The Securities and Exchange Commission (SEC) has tightened good governance rules by barring from sitting in a corporation’s board those convicted for offenses punishable by imprisonment of over six years.
In a statement, the SEC said this new rue is in line with its commitment to ensure good corporate governance in the country.
The Commission recently issued SEC Memorandum Circular No. 4, Series of 2022, providing for the Disqualifications of Directors, Trustees and Officers of Corporations, and the Guidelines on the Procedure for their Removal.
The rules operationalize Sections 26 and 27 of Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines (RCC).
Section 26 of the RCC provides that a person shall be disqualified from being a director, trustee, or officer of any corporation if, within five years prior to their election or appointment, the person was convicted by final judgment of an offense punishable by imprisonment for a period exceeding six years, as well as for violating the RCC or The Securities Regulation Code (SRC).
The SEC said “Persons convicted of tax evasion by final judgment are disqualified from becoming a director, trustee, or officer of a corporation within five years from election or appointment in the position, as well as during his tenure as officer at the time when the conviction by final judgment was given.”
Also disqualified are those who are found administratively liable for any offense involving fraudulent acts, or found liable by a foreign court or equivalent regulatory authority for acts, violations, or misconduct similar to the aforementioned conditions.
Meanwhile, Section 27 of the RCC provides that the Commission shall, motu proprio or upon verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to an election.
Directors, trustees or officers may be disqualified if, within five years prior to their election or appointment, or within their tenure, they were convicted by final judgment of an offense punishable by imprisonment for more than six years, or for violating the RCC, SRC, or for any offense involving fraudulent acts punishable under the RCC, SRC, and other laws, rules, or regulations implemented by the SEC.
They may also be disqualified if, within five years prior to their election or appointment, or within their tenure, the director, trustee, or officer was found administratively liable by a foreign court or equivalent foreign regulator authority for acts, violations, or misconduct similar to those stated under the RCC.
Further, within five years prior to their election or appointment, or within their tenure, a director, trustee, or officer may be disqualified if he/she was found administratively liable by final judgment for refusal to allow the inspection and/or reproduction of corporate records.
The Commission may remove a director, trustee, and/or officer of a corporation as a sanction in its proceedings if, during its administrative or adjudicative proceedings, it has been established that grounds for their disqualification are present.
In addition to the removal of the director, trustee, or officer, the SEC may also issue a permanent cease and desist order, and impose a fine from P10,000 to P400,000 for each violation of the Commission’s orders, or any relevant laws and regulations.
For a one person corporation whose sole director has been removed, the nominee shall take the place of the single stockholder as director and manage the corporation’s affairs.
The Commission will keep a Removed Directors, Trustees, and Officers Index, containing a record of all orders, decisions, or resolutions involving the removal of a director, trustee, and/or officer of a corporation through the Corporate Filing and Records Division of the SEC Company Registration and Monitoring Department.
The index will only be for the use of the Commission, and may not be accessed or asked about by outside parties, except with the authority of the individual concerned, and the approval of the SEC operating department’s director.