or
may withdraw its registration or suspend its between or among said Exchanges or other trading
operations or resume the same. markets.

Section 34. Segregation and Limitation of functions 36.3. In addition to the existing Philippine Stock
of Members, Broker and Dealers. - 34.1. It shall be Exchange, the Commission shall have the authority to
unlawful for any member-broker of an Exchange to determine the number, size and location of stock
effect any transaction on such Exchange for its own Exchanges, other trading markets and commodity
account, the account of an associated person, or an Exchanges and other similar organizations in the light
account with the respect to which it or an associated of national or regional requirements for such activities
person thereof exercises the investment with the view to promote, enhance, protect, conserve
discretion: Provided, however, That this Section shall or rationalize investment.
not make unlawful-
36.4. The Commission, having due regard to the
(a) Any transaction by a member-broker public interest, the protection of investors, the
acting in the capacity of a market maker; safeguarding of securities and funds, and
maintenance of fair competition among brokers, CHAPTER X
dealers, clearing agencies, and transfer agents, shall REGISTRATION, RESPONSIBILITIES AND
promulgate rules and regulations for the prompt and OVERSIGHT OF SELF-REGULATORY
accurate clearance and settlement of securities ORGANIZATIONS
transactions.
Section 39. Associations of Securities Brokers, and
36.5. (a) The Commission may establish or facilitate Dealers, and Other Securities Related Organizations.
the establishment of trust funds which shall be – 39.1. The Commission shall have the power to
contributed by Exchanges, brokers, dealers, register as a self-regulatory organization, or otherwise
underwriters, transfer agents, salesmen and other grant licenses, and to regulate, supervise, examine,
persons transacting in securities, as the Commission suspend or otherwise discontinue, as a condition for
may require, for the purpose of compensating the operation of organizations whose operations are
investors for the extraordinary losses or damage they related to or connected with the securities market
may suffer due to business failure or fraud or such as but not limited to associations of brokers and
mismanagement of the persons with whom they dealers, transfer agents, custodians, fiscal and paying
transact, under such rules and regulations as the agents, computer services, news disseminating
Commission may from time to time prescribe or services, proxy solicitors, statistical agencies,
approve in the public interest. securities rating agencies, and securities information
processor which are engaged in business of: (a)
(b) The Commission may, having due regard Collecting, processing, or preparing for distribution or
to the public interest or the protection of publication, or assisting, participating in, or
investors, regulate, supervise, examine, coordinating the distribution or publication of,
suspend or otherwise discontinue such and information with respect to transactions in or
other similar funds under such rules and quotations for any security; or (b) Distributing or
regulations which the Commission may publishing, whether by means of a ticker tape, a
promulgate, and which may include taking communications network, a terminal display device, or
custody and management of the fund itself as otherwise, on a current and continuing basis,
well as investments in and disbursements information with respect to such transactions or
from the funds under such forms of control quotations. The Commission may prescribe rules and
and supervision by the Commission as it may regulations which are necessary or appropriate in the
from time to time require. The authority public interest or for the protection of investors to
granted to the Commission under this govern self-regulatory organizations and other
subsection shall also apply to all funds organizations licensed or regulated pursuant to the
established for the protection of investors, authority granted in Subsection 39.1 including the
whether established by the Commission or requirement of cooperation within and among, and
otherwise. electronic integration of the records of, all participants
in the securities market to ensure transparency and
Section 37. Registration of Innovative and Other facilitate exchange of information.
Trading Markets. – The Commission, having due
regard for national economic development, shall 39.2. An association of brokers and dealers may be
encourage competitiveness in the market by registered as a securities association pursuant to
promulgating within six (6) months upon the Subsection 39.3 by filing with the Commission an
enactment of this Code, rules for the registration and application for registration in such form as the
licensing of innovative and other trading markets or Commission, by rule, may prescribe containing the
Exchanges covering, but not limited to, the issuance rules of the association and such other information
and trading of innovative securities, securities of and documents as the Commission, by rule, may
small, medium, growth and venture enterprises, and prescribe as necessary or appropriate in the public
technology-based ventures pursuant to Section 33 of interest or for the protection of investors.
this Code.
39.3. An association of brokers and dealers shall not
Section 38. Independent Directors. – Any corporation be registered as a securities association unless the
with a class of equity securities listed for trading on an Commission determines that:
Exchange or with assets in excess of Fifty million
pesos (P50,000,000.00) and having two hundred (a) The association is so organized and has
(200) or more holders, at least of two hundred (200) of the capacity to be able to carry out the
which are holding at least one hundred (100) shares purposes of this Code and to comply with, and
of a class of its equity securities or which has sold a to enforce compliance by its members and
class of equity securities to the public pursuant to an persons associated with its members, with the
effective registration statement in compliance with provisions of this Code, the rules and
Section 12 hereof shall have at least two (2) regulations thereunder, and the rules of the
independent directors or such independent directors association.
shall constitute at least twenty percent (20%) of the
members of such board whichever is the lesser. For (b) The rules of the association,
this purpose, an "independent director" shall mean a notwithstanding anything in the Corporation
person other than an officer or employee of the Code to the contrary, provide that:
corporation, its parent or subsidiaries, or any other
individual having a relationship with the corporation, (i) Any registered broker or dealer may
which would interfere with the exercise of independent become a member of the association;
judgement in carrying out the responsibilities of a
director.
 (ii) There exist a fair representation of (i) Does not meet the standards of
its members to serve on the Board of financial responsibility, operational
Directors of the association and in the capability, training, experience or
administration of its affairs, and that competence that are prescribe by the
may any natural person associated rules of the association; or
with a juridical entity that is a member
shall himself be deemed to be a (ii) Has engaged, and there is a
member for this purpose; reasonable likelihood it will again
engage, in acts or practices
(iii) The Board of Directors of the inconsistent with just and equitable
association includes in its principles of fair trade.
composition:
(c) A registered securities association may
(a) The president of the deny membership to a registered broker or
association and dealer not engage in a type of business in
which the rules of the association require
(b) Person who represent the members to be engaged: Provided,
interests of the issuer and however, That no registered securities
public investors and are not association may deny membership to a
associated with any broker or registered broker or dealer by reason of the
dealer or member of the amount of business done by the broker or
association; that the president dealer.
and other management of the
association not be a member A registered securities association may
or associated with any broker, examine and verify the qualifications of an
dealer or member of the applicant to become a member in accordance
association; with procedure established by the rules of the
association.
(iv) For the equitable allocation of
reasonable dues, fees, and other (d) A registered securities association may bar
charges among member and issuers a salesman or person associated with a
and other persons using any facility or broker or dealer from being employed by a
system which the association operates member or set conditions for the employment
or controls; of a salesman or associated if such person:

