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    Chung Ka Bio Vs IAC

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    Omsim
    This case involves a dispute between stockholders of an old corporation, Chung Ka Bio, and a new corporation, IAC, that was formed to take over the assets and business of the old corporation. The key issues are: 1) whether the board of the old corporation had the power to transfer assets to the new corporation without stockholder consent, 2) whether the new corporation must account for the assets to non-consenting stockholders, and 3) whether the SEC has jurisdiction over a suspension of payments petition filed by an individual. The court rules against Chung Ka Bio on the first two issues, finding their claims are barred by laches. It also upholds the SEC's ruling that it lacks jurisdiction over an

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    Chung Ka Bio Vs IAC

    Uploaded by

    Omsim
    101 views4 pages
    This case involves a dispute between stockholders of an old corporation, Chung Ka Bio, and a new corporation, IAC, that was formed to take over the assets and business of the old corporation. The key issues are: 1) whether the board of the old corporation had the power to transfer assets to the new corporation without stockholder consent, 2) whether the new corporation must account for the assets to non-consenting stockholders, and 3) whether the SEC has jurisdiction over a suspension of payments petition filed by an individual. The court rules against Chung Ka Bio on the first two issues, finding their claims are barred by laches. It also upholds the SEC's ruling that it lacks jurisdiction over an

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    13. Chung Ka Bio vs IAC

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    This case involves a dispute between stockholders of an old corporation, Chung Ka Bio, and a new corporation, IAC, that was formed to take over the assets and business of the old corporation. The key issues are: 1) whether the board of the old corporation had the power to transfer assets to the new corporation without stockholder consent, 2) whether the new corporation must account for the assets to non-consenting stockholders, and 3) whether the SEC has jurisdiction over a suspension of payments petition filed by an individual. The court rules against Chung Ka Bio on the first two issues, finding their claims are barred by laches. It also upholds the SEC's ruling that it lacks jurisdiction over an

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    101 views4 pages

    Chung Ka Bio Vs IAC

    Uploaded by

    Omsim
    This case involves a dispute between stockholders of an old corporation, Chung Ka Bio, and a new corporation, IAC, that was formed to take over the assets and business of the old corporation. The key issues are: 1) whether the board of the old corporation had the power to transfer assets to the new corporation without stockholder consent, 2) whether the new corporation must account for the assets to non-consenting stockholders, and 3) whether the SEC has jurisdiction over a suspension of payments petition filed by an individual. The court rules against Chung Ka Bio on the first two issues, finding their claims are barred by laches. It also upholds the SEC's ruling that it lacks jurisdiction over an

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    Chung Ka Bio vs.

    IAC

    Facts:

    Chung Ka Bio and other petitioners are all stockholders of the old Philippine Blooming
    Mills (PBM) to which they filed in the SEC a petition for liquidation of both the old and
    the new PBM. Alleging that PBM is legally non-existent for failure to extend its corporate
    life and that the latter had been dissolved for non-use of charter and failure to operate
    within 2 years of incorporation.

    Dismissed for lack of a cause of action the case was reinstated on appeal in the SEC
    En Banc and remanded to a new panel of hearing officers, including the proper
    accounting of assets and liabilities of old PBM. The order was appealed in the
    Intermediate Appellate Court (IAC) in a petition for partial review questioning the
    authority of the SEC to adjudicate the matter not properly raised in appeal.

    Ching a board of director of the old PBM who executed a deed of assignment
    filed a separate petition for certiorari alleging that  the SEC had gravely erred in not
    dismissing the petition for liquidation since the action amounted to a quo
    warranto proceeding which only the state could institute through the Solicitor General.

    The new PBM and Ching filed with the SEC a petition for suspension of payment
    which Chung opposed on the grounds that SEC had no jurisdiction over a petition for
    suspension of payments initiated by a mere individual but was rejected to which Chung
    elevated it to the SEC En Banc but remanded it to the hearing officers. Chung Ka Bio
    came to this court but we referred his case to the IAC to which the decision affirmed the
    orders issued by SEC.

    Issue(s):

    1. The board of directors of an already dissolved corporation does not have the inherent
    power, without the express consent of the stockholders, to convey all its assets to a new
    corporation.
    2. The new corporation is accountable for the said assets to the stockholders of the
    dissolved corporation who had not consented to the conveyance of the same to the new
    corporation.

    3. The new corporation has not substantially complied with the two-year requirement of
    Section 22 of the new Corporation Code on non-user because its stockholders never
    adopted a set of by-laws.

    4. A quo warranto proceeding is no longer necessary to dissolve a corporation which is


    already "deemed dissolved" under Section 22 of the new Corporation Code.

