Mass sale of company assets

Rather than clear the air, the testimony of former Manila Mayor Joselito Atienza at the impeachment trial of Chief Justice Renato Corona on the sale in 2001 of a lot owned by Basa-Guidote Enterprises Inc. (BGEI) to the city raised more questions about the transaction.

The P34.7-million check payment was given to Corona’s wife, Cristina, on the strength of a certification issued by BGEI’s corporate secretary, Asuncion Basa, dated June 19, 1987, stating that Cristina Corona was authorized by the company to “sell, negotiate and dispose of” the said property.

The standard documents required in corporate transactions of this nature—notarized special power of attorney and, where proper, board resolution authorizing the sale—were not submitted prior to the issuance of the check.

Understandably, since Atienza is not a lawyer, he relied on the city’s legal officer (who happens to be Corona’s law classmate) to advise him on the validity of the sale and the sufficiency of its supporting documents.

Atienza said the issuance of the check in Cristina Corona’s name “in trust for” BGEI was aimed at ensuring that its proceeds will go to the company and not to another person’s account.

As it turned out later, the bulk of the payment found its way into her husband’s personal account at Philippine Savings Bank and was withdrawn on the day he was impeached.

Considering the huge amount in taxpayer money involved in the transaction, more diligence and care should have been exercised in reviewing the credentials of the person who represented herself to the city as BGEI’s authorized agent for the sale of the lot.

Requirements

At the outset, when the circa 1987 secretary’s certificate was presented, the first thing that should have been asked by the reviewing official was why an old, rather than a fresh, certificate was submitted.

BGEI’s board of directors could have been quickly convened (or, as corporate lawyers often do when pressed for time, a “paper meeting” held) to renew the authority to sell.

Equally important is finding out the nature of the lot in relation to the entire asset holdings of the company. Does the parcel of land constitute all or substantially all of its properties? Is it part of its “merchandise in trade” or goods it sells in the regular course of business?

The law considers a sale of property substantial if, in the process, “the corporation would be rendered incapable of continuing business or accomplishing the purpose for which it was incorporated.”

If it does, the sale should be initially approved by the board, and then ratified by the stockholders representing two-thirds of the company’s outstanding capital stock.

Dissolution

It is essential though that the ratification is made at a stockholders’ meeting called for that purpose after prior written notice of such meeting and agenda has been given to the stockholders.

The rationale behind the strict requirements is simple: By offering to unload the properties, equipment or facilities it needs to do business, or offering to sell all its merchandise in trade, the company is, in effect, winding up its operation.

Thus, it’s only fair that the consent of a super-majority of the stockholders is secured first before any such sale or disposition of properties is consummated by the company’s authorized representatives.

But if the sale is essential to the company’s regular course of business, or the proceeds of the sale would be used to finance its remaining business, no stockholder approval is required for such action.

Absent any bad faith or fraudulent intention, these acts can be pursued by the board, or by anybody it has authorized to act on its behalf for this purpose, as part of its mandate to administer the affairs of the corporation.

It must be pointed out, however, that the documentation process in the sale of all or substantially all of a company’s properties is not limited to the protection of the stockholders’ interests.

Of equal, if not higher, importance in transaction of this nature are the interests of the company’s creditors, if any, who are also entitled to protection.

Creditors

The Bulk Sales Law (Act No. 3952, circa 1932) states that, in the sale of all or substantially all of the business or trade of a person, the seller should submit to the buyer a statement under oath of the names and addresses of all creditors to whom the seller may be indebted, together with the amounts owed or to become due.

This statement, which must be given before any payment is made, is aimed at preventing owners of businesses from defrauding or evading their creditors by transferring the bulk of their properties to other parties.

The law does not make any distinction on the financial standing of the seller at the time of the sale. Whether the seller is solvent or not, it has to give prior written notice to the buyer if it has any debts due or about to be due to third parties.

If there are such creditors and no disclosure of unpaid debts is made, or if so disclosed but the purchase price is not applied to the proportional payment of the outstanding debts, the sale shall be considered in violation of the law and therefore void.

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