(v) For the prevention of fraudulent (i) Does not meet the standards of
and manipulative acts and practices, training, experience, or competence
the promotion of just and equitable that are prescribe by the rules of the
principles of trade, and, in general, the association; or
protection of investors and the public
interest; (ii) Has engage, and there is a
reasonable likelihood he will again
(vi) That its members and persons engage, in acts or practices
associated with its members shall be inconsistent with just and equitable
appropriately disciplined for violation principles of fair trade.
of any provision of this Code, the rules
and regulations thereunder, or the A registered securities association may examine and
rules of the association; verify the qualifications of an applicant to become a
salesman or associated person employed by a
(vii) That a fair procedure for the member in accordance with the procedures establish
disciplining of members and persons by the rules of the association. A registered
associated with members, the denial association also may require a salesman or
of membership to any person seeking associated person employed by a member to be
membership therein, the barring of registered with the association in accordance with the
any person from becoming associated procedures prescribed in the rules of the association.
with a member thereof, and the
prohibition or limitation by the 39.5. In any proceeding by a registered securities
association of any person with respect association to determine whether a person shall be
to access to services offered by the denied membership, or barred from association with a
association or a member thereof. member, the association shall provide notice to the
person under review of the specific grounds being
39.4. (a) A registered securities association shall deny considered for denial, afford him an opportunity to
membership to any person who is not a registered defend against the allegations, and keep a record of
broker or dealer. the proceedings. A determination by the association
to deny membership shall be supported by a
(b) A registered securities association may statement setting forth the specific grounds on which
deny membership to, or condition the the denial is based.
membership of, a registered broker or dealer if
such broker or dealer:
Section 40. Powers with Respect to Self-Regulatory (e) The manner, methods, and place of
Organizations. - 40.1. Upon the filing of an application soliciting business;
for registration as an Exchange under Section 33, a
registered securities association under Section 39, a (f) Fictitious accounts;
registered clearing agency under Section 42, or other
self-regulatory organization under this Section, the (g) The time and method of making
Commission shall have ninety (90) days within which settlements, payments, and deliveries, and of
to either grant registration should be denied. In the closing accounts;
event proceedings are instituted, the Commission
shall have two hundred seventy (270) days within
(h) The transparency of securities transactions
which to conclude such proceedings at which time it
and prices;
shall, by order, grant or deny such registration.
(i) The fixing of reasonable rates of fees,
40.2. Every self-regulatory organization shall comply
interest, listing and other charges, but not
with the provision of this Code, the rules and
rates of commission;
regulations thereunder, and its own rules, and enforce
compliance therewith, notwithstanding any provisions
of the Corporation Code to the contrary, by its (j) Minimum units of trading;
members, persons associated with its members of its
participants. (k) Odd-lot purchases and sales;

40.3. (a) Each self-regulatory organization shall (l) Minimum deposits on margin accounts; and
submit to the Commission for prior approval any
proposed rule or amendment thereto, together with a (m) The supervision, auditing and disciplining
concise statement of the reason and effect of the of members or participants.
proposed amendment
40.5. The Commission, after due notice and hearing,
(b) Within sixty (60) days after submission of a is authorized, in the public interest and to protect
proposed amendment, the Commission shall, investors:
by order, approve the proposed amendment.
Otherwise, the same may be made effective (a) To suspend for a period not exceeding
by the self-regulatory organization. twelve (12) months or to revoke the
registration of a self-regulatory organization,
(c) In the event of an emergency requiring or to censure or impose limitations on the
action for the protection of investors, the activities, functions, and operations of such
maintenance of fair and orderly markets, or self-organization, if the Commission finds that
the safeguarding of securities and funds, a such a self-regulatory organization has
self-regulatory organization may put a willfully violated or is unable to comply with
proposed amendment into effect any provision of this Code or of the rules and
summarily; Provided however, That the copy regulations thereunder, or its own or has failed
of the same shall be immediately submitted to to enforce compliance therewith by a member
the Commission. of, person associated with a member, or a
participant in such self-regulatory
40.4. The Commission is further authorized, if after organization;
making appropriate request in writing to a self-
regulatory organization that such organization effect (b) To expel from a self-regulatory
on its own behalf specified changes in its rules and organization any member thereof or any
practices and, after due to notice and hearing it participant therein who is subject to an order
determines that such changes have not been of the Commission under Section 29 of this
effected, and that such changes are not necessary, by Code or is found to have willfully violated any
the rule or regulation or by order, may alter, abrogate provision of this Code or suspend for a period
or supplement the rules of such self-regulatory not exceeding twelve (12) months for violation
organization in so far as necessary or appropriate to of any provision of this Code or any other laws
effect such changes in respect of such matters as: administered by the Commission, or rules and
regulations thereunder, or effected, directly or
(a) Safeguards in respect of the financial indirectly, any transaction for any person who,
responsibility of members and adequate such member or participant had reason to
provision against the evasion of financial believe, was violating in respect of such
responsibility through the use of corporate transaction any of such provisions; and
forms or special partnerships;
(c) To remove from the office or censure any
(b) The supervision of trading practices; officer or director of a self-regulatory
organization if it finds that such officer or
(c) The listing or striking from listing of any director has violated any provision of this
security; Code, any other law administered by the
Commission, the rules or regulations
thereunder, or the rules of such self-regulatory
(d) Hours of trading;
organization, abused his authority, without
reasonable justification or excuse has failed to
 enforce compliance with any of such before the self-regulatory organization), the
provisions. Commission shall affirm, modify or set aside the
sanction. In such proceeding the Commission shall
40.6. (a) A self-regulatory organization is authorized determine whether the aggrieved person has engaged
to discipline a member of or participant in such self- or omitted to engage in the acts and practices as
regulatory organization, or any person associated with found by the self-regulatory organization, whether
a member, including the suspension or expulsion of such acts and practices constitute willful violations of
such member or participant, and the suspension or this Code, any other law administered by the
bar from being associated with a member, if such Commission, the rules or regulations thereunder, or
person has engage in acts or practices inconsistent the rules of the self-regulatory organization as
with just and equitable principles of fair trade or in specified by such organization, whether such
willful violation of any provision of the Code, any other provisions were applied in a manner consistent with
law administered by the Commission, the rules or the purposes of this Code, and whether, with due
regulations thereunder, or the rules of the self- regard for the public interest and the protection of
regulatory organization. In any disciplinary proceeding investors the sanction is excessive or oppressive.
by a self-regulatory organization (other than a
summary proceeding pursuant to paragraph (b) of this 40.8. The powers of the Commission under this
subsection) the self-regulatory organization shall bring Section shall apply to organized exchanges and
specific charges, provide notice to the person registered clearing agencies.
charged, afford the person charged with an
opportunity to defend against the charges, and keep a CHAPTER XI
record of the proceedings. A determination to impose ACQUISITION AND TRANSFER OF SECURITIES
a disciplinary sanction shall be supported by a written AND SETTLEMENT OF TRANSACTION IN
statement of the offenses, a summary of the evidence SECURITIES
presented and a statement of the sanction imposed.
Section 41. Prohibition on Use of Unregistered
(b) A self-regulatory organization may Clearing Agency. – It shall be unlawful for any broker,
summarily: (I) Suspend a member, participant dealer, salesman, associated person of a broker or
or person associated with a member who has dealer, or clearing agency, directly or indirectly, to
been or is expelled or suspended from any make use of any facility of a clearing agency in
other self-regulatory organization; or (ii) Philippines to make deliveries in connection with
Suspend a member who the self-regulatory transaction in securities or to reduce the number of
organization finds to be in such financial or settlements of securities transactions or to allocate
operating difficulty that the member or securities settlement responsibilities or to provide for
participant cannot be permitted to continue to the central handling of securities so that transfers,
do business as a member with safety to loans and pledges and similar transaction can be
investors, creditors, other members, made by bookkeeping entry or otherwise to facilitate
participants or the self-regulatory the settlement of securities transactions without
organization: Provided, That the self- physical delivery of securities certificates, unless such
regulatory organization immediately notifies clearing agency is registered as such under Section
the Commission of the action taken. Any 42 of this Code or is exempted from such registration
person aggrieved by a summary action upon application by the clearing agency because, in
pursuant to this paragraph shall be promptly the opinion of the Commission, by reason of the
afforded an opportunity for a hearing by the limited volume of transactions which are settled using
association in accordance with the provisions the clearing agency, it is not practicable and not
of paragraph (a) of this subsection. The necessary or appropriate in the public interest or for
Commission, by order, may stay a summary the protection of investors to require such registration.
action on its own motion or upon application
by any person aggrieved thereby, if the Section 42. Registration of Clearing Agencies. - 42.1.
Commission determines summarily or after Any clearing agency may be registered as such with
due notice and hearing (which hearing may the Commission under the terms and conditions
consist solely of the submission of affidavits or hereinafter provided in this Section, by filing an
presentation of oral arguments) that a stay is application for registration in such form and containing
consistent with the public interest and the such information and supporting documents as the
protection of investors. Commission by rule shall prescribe, including the
following:
40.7. A self-regulatory organization shall promptly
notify the Commission of any disciplinary sanction on (a) An undertaking to comply and enforce
any member thereof or participant therein, any denial compliance by its participants with the
of membership or participation in such organization, provisions of this Code, and any amendments
or the imposition of any disciplinary sanction on a thereto, and the implementing rules or
person associated with a member or a bar of such regulations made or to be made thereunder,
person from becoming so associated. Within thirty and the clearing agency’s rules;
(30) days after such notice, any aggrieved person
may appeal to the Commission from, or the
(b) The organizational charts of the Exchange,
Commission from, or the Commission on its own
its rules of procedure, and list of its officers
motion within such period, may institute review of, the
and participants;
decision of the self-regulatory organization, at the
conclusion of which, after due notice and hearing
(which may consist solely of review of the record (c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be intermediary, issue shares to, or record the
granted unless the rules of the clearing agency transfer of some or all its shares into the name
include provision for: of said shareholders, investors or, securities
intermediary in the form of uncertified
(a) The expulsions, suspension, or disciplining securities. The use of uncertified securities in
of a participant for violations of this Code, or these circumstances shall be without
any other Act administered by the prejudice to the rights of the securities
Commission, the rules, regulations, and intermediary subsequently to require the
orders thereunder, or the clearing agency’s corporation to issue a certificate in respect of
rules; any shares recorded in its name; and