    5. The Securities and Exchange Commission has no jurisdiction over a petition for
    suspension of payments filed by an individual only.

    Held:

    First and Second Issue reject for grounds of laches

    Chung Ka Bio’s contention that no stockholders' meeting was held and the 2/3 consent
    vote was not obtained, the court ruled there is no need for affirmative proof. Under
    Section 28-1/2 of Corporation Law now Sec 40 of the Corporation code, "any
    stockholder who did not vote to authorize the action of the board of directors may, within
    forty days after the date upon which such action was authorized, object thereto in
    writing and demand payment for his shares." The record does not show, nor have that
    Chung Ka Bio et. Al. alleged or proven, that they filed a written objection and demanded
    payment of their shares during the reglementary forty-day period. This circumstance
    should bolster Ching Et. Al. claim that the authorization was unanimous.

    Winding up is the sole activity of a dissolved corporation that does not intend to
    incorporate anew. If it does, however, it is not unlawful for the old board of directors to
    negotiate and transfer the assets of the dissolved corporation to the new corporation
    intended to be created as long as the stockholders have given their consent. This was
    not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-
    1/2.
    It was especially intrigueing that the deed of assignment was executed in 1977 it was
    only on 1981 to which Chung Ka Bio Et. Al questioned its validity 4 years have elapsed
    to which during this period the new PBM was in full operation openly and quite visibly
    conducting the same business undertaken earlier by the old dissolved PBM. And
    additionaly Pek one of the petitioners was one of the directors who executed the deed
    of assignment in favor of the old PBM and became a treasurer of the new PBM, these
    circumstances must operate to bar the petitioners now from questioning the deed of
    assignment after this long period of inaction in the protection of the rights they are now
    belatedly asserting. Laches has operated against them.

    The essential elements of laches are: (1) conduct on the part of the defendant, or of one
    under whom he claims, giving rise to the situation complained of; (2) delay in asserting
    complainant's right after he had knowledge of the defendant's conduct and after he has
    an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that
    the complainant would assert the right on which he bases his suit; (4) injury or prejudice
    to the defendant in the event relief is accorded to the complainant. Which are all present
    in the case at bar.

    The third also rejected

    As failure to file the by-laws does not automatically operate to dissolve a corporation but
    is now considered only a ground for such dissolution. Under Section 19 of the
    Corporation Law, part of which is now Section 22 of the Corporation Code, provided that
    the powers of the corporation would cease if it did not formally organize and commence
    the transaction of its business or the continuation of its works within two years from date
    of its incorporation. Section 20, which has been reproduced with some modifications in
    Section 46 of the Corporation Code, expressly declared that "every corporation formed
    under this Act, must within one month after the filing of the articles of incorporation with
    the Securities and Exchange Commission, adopt a code of by-laws." Whether this
    provision should be given mandatory or only directory effect remained a controversial
    question until it became academic with the adoption of PD 902-A. Under this decree, it
    is now clear that the failure to file by-laws within the required period is only a ground for
    suspension or revocation of the certificate of registration of corporations. Under the
    rules and regulations of the SEC, failure to file the by-laws on time may be penalized
    merely with the imposition of an administrative fine without affecting the corporate
    existence of the erring firm. To which in the case at bar the deficiency claimed by the
    Chung Ka Bio was corrected when the new PBM adopted and filed its by-laws on
    September 6, 1981.

    Fourth rejected

    As New PBM is still operating and not dissolved

    Fifth Issue: Yes

    Where no authority is granted to hear petitions of individuals for suspension of


    payments, such petitions are beyond the competence of the SEC.

    Under Section 5(d), PD 902-A, as amended by PD 1758, however, it is clearly provided


    that such jurisdiction may be exercised only in:

    d) Petitions of corporations, partnerships or associations to be declared in the state of


    suspension of payments in cases where the corporation, partnership or association
    possess sufficient property to cover all its debts but foresees the impossibility of
    meeting them when they respectively fall due or in cases where the corporation,
    partnership or association has no sufficient assets to cover its liabilities but is under the
    management of a Rehabilitation Receiver or Management Committee created pursuant
    to this Decree.

    This section clearly does not allow a mere individual to file the petition which is limited to
    "corporations, partnerships or associations."

    The circumstance that Ching is a co-signer in the corporation's promissory notes,


    collateral or guarantee or security agreements, does not make him a proper party.
    Hence, Alfredo Ching, as a mere individual, cannot be allowed as a co-petitioner in SEC
    Case No. 2250.

    The courts affirmed the decision of IAC

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