A gift to improve competitiveness

On his 73rd birthday, Sen. Frank Drilon was on the floor of the Senate, giving a sponsorship speech for one of the bills that he held close to his heart, not just as a seasoned legislator, but as a Filipino who had held up the nation’s welfare more dearly than most things in his life.

This was the bicameral report on the reconciled Senate Bill No. 1280 and House Bill No. 8374, or the Revised Corporation Code of the Philippines. He had often lamented that the current Corporation Code of the Philippines was too outdated, having been enacted first in 1980, 38 years ago.

To keep up with the rest of the financial world, he said there is a need to codify best international corporate practices and address the archaic bottlenecks in the areas of starting a business and protecting minority investors, as well as making the Corporation Code appealing to startups and entrepreneurs.

He was particularly concerned about the Philippines continuing to languish at the third quarter segment of the World Bank’s Doing Business Report, and even worse, slipping several places from its 2017 rank, to place 124th out of 190 countries this year.

Having extensive exposure as a lawyer in the corporate world, he spoke about investor woes having to navigate startup procedures in the country, especially without the assistance of experienced counsels. More daunting was the prospect for individuals who do not have the resources to hire a lawyer.

The good senator says who do proposed law, now awaiting the President’s approval, is divided into four main reform clusters.

Enhancing ease of doing business

The proposed New Corporation Code would have policies that enhance how business is done in the Philippines. Particularly, the name verification process will be simplified. You can now register XYZ Dream Network, even if XYZ Dream Hospital exists.

Companies will also be allowed to perpetually exist. According to Drilon, the Philippines is one of the few countries that sets limits on the life of a company. A perpetual corporate life will remove the risk of having companies dissolved when they forget to renew their corporate term.

A single natural person will now be permitted to form a one-person corporation; this eliminates the risk of a person in a proprietorial business losing his personal assets when the business fails.

This also removes the requirement to have at least five incorporators to register a corporation, which has been taken to extreme extents by small entrepreneurs when they register relatives and even non-family household members who have no real interest in the business.

In recognition of technological advances, shareholders and directors need not be physically present in meetings. Drilon says that remote communication can now facilitate attendance in meetings, allowing stockholders to actively participate in discussions and come up with more informed decisions.

With the proposed adoption of an electronic filing system, Drilon hopes that the new corporation law will help the Securities and Exchange Commission to improve its compliance numbers of companies with regards reportorial requirements.

Prioritizing corporate and stockholder protection

The second reform cluster carries in its provisions the creation of emergency boards, revised rules on the right to inspect corporate books, modified quorum requirements, and expanded grounds for the disqualification of directors.

An emergency board could be formed when the company’s board of directors or trustees goes on perpetual holdover because a quorum cannot be mustered. The emergency board will be able to keep the company operating on a day-to-day basis until a quorum is formed.

Stockholders who may not be well versed with the knowledge to interpret the contents of corporate documents may call in a representative or counsel to examine the corporate books on their behalf.

There will also be a more stringent and expanded set of disqualification rules of directors so that there can be better principled corporate decision-making.

Instilling corporate and civic responsibility

The third reform cluster will deal with the introduction of a more stringent corporate and civic responsibility.

To prevent the use of the corporation as a vehicle for committing crimes, the new law will impose corporate criminal liability and penalties for graft and corruption. Not only will the company pay hefty fines, but could also have its registration revoked.

Corporations vested with public interest shall be required to elect a compliance officer, aside from having independent directors as part of the board.

Strengthening the policy and regulatory corporate framework

Finally, the fourth reform cluster will involve provisions dealing with arbitration of commercial disputes, amendments on dissolution, and the alignment of the SEC’s powers under the Corporation Code with the Securities Regulation Code.

The introduction of arbitration will provide alternatives to court cases or litigation to allow disputes to be resolved in a more practical and efficient way.

The SEC is given stronger powers, even over ordinary corporations. Amendments are also introduced to expand the basis for the dissolution of a company, plus a more streamlined process for both voluntary and involuntary dissolution.

A gift

Drilon hopes the decades-old Corporation Code will be passed into law within the year. “I will not ask for any gift from my colleagues, but I would consider the adoption of this bicameral conference report as a gift that we owe to our country and the Filipino people,” he said at the end of his sponsorship speech on his birthday.

Together with other government initiatives to boost the country’s competitiveness in the world market, the passage of the proposed New Corporate Code will, indeed, be a welcome move.

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