(b) A fair procedure for the disciplining of (b) If so provided in its articles of incorporation
participants, the denial of participation rights and by-laws, issue all of the shares of a
to any person seeking to be a participant, and particular class in the form of Uncertificated
the prohibition or limitation of any person from securities and subject to a condition that
access to services offered by the clearing investors may not require the corporation to
agency; issue a certificate in respect of any shares
recorded in their name.
(c) The equitable allocation of reasonable
dues, fees, and other charges among 43.2. The Commission by rule may allow other
participants; corporations to provide in their articles of
incorporation and by-laws for the use of uncertificated
(d) Prevention of fraudulent and manipulative securities.
acts and practices, promotion of just and
equitable principles of trade, and, in general, 43.3. Transfers of securities, including an
protection of investors and the public interest; uncertificated securities, may be validly made and
consummated by appropriate book-entries in the
(e) The transparent, prompt and accurate securities intermediaries, or in the stock and transfer
clearance and settlement of transactions in book held by the corporation or the stock transfer
securities handled by the clearing agency; and agent and such bookkeeping entries shall be binding
on the parties to the transfer. A transfer under this
subsection has the effect of the delivery of a security
(f) The establishment and oversight of a fund
in bearer form or duly indorsed in blank representing
to guarantee the prompt and accurate
the quantity or amount of security or right transferred,
clearance and settlement of transaction
including the unrestricted negotiability of that security
executed on an exchange, including a
by reason of such delivery. However, transfer of
requirement that members each contribute an
uncertificated shares shall only be valid, so far as the
amount based on their and a relevant
corporation is concerned, when a transfer is recorded
percentage of the daily exposure of the (4)
in the books of the corporation so as to show the
largest trading brokers which adequately
names of the parties to the transfer and the number of
reflects trading risks undertaken or pursuant
shares transferred.
to another formula set forth in Commission
rules or regulations or order, upon application:
Provided, however, That a clearing agency However, nothing in this Code shall compliance by
engaged in the business of securities banking and other institutions under the supervision of
depository shall be exempt from this the Bangko Sentral ng Pilipinas and their stockholders
requirement. with the applicable ceilings on shareholding
prescribed under pertinent banking laws and
regulations.
42.3. In the case of an application filed pursuant to
this section, the Commission shall grant registration if
it is finds That the requirements of this code and the Section 44. Evidentiary Value of Clearing Agency
rules and regulations thereunder with respect to the Record. – The official records and book entries of a
applicant have been satisfied, and shall deny clearing agency shall constitute the best evidence of
registration if it does not make such finding. such transactions between clearing agency shall
constitute the best between clearing agency and its
participants’ or members’ clients to prove their rights,
42.4. Upon appropriate application in accordance with
title and entitlement with respect to the book-entry
the rules and regulations of the Commission and upon
security holdings of the participants or members held
such terms as the Commission may deem necessary
on behalf of the clients. However, the corporation
for the protection of investors, a clearing agency may
shall not be bound by the foregoing transactions
withdraw its registration or suspend its operation or
unless the corporate secretary is duly notified in such
resume the same.
manner as the Commission may provide.
Section 43. Uncertificated Securities. –
Section 45. Pledging a Security or Interest Therein. –
Notwithstanding Section 63 of the Corporation Code
In addition to other methods recognized by law, a
of the Philippines: 43.1. A corporation whose
pledge of, including an uncertificated security, is
securities are registered pursuant to this Code or
properly constituted and the instrument proving the
listed on securities exchange may:
right pledged shall be considered delivered to the
creditor under Articles 2093 and 2095 of the Civil
(a) If so resolved by its Board of Directors and Code if a securities intermediary indicates by book
agreed by a shareholder, investor or securities entry that such security has been credited to a
specially designated pledge account in favor of the ng Pilipinas, shall prescribed rules and regulations
pledgee. A pledge under this subsection has the with respect to the amount of credit that may be
effect of the delivery of a security in bearer form or extended on any security. For the extension of credit,
duly indorsed in blank representing the quantity or such rules and regulations shall be based upon the
amount of such security or right pledged. In the case following standard:
of a registered clearing agency, the procedures by
which, and the exact time at which, such book-entries An amount not greater than the whichever is the
are created shall be governed by the registered higher of –
clearing agency’s rules. However, the corporation
shall not be bound by the foregoing transactions (a) Sixty-five per centum (65%) of the current
unless the corporate secretary is duly notified in such market price of the security, or
manner as the Commission may provide.
(b) One hundred per centum (100%) of the
Section 46. Issuer’s Responsibility for Wrongful lowest market price of the security during the
Transfer to Registered Clearing Agency. - The preceding thirty-six (36) calendar months, but
registration of a transfer of a security into the name of not more than seventy-five per centum (75%)
and by a registered clearing agency or its name of or of the current market price.
by a registered clearing agency or its nominee shall
be final and conclusive unless the clearing agency
However, the Monetary Board may increase or
had notice of an adverse claim before the registration
decrease the above percentages, in order to achieve
was made. The above provisions which the claimant
the objectives of the Government with due regard for
may have against the issuer for wrongful registration
promotion of the economy and prevention of the use
in such circumstances.
of excessive credit.
Section 47. Power of the Commission With Respect
Such rules and regulations may make appropriate
to Securities Ownership. – The Commission is
provision with respect to the carrying of
authorize, having due regard to the public interest and
undermargined accounts for limited periods and under
the protection of investors, to promulgate rules and
specified conditions; the withdrawal of funds or
regulations which:
securities; the transfer of accounts from one lender to
another; special or different margin requirements for
47.1. Validate the transfer of securities by book- delayed deliveries, short sales, arbitrage transactions,
entries rather than the delivery of physical certificates; and securities to which letter (b) of the second
paragraph of this subsection does not apply; the
47.2. Establish when a person acquires a security or methods to be used in calculating loans, and margins
an interest therein and when delivery of a security to a and market prices; and similar administrative
purchaser occurs; adjustments and details.

