SEC to remove, bar ‘unqualified’ leaders under new corporate rules
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The Securities and Exchange Commission (SEC) is writing a playbook on how Philippine companies can prevent unworthy people from taking on key leadership roles, citing continuing efforts to promote good corporate governance.
The corporate regulator recently released for public comment a draft memorandum circular on the disqualifications of directors, trustees and officers of corporations, as well as the guidelines on the procedure for their removal.
These are meant to operationalize sections 26 and 27 of the Revised Corporation Code of the Philippines (RCC).
Based on the SEC’s proposed framework, a person is disqualified from being a director, trustee or officer of any corporation if, within five years prior to their election or appointment, the person had been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six years, as well as for violating either the RCC or the Securities Regulation Code (SRC).
A person will also be disqualified if found administratively liable for any offense involving fraudulent acts, or found liable by a foreign court or equivalent regulatory authority for acts, violations or similar misconduct.
The same provision empowers the SEC, as well as the Philippine Competition Commission, to impose other qualifications or disqualifications or slap sanctions in administrative proceedings.
Even within their tenure, the proposed rules also state that directors, trustees or officers can be disqualified if convicted by final judgment of an offense punishable by imprisonment for a period exceeding six years, or for violating the RCC or the SRC.
Grounds for removal
They can be also be removed from their post if found administratively liable for any offense involving fraudulent acts or convicted by a foreign court or equivalent regulatory authority for acts, violations or similar misconduct.
The framework further provides the guidelines on pleadings, practices and procedures for the removal of directors. It also seeks to impose sanctions on the board of directors or trustees that fails to remove a disqualified director or trustee.
Under the proposed guidelines, an independent administrative action for the removal of a director, trustee or officer of a corporation may start upon the issuance of a formal charge by the SEC, or upon filing of a verified complaint with the operating department. The formal charge must specify the grounds for removal, provide a statement of material or relevant facts, and direct the respondent to file a verified answer within 15 days from receipt. Meanwhile, the verified complaint may be filed by a real party in interest for the removal of the director, trustee or officer.
The SEC will then conduct an initial examination of the allegations in the complaint. The complaint may be dismissed if there was already a pending action or complaint involving the same subject matter or issues in any court, tribunal or agency; or if there was insufficient evidence to establish allegations.
The corporate regulator may also remove a director, trustee or officer of a corporation as a sanction if grounds for their disqualification were present. But the SEC will first issue a show case order.