47.3. Establish which records constitute the best 48.2. No member of an Exchange or broker or dealer
evidence of a person’s interests in a security and the shall, directly or indirectly, extend or maintain credit is
effect of any errors in electronic records of ownership; extended and maintain credit or arrange for the
extension or maintenance of credit to or for any
47.4. Codify the rights of investors who choose to hold customer:
their securities indirectly through a registered clearing
agency and/ or other securities intermediaries; (a) On any security unless such credit is
extended and maintained in accordance with
47.5. Codify the duties of securities intermediaries the rules and regulations which the
(including clearing agencies) who hold securities on Commission shall prescribe under this Section
behalf of investors; and including rules setting credit in relation to net
capital of such member, broker or dealer; and
47.6 Give first priority to any claims of a registered
clearing agency against a participant arising from a (b) Without collateral or any collateral other
failure by the participant to meet its obligations under than securities, except (I) to maintain a credit
the clearing agency’s rules in respect of the clearing initially extended in conformity with rules and
and settlement of transactions in securities, in a regulations of the Commission and (ii) in
dissolution of the participant, and any such rules and cases where the extension or maintenance of
regulation shall bind the issuers of the securities, credit is not for the purpose of purchasing or
investors in the securities, any third parties with carrying securities or of evading or
interests in the securities, and the creditors of a circumventing the provisions of paragraph (a)
participant of a registered clearing agency. of this subsection.

CHAPTER XII 48.3 Any person not subject to Subsection 48.2

MARGIN AND CREDIT hereof shall extend or maintain credit or arrange for
the extension or maintenance of credit for the purpose
Section 48. Margin Requirements. – 48.1. For the of purchasing or carrying any security, only in
purpose of preventing the excessive use of credit for accordance with such rules and regulations as the
the purchase or carrying of securities, the Commission shall prescribe to prevent the excessive
Commission, in accordance with the credit and use of credit for the purchasing or carrying of or
monetary policies that may be promulgated from time trading in securities in circumvention of the other
to time by the Monetary Board of the Bangko Sentral provisions of this Section.. Such rules and regulations
may impose upon all loans made for the purpose of sale cannot be effected within said period for
purchasing or carrying securities limitations similar to justifiable reasons. The sale shall be without prejudice
those imposed upon members, brokers, or dealers by to the right of the broker or dealer to recover any
Subsection 48.2 and the rules and regulations deficiency from the customer. To prevent indirect
thereunder. This subsection and the rules and violation of the restrictions on borrowing under
regulations thereunder shall not apply: Section 49, the broker shall, unless otherwise directed
by the customer, pay the net sales price of the
(a) To a credit extension made by a person securities sold for a customer within the same period
not in the ordinary course of business; (b) to a as above prescribed by the Commission: Provided,
loan to a dealer to aid in the financing of the That the customer shall be required to deliver the
distribution of securities to customers not instruments evidencing the securities as a condition
through the medium of an Exchange; or (c) To for such payment upon demand by the broker.
such other credit extension as the
Commission shall exempt from the operation CHAPTER XIII
of this subsection and the rules and GENERAL PROVISIONS
regulations thereunder upon specified terms
and conditions for stated period. Section 51. Liabilities of Controlling Persons, Aider
and Abettor and Other Secondary Liability. 51.1.
Section 49. Restrictions on Borrowings by Members, Every person who, by or through stock ownership,
Brokers, and Dealers. – It shall be unlawful for any agency, or otherwise, or in connection with an
registered broker or dealer, or member of an agreement or understanding with one or more other
Exchange, directly or indirectly; persons, controls any person liable under this Code or
the rules or regulations of the Commission
49.1. To permit in the ordinary course of business as thereunder, shall also be liable jointly and severally
a broker or dealer his aggregate indebtedness with and to the same extent as such controlled
including customers’ credit balances, to exceed such persons to any person to whom such controlled
percentage of the net capital (exclusive of fixed assets person is liable, unless the controlling person proves
and value of Exchange membership) employed in the that, despite the exercise of due diligence on his part,
business, but not exceeding in any case to he has no knowledge of the existence of the facts by
thousand percentum (2,000%), as the Commission reason of which the liability of the controlled person is
may be rules and regulations prescribe as necessary alleged to exist.
or appropriate in the public interest or for the
protection of investors. 51.2. It shall be unlawful for any person, directly, or
indirectly, to do any act or thing which it would be
49.2. To pledge, mortgage, or otherwise encumber or unlawful for such person to do under the provisions of
arrange for the pledge, mortgage, or encumbrance of this Code or any rule or regulation thereunder.
any security carried for the account of any customer
under circumstances: (a) That will permit the 51.2. It shall be unlawful for any director or officer of,
commingling of his securities, without his written or any owner of any securities issued by, any issuer
consent, with the securities of any customer; (b) That required to file any document, report or other
will permit such securities to be commingled with the information under this Code or any rule or regulation
securities of any person other than a bona of the Commission thereunder, without just cause, to
fide customer; or (c) that will permit such securities to hinder, delay or obstruct the making or filing of any
be pledged, mortgaged or encumbered, or subjected such document, report, or information.
to any lien or claim of the pledgee, for a sum in
excess of the aggregate indebtedness of such 51.3. It shall be unlawful for any person to aid, abet,
customers in respect of such securities. However, the counsel, command, induce or procure any violation of
Commission, having due regard to the protection of this Code, or any rule, regulation or order of the
investors, may, by rules and regulations, allow certain Commission thereunder.
transactions that may otherwise be prohibited under
this subsection. 52.4. Every person who substantially assists the act
or omission of any person primarily liable under
49.3. To lend or arrange for the lending of any Sections 57, 58, 59 and 60 of this Code, with
security carried for the account of any customer knowledge or in reckless disregard that such act or
without the written consent of such customer or in omission is wrongful, shall be jointly and severally
contravention of such rules and regulations as the liable as an aider and abettor for damages resulting
Commission shall prescribe. from the conduct of the person primarily
liable: Provided, however, That an aider and abettor
Section 50. Enforcement of Margin Requirement and shall be liable only to the extent of his relative
Restrictions on Borrowing. – To prevent indirect contribution in causing such damages in comparison
violations of the margin requirements under Section to that of the person primarily liable, or the extent to
48, the broker or dealer shall require the customer in which the aider and abettor was unjustly enriched
non-margin transactions to pay the price of the thereby, whichever is greater.
security purchased for his account within such period
as the Commission may prescribe, which shall in no Section 52. Accounts and Records, Reports,
case exceed the prescribed settlement date. Examination of Exchanges, members, and Others. –
Otherwise, the broker shall sell the security purchased 52.1. Every registered Exchange, broker or dealer,
starting on the next trading day but not beyond ten transfer agent, clearing agency, securities
(10) trading days following the last day for the association, and other self-regulatory organization,
customer to pay such purchase price, unless such and every other person required to register under this
Code, shall make, keep and preserve for such necessary in the conduct of such investigation or
periods, records, furnish such copies thereof, and proceedings.
make such reports, as the Commission by its rules
and regulations may prescribe. Such accounts, 53.3. Whenever it shall appear to the Commission
correspondence, memoranda, papers, books, and that any person has engaged or is about to engage in
other records shall be subject at any time to such any act or practice constituting a violation of any
reasonable periodic, special or other examinations by provision of this Code, any rule, regulation or order
representatives of the Commission as the thereunder, or any rule of an Exchange, registered
Commission may deem necessary or appropriate in securities association, clearing agency or other self-
the public interest of for the protection of investors. regulatory organization, it may issue an order to such
person to desist from committing such act or
52.2. Any brother, dealer or other person extending practice: Provided, however, That the Commission
credit, who is subject to the rules and regulations shall not charge any person with violation of the rules
prescribed by the Commission pursuant to this Code, of an Exchange or other self-regulatory organization
shall make such reports to the Commission as may be unless it appears to the Commission that such
necessary or appropriate to enable it to perform the Exchange or other self-regulatory organization is
functions conferred upon it by this Code. unable or unwilling to take action against such person.
After finding that such person has engaged in any
52.3. For purposes of this Section, the term "records such act or practice and that there is a reasonable
refers to accounts, correspondence, memoranda, likelihood of continuing, further or future violations by
tapes, discs, papers, books and other documents or such person, the Commission may issue ex-parte a
transcribed information of any type, whether written or cease and desist order for a maximum period of ten
electronic in character. (10) days, enjoining the violation and compelling
compliance with such provision. The Commission may
Section 53. Investigations, Injunctions and transmit such evidence as may be available
Prosecution of Offenses. 53.1. The Commission may, concerning any violation of any provision of this Code,
in its discretion, make such investigations as it deems or any rule, regulation or order thereunder, to the
necessary to determine whether any person has Department of Justice, which may institute the
violated or is about to violate any provision of this appropriate criminal proceedings under this Code.
Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association, 53.4. Any person who, within his power but without
clearing agency, other self-regulatory organization, cause, fails or refuses to comply with any lawful order,
and may require or permit any person to file with it a decision or subpoena issued by the Commission
statement in writing, under oath or otherwise, as the under Subsection 53.2 or Subsection 53.3 or Section
Commission shall determine, as to all facts and 64 of this Code, shall after due notice and hearing, be
circumstances concerning the matter to be guilty of contempt of the Commission. Such person
investigated. The Commission may publish shall be fined in such reasonable amount as the
information concerning any such violations, and to Commission may determine, or when such failure or
investigate any fact, condition, practice or matter refusal is a clear and open defiance of the
which it may deem necessary or proper to aid in the Commission’s order, decision or subpoena, shall be
enforcement of the provisions of this Code, in the detained under an arrest order issued by the
prescribing of rules and regulations thereunder, or in Commission, until such order, decision or subpoena is
securing information to serve as a basis for complied with.
recommending further legislation concerning the
matters to which this Code relates: Provided, Section 54. Administrative Sanctions. – 54.1. If, after
however, That any person requested or subpoenaed due notice and hearing, the Commission finds that: (a)
to produce documents or testify in any investigation There is a violation of this Code, its rule, or its orders;
shall simultaneously be notified in writing of the (b) Any registered broker or dealer, associated person
purpose of such investigation: Provided, further, That thereof has failed reasonably to supervise, with a view
all criminal complaints for violations of this Code, and to preventing violations, another person subject to
the implementing rules and regulations enforced or supervision who commits any such violation; (c) Any
administered by the Commission shall be referred to registrant or other person has, in a registration
the Department of Justice for preliminary investigation statement or in other reports, applications, accounts,
and prosecution before the proper court: Provided, records or documents required by law or rules to be
furthermore, That in instances where the law allows filed with the Commission, made any untrue
independent civil or criminal proceedings of violations statement of a material fact, or omitted to state any
arising from the same act, the Commission shall take material fact required to be stated their or necessary
appropriate action to implement the same: provided, to make the statements therein not misleading; or, in
finally, That the investigation, prosecution, and trial of the case of an underwriter, has failed to conduct an
such cases shall be given priority. inquiry with reasonable diligence to insure that a
registration statement is accurate and complete in all
53.2. For the purpose of any such investigation, or material respects; or (d) Any person has refused to
any other proceeding under this Code, the permit any lawful examinations into its affairs, it shall,
Commission or any officer designated by it is in its discretion, and subject only to the limitations
empowered to administer oaths and hereinafter prescribed, impose any or all of the
affirmations, subpoena witnesses, compel following sanctions as may be appropriate in light of
attendance, take evidence, require the production of the facts and circumstances:
any book, paper, correspondence, memorandum, or
other record which the Commission deems relevant or (i) Suspension, or revocation of any
material to the inquiry, and to perform such other acts registration for the offering of securities;
 (ii) A fine of no less than Ten thousand pesos (b) Every person who was a director of, or any
(P10,000.00) nor more than One million pesos other person performing similar functions, or a
(P1,000,000.00) plus not more than Two partner in, the issuer at the time of the filing of
thousand pesos (P2,000.00) for each day of the registration statement or any part,
continuing violation; supplement or amendment thereof with
respect to which his liability is asserted;
(iii) In the case of a violation of Sections 19.2,
20, 24, 26 and 27, disqualification from being (c) Every person who is named in the
an officer, member of the Board of Directors, registration statement as being or about to
or person performing similar functions, of an become a director of, or a person performing
issuer required to file reports under Section 17 similar functions, or a partner in, the issuer
of this Code or any other act, rule or and whose written consent thereto is filed with
regulation administered by the Commission; the registration statement;

(iv) In the case of a violation of Section 34, a (d) Every auditor or auditing firm named as
fine of no more than three (3) times the profit having certified any financial statements used
gained or loss avoided as result of the in connection with the registration statement
purchase, sale or communication proscribed or prospectus.
by such Section, and
(e) Every person who, with his written
(v) Other penalties within the power of the consent, which shall be filed with the
Commission to impose. registration statement, has been named as
having prepared or certified any part of the
54.2. The imposition of the foregoing administrative registration statement, or as having prepared
sanctions shall be without prejudice to the filing of or certified any report or valuation which is
criminal charges against the individuals responsible used in connection with the registration
for the violation. statement, with respect to the statement,
report, or valuation, which purports to have
54.3. The Commission shall have the power to issue been prepared or certified by him.
writs of execution to enforce the provisions of the
Section and to enforce payment of the fees and other (f) Every selling shareholder who contributed
dues collectible under this Code. to and certified as to the accuracy of a portion
of the registration statement, with respect to
Section 55. Settlement Offers. – 55.1. At any time, that portion of the registration statement which
during an investigation or proceeding under this Code, purports to have been contributed by him.
parties being investigated and/or charged may
propose in writing an offer of settlement with the (g) Every underwriter with respect to such
Commission. security.

55.2. Upon receipt of such offer of settlement, the 56.2. If the person who acquired the security did so
Commission may consider the offer based on timing, after the issuer has made generally available to its
the nature of the investigation or proceeding, and the security holders an income statement covering a
public interest. period of at least twelve (12) months beginning from
the effective date of the registration statement, then
55.3. The Commission may only agree to a settlement the right of recovery under this subsection shall be
offer based on its findings that such settlement is in conditioned on proof that such person acquired the
the public interest. Any agreement to settle shall have security relying upon such untrue statement in the
no legal effect until publicly disclosed. Such decision registration statement or relying upon the registration
may be made without a determination of guilt on the statement and not knowing of such income statement,
part of the person making the offer. but such reliance may be established without proof of
the reading of the registration statement by such
person.
55.4. The Commission shall adopt rules and
procedures governing the filing, review, withdrawal,
form of rejection and acceptance of such offers. Section 57. Civil Liabilities Arising in Connection With
Prospectus, Communications and Reports. 57.1. Any
person who:
Section 56. Civil Liabilities on Account of False
Registration Statement. 56.1. Any person acquiring a
security, the registration statement of which or any (a) Offers to sell or sells a security in violation
part thereof contains on its effectivity an untrue of Chapter III, or
statement of a material fact or omits to state a
material fact required to be stated therein or (b) Offers to sell or sells a security, whether or
necessary to make such statements not misleading, not exempted by the provisions of this Code,
and who suffers damage, may sue and recover by the use of any means or instruments of
damages from the following enumerated persons, transportation or communication, by means of
unless it is proved that at the time of such acquisition a prospectus or other written or oral
he knew of such untrue statement or omission: communication, which includes an untrue
statement of a material fact or omits to state a
(a) The issuer and every person who signed material fact necessary in order to make the
the registration statement: statements, in the light of the circumstances
 under which they were made, not misleading 27.1 and any person in the case of a tender offer who
(the purchaser not knowing of such untruth or violates Subsection 27.4 (a)(I), or any rule or
omission), and who shall fail in the burden of regulation thereunder, by purchasing or selling a
proof that he did not know, and in the exercise security while in possession of material information
of reasonable care could not have known, of not generally available to the public, shall be liable in
such untruth or omission, shall be liable to the a suit brought by any investor who,
person purchasing such security from him, contemporaneously with the purchase or sale of
who may sue to recover the consideration securities that is the subject of the violation,
paid for such security with interest thereon, purchased or sold securities of the same class unless
less the amount of any income received such insider, or such person in the case of a tender
thereon, upon the tender of such security, or offer, proves that such investor knew the information
for damages if he no longer owns the security. or would have purchased or sold at the same price
regardless of disclosure of the information to him.
57.2. Any person who shall make or cause to be
made any statement in any report, or document filed 61.2. An insider who violates Subsection 27.3 or any
pursuant to this Code or any rule or regulation person in the case of a tender offer who violates
thereunder, which statement as at the time and in the Subsection 27.4 (a), or any rule or regulation
light of the circumstances under which it was made thereunder, by communicating material nonpublic
false or misleading with respect to any material fact, information, shall be jointly and severally liable under
shall be liable to any person who, not knowing that Subsection 61.1 with, and to the same extent as, the
such statement was false or misleading, and relying insider, or person in the case of a tender offer, to
upon such statement shall have purchased or sold a whom the communication was directed and who is
security at a price which was affected by such liable under Subsection 61.1 by reason of his
statement, for damages caused by such reliance, purchase or sale of a security.
unless the person sued shall prove that he acted in
good faith and had no knowledge that such statement Section 62. Limitation of Actions. – 62.1. No action
was false or misleading. shall be maintained to enforce any liability created
under Section 56 or 57 of this Code unless brought
Section 58. Civil Liability of Fraud in Connection with within two (2) years after the discovery of the untrue
Securities Transactions. – Any person who engages statement or the omission, or, if the action is to
in any act or transaction in violation of Sections 19.2, enforce a liability created under Subsection 57.1 (a),
20 or 26, or any rule or regulation of the Commission unless, brought within two (2) yeas after the violation
thereunder, shall be liable to any other person who upon which it is based. In no event shall an such
purchases or sells any security, grants or refuses to action be brought to enforce a liability created under
grant any proxy, consent or authorization, or accepts Section 56 or Subsection 57.1 (a) more than five (5)
or declines an invitation for tender of a security, as the years after the security was bona fide offered to the
case may be, for the damages sustained by such public, or under Subsection 57.1 (b0 more than five
other person as a result of such act or transaction. (5) years after the sale.

Section 59. Civil Liability for Manipulation of Security 62.2. No action shall be maintained to enforce any
Prices. – Any person who willfully participates in any liability created under any other provision of this Code
act or transaction in violation of Section 24 shall be unless brought within two (20 years after the
liable to any person who shall purchase or sell any discovery of the facts constituting the cause of action
security at a price which was affected by such act or and within five (5) years after such cause of action
transaction, and the person so injured may sue to accrued.
recover the damages sustained as a result of such act
or transaction. Section 63. Amount of Damages to be Awarded. –
63.1. All suits to recover damages pursuant to
Section 60. Civil Liability with Respect to Commodity Sections 56, 57, 58, 59, 60 and 61 shall be brought
Futures Contracts and Pre-need Plans. – 60.1. Any before the Regional Trial Court, which shall have
person who engages in any act or transactions in exclusive jurisdiction to hear and decide such suits.
willful violation of any rule or regulation promulgated The Court is hereby authorized to award damages in
by the Commission under Section 11 or 16, which the an amount not exceeding triple the amount of the
Commission denominates at the time of issuance as transaction plus actual damages.
intended to prohibit fraud in the offer and sale of pre-
need plans or to prohibit fraud, manipulation, fictitious Exemplary damages may also be awarded in cases of
transactions, undue speculation, or other unfair or bad faith, fraud, malevolence or wantonness in the
abusive practices with respect to commodity future violation of this Code or the rules and regulations
contracts, shall be liable to any other person promulgated thereunder.
sustaining damages as a result of such act or
transaction. The Court is also authorized to award attorney’s fees
not exceeding thirty percentum (30%) of the award.
60.2. As to each such rule or regulation so
denominated, the Commission by rule shall prescribe 63.2. The persons specified in Sections 56, 57, 58,
the elements of proof required for recovery and any 59, 60 and 61 hereof shall be jointly and severally
limitations on the amount of damages that may be liable for the payment of damages. However, any
imposed. person who becomes liable for the payment of such
damages may recover contribution from any other
Section 61. Civil Liability on Account of Insider person who, if sued separately, would have been
Trading. – 61.1. Any insider who violates Subsection liable to make the same payment, unless the former
was guilty of fraudulent representation and the latter revealing of trade secrets or processes in any
was not. application, report, or document filed with the
Commission.
63.3. Notwithstanding any provision of law to the
contrary, all persons, including the issuer, held liable 66.3. Any person filing any such application, report or
under the provisions of Sections 56, 57, 58, 59, 60 document may make written objection to the public
and 61 shall contribute equally to the total liability disclosure of information contained therein, stating the
adjudged herein. In no case shall the principal grounds for such objection, and the Commission may
stockholders, directors and other officers of the issuer hear objections as it deems necessary. The
or persons occupying similar positions therein, Commission may, in such cases, make available to
recover their contribution to the liability from the the public the information contained in any such
issuer. However, the right of the issuer to recover application, report, or document only when a
from the guilty parties the amount it has contributed disclosure of such information is required in the public
under this Section shall not be prejudiced. interest or for the protection of investors; and copies
of information so made available may be furnished to
Section 64. Cease and Desist Order. – 64.1. The any person having a legitimate interest therein at such
Commission, after proper investigation or reasonable charge and under such reasonable
verification, motu proprio or upon verified complaint by limitations as the Commission may prescribe.
any aggrieved party, may issue a cease and desist
order without the necessity of a prior hearing if in its 66.4. It shall be unlawful for any member, officer, or
judgment the act or practice, unless restrained, will employee of the Commission to disclose to any
operate as a fraud on investors or is otherwise likely person other than a member, officer or employee of
to cause grave or irreparable injury or prejudice to the the Commission or to use for personal benefit, any
investing public. information contained in any application, report, or
document filed with the Commission which is not
64.2. Until the Commission issue a cease and desist made available to the public pursuant to Subsection
order, the fact that an investigation has been initiated 66.3.
or that a complaint has been filed, including the
contents of the complaint, shall be confidential. Upon 66.5. Notwithstanding anything in Subsection 66.4 to
issuance of a cease and desist order, the Commission the contrary, on request from a foreign enforcement
shall make public such order and a copy thereof shall authority of any country whose laws grant reciprocal
be immediately furnished to each person subject to assistance as herein provided, the Commission may
the order. provide assistance in accordance with this subsection,
including the disclosure of any information filed with or
64.3. Any person against whom a cease and desist transmitted to the Commission. If the requesting
order was issued may, within five (5) days from authority states that it is conducting an investigation
receipt of the order, file a formal request for a lifting which it deems necessary to determine whether any
thereof. Said request shall be set for hearing by the person has violated, is violating, or is about to violate
Commission not later than fifteen (15) days from its any laws relating to securities or commodities matters
filing and the resolution thereof shall be made not that the requesting authority administers or enforces.
later than ten (10) days from the termination of the Such assistance may be provided without regard to
hearing. If the Commission fails to resolve the request whether the facts stated in the request would also
within the time herein prescribed, the cease and constitute a violation of law of the Philippines.
desist order shall automatically be lifted.
Section 67. Effect of action of Commission and
Section 65. Substituted Service Upon the Unlawful Representations with Respect Thereto. –
Commission. – Service of summons or other process 67.1. No action or failure to act by the Commission in
shall be made upon the Commission in actions or the administration of this Code shall be construed to
legal proceedings against an issuer or any person mean that the Commission has in any way passed
liable under this Code who is not domiciled in the upon the merits of or given approval to any security or
Philippines. Upon receipt by the Commission of such any transactions or transactions therein, nor shall
summons, the Commission shall within ten (10) days such action or failure to act with regard to any
thereafter, transmit by registered mail a copy of such statement or report filed with or examined by the
summons and the complaint or other legal process to Commission pursuant to this Code or the rules and
such issuer or person at his last known address or regulations thereunder to be deemed a finding by the
principal office. The sending thereof by the Commission that such statements or report is true and
Commission, the expenses for which shall be accurate on its face or that it is not false or
advanced by the party at whose instance it is made, misleading. It shall be unlawful to make, or cause to
shall complete such service. be made, to any prospective purchaser or seller or a
security any representation that any such action or
Section 66. Revelation of Information Filed with the failure to act by the Commission is to be so construed
Commission. – 66.1. All information filed with the or has such effect.
commission in compliance with the requirements of
this Code shall be made available to any member of 67.2. Nothing contained in Subsection 67.1 shall,
the general public, upon request, in the premises and however, be construed as an exemption from liability
during regular office hours of the Commission, except of an employee or officer of the Commission for any
as set forth in this Section. nonfeasance, misfeasance or malfeasance in the
discharge of his official duties.
66.2. Nothing in this Code shall be construed to
require, or to authorize the Commission to require, the
Section 68. Special Accounting Rules. – The knowledge of the facts by reason of which the
Commission shall have the authority to make, amend, making or performance of such contract was
and rescind such accounting rules and regulations as in violation of any such provision, rule or
may be necessary to carry out the provisions of this regulation.
Code, including rules and regulations as may be
necessary to carry out the provisions of this Code, 71.3. Nothing in this Code shall be construed:
including rules and regulations governing registration
statements and prospectuses for various classes of (a) To affect the validity of any loan or
securities and issuers, and defining accounting, extension of credit made or of any lien created
technical and trade terms used in this Code. Among prior or subsequent to the effectivity of this
other things, the Commission may prescribe the form Code, unless at the time of the making of such
or forms in which required information shall be set loan or extension of credit or the creating of
forth, the items or details to be shown in the balance such lien, the person making such loan or
sheet and income statement, and the methods to be extension of credit or acquiring such lien shall
followed in the preparation of accounts, appraisal or have actual knowledge of the facts by reason
valuation of assets and liabilities, determination of of which the making of such loan or extension
depreciation and depletion, differentiation of recurring of credit or the acquisition of such lien is a
and non-recurring income, differentiation of violation of the provisions of this Code or any
investment and operating income, and in the rules or regulations thereunder, or
preparation, where the Commission deems it
necessary or desirable of consolidated balance
(b) To afford a defense to the collection of any
sheets or income accounts of any person directly or
debt, obligation or the enforcement of any lien
indirectly controlling or controlled by the issuer, or any
by any person who shall have acquired such
person under direct or indirect common control with
debt, obligation or lien in good faith for value
the issuer.
and without actual knowledge of the violation
of any provision of this Code or any rule or
Section 69. Effect on Existing Law. – The rights and regulation thereunder affecting the legality of
remedies provided by this Code shall be in addition to such debt, obligation or lien.
any and all order rights and remedies that may now
exist. However, except as provided in Section 56 and
Section 72. Rules and Regulations; Effectivity. –
63 hereof, no person permitted to maintain a suit for
72.1. This Code shall be self-executory. To effect the
damages under the provisions of this Code shall
provisions and purposes of this Code, the
recover, through satisfaction of judgment in one or
Commission may issue, amend, and rescind such
more actions, a total amount in excess of his actual
rules and regulations and orders necessary or
damages on account of the act complained
appropriate, including rules and regulations defining
of: Provided, That exemplary damages may be
accounting, technical, and trade terms used in this
awarded in cases of bad faith, fraud, malevolence or
Code, and prescribing the form or forms in which
wantonness in the violation of this Code or the rules
information required in registration statements,
and regulations promulgated thereunder.
applications, and reports to the Commission shall be
set forth. For purposes of its rules or regulations, the
Section 70. Judicial Review of Commission Orders. – Commission may classify persons, securities, and
Any person aggrieved by an order of the Commission other matters within its jurisdiction, prescribe different
may appeal the order to the Court of Appeals by requirements for different classes of persons,
petition for review in accordance with the pertinent securities, or matters, and by rule or order,
provisions of the Rules of Court. conditionally or unconditionally exempt any person,
security, or transaction, or class or classes of
Section 71. Validity of Contracts. – 71.1. Any persons, securities or transactions, from any or all
condition, stipulation, provision binding any person to provisions of this Code.
waive compliance with any provision of this Code or of
any rule or regulation thereunder, or of any rule of an Failure on the part of the Commission to issue rules
Exchange required thereby, as well as the waiver and regulations shall not in any manner affect the self-
itself, shall be void. executory nature of this Code.

71.2. Every contract made in violation of any provision 72.2. The Commission shall promulgate rules and
of this Code or of any rule or regulation thereunder, regulations providing for reporting, disclosure and the
and every contract, including any contract for listing a prevention of fraudulent, deceptive or manipulative
security or an Exchange heretofore or hereafter practices in connection with the purchase by an
made, the performance of which involves the violation issuer, by tender offer or otherwise, of and equity
of, or the continuance of any relationship or practice in security of a class issued by it that satisfies the
violation of, any provision of this Code, or any rule or requirements of Subsection 17.2. such rules and
regulation thereunder, shall be void: regulations may require such issuer to provide holders
of equity securities of such dates with such
(a) As regards the rights of any person who, in information relating to the reasons for such purchase,
violation of any such provision, rule or the source of funds, the number of shares to be
regulation, shall have made or engaged in the purchased, the price to be paid for such securities, the
performance of any such contract, and method of purchase and such additional information
as the Commission deems necessary or appropriate
(b) As regards the rights of any person who, in the public interest or for the protection of investors,
not being a party to such contract, shall have or which the Commission deems to be material to a
acquired any right thereunder with actual
determination by holders whether such security All unexpended funds for the calendar year,
should be sold. properties, equipment and records of the Securities
and Exchange Commission are hereby retained by
72.3. For the purpose of Subsection 72.2, a purchase the Commission as reorganized under this Code and
by or for the issuer or any person controlling, the amount of Two hundred million pesos
controlled by, or under common control with the (P200,000,000.00) or such amount necessary to carry
issuer, or a purchase subject to the control of the out the reorganization provided in this Code is hereby
issuer or any such person, shall be deemed to be a appropriated.
purchased by the issuer. The commission shall have
the power to make rules and regulations implementing All employees of the Commission who voluntarily
this subsection, including exemptive rules and retire or are separated from the service with the
regulations covering situations in which the Commission and whose retirement or separation has
Commission deems it unnecessary or inappropriate been approved by the Commission, shall be paid
that a purchase of the type described in this retirement or separation benefits and other
subsection shall be deemed to be a purchase by the entitlement granted under existing laws.
issuer for the purpose of some or all of the provisions
of Subsection 72.2. Section 75. Partial Use of Income. – To carry out the
purposes of this Code, the Commission is hereby
72.4. The rules and regulations promulgated by the authorized, in addition to its annual budget, to retain
Commission shall be published in two (20 and utilize an amount equal to One hundred million
newspapers or general circulation in the Philippines, pesos (P100,000,000.00) from its income.
and unless otherwise prescribed by the Commission,
the same shall be effective fifteen (15) days after the The use of such additional amount shall be subject to
date of the last publication. the auditing requirements, standards and procedures
under existing laws.
Section 73. Penalties. – Any person who violates any
of the provisions of this Code, or the rules and Section 76. Repealing Clause. – The Revised
regulations promulgated by the Commission under Securities Act (Batas Pambansa Blg. 178), as
authority thereof, or any person who, in a registration amended, are hereby repealed. All other laws, orders,
statement filed under this Code, makes any untrue rules and regulations, or parts thereof, inconsistent
statement of a material fact or omits to state any with any provision of this Code are hereby repealed or
material fact required to be stated therein or modified accordingly.
necessary to make the statements therein not
misleading, shall, upon conviction, suffer a fine of not Section 77. Separability Clause. – if any portion or
less than Fifty thousand pesos (P50,000.00) nor more provision of this Code is declared unconstitutional or
than Five million pesos (P5,000,000.00) or invalid, the other portions or provisions hereof, which
imprisonment of not less than seven (7) years nor are not affected thereby shall continue in full force and
more than twenty-one (21) years, or both in the effect.
discretion of the court. If the offender is a corporation,
partnership or association or other juridical entity, the
Section 78. Effectivity. – This Code shall take effect
penalty may in the discretion of the court be imposed
fifteen (15) days after its publication in the Official
upon such juridical entity and upon the officer or
Gazette or in two (2) newspapers of general
officers of the corporation, partnership, association or
circulation.
entity responsible for the violation, and if such officer
is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings Approved: July 19, 2000
after service of sentence.

Section 74. Transitory Provisions. – The

Commission, as organized under existing laws, shall
continue to exist and exercise its powers, functions
and duties under such laws and this Code: Provided,
That until otherwise mandated by a subsequent law,
the Commission shall continue to regulate and
supervise commodity futures contracts as provided in
Section 11 and pre-need plans and the pre-need
industry as provided in Section 16 of this Code.

All further requirements herein shall be complied with

upon approval of this Code: Provided, however, That
compliance may be deferred for such reasonable time
as the Commission may determine but not to exceed
one (1) year from approval of this Code: Provided,
further, That securities which are being offered at the
time of effectivity of this Code pursuant to an effective
registration and permit, may continue to be offered
and sold in accordance with the provisions of the
Revised Securities Act in effect immediately prior to
approval of this Code.