There is now a provision in the Revised Corporation Code (RCC) permitting the constitution of an “emergency board” to allow a corporation to deal with certain contingencies. The general rule is that any vacancy occurring in the board of directors, other than by removal or expiration of term, may be filled by a vote of at least a majority of the remaining directors, if still constituting a quorum; otherwise, the vacancy must be filled by the stockholders in a regular or special meeting called for the purpose (Sec. 28, RCC).

However, when the vacancy prevents the remaining directors from constituting a quorum and emergency action is required to prevent grave, substantial and irreparable loss or damage to the corporation, the vacancy may be temporarily filled from among the officers of the corporation by unanimous vote of the remaining directors. The action by the designated director shall be limited to the emergency action necessary, and the term shall cease within a reasonable time from the termination of the emergency or upon election of the replacement director, whichever comes earlier. The corporation must notify the Securities and Exchange Commission within three (3) days from the creation of the emergency board, stating the reason for its creation (ibid).

The law seeks to avoid a vacuum in the board as it may lead to disruption in the operations of the corporation. The mode of filling up a vacancy under the old Corporation Code may not be expedient, especially in emergency cases. To address this scenario, the law has permitted the creation of an “emergency board”. It is one way of coping with an emergency situation involving the corporation, its affairs or, more importantly, its assets (Herbosa&Recalde, The Revised Corporation Code, pp. 142-143).

The creation of an emergency board creates an exception, not only from the regular mode of filling up a vacancy, but also from other corporate requirements as well. A director is required to own and hold at least one (1) share of stock to qualify for the position (Sec. 22 , RCC). This is not a requirement under Section 28 since with the emergency, an officer of the corporation, who is not necessarily a stockholder, can be designated as an emergency director. There is also no nationality requirement for an emergency director. For nationalized corporations or those which require at least 60% Filipino ownership, such as banks, foreigners may be elected as directors only in proportion to their percentage of ownership. Again, with the absence of a nationality requirement in Section 28, corporate officers who are foreigners can be designated as emergency directors even if the nationality requirement could be breached. Both cases can be considered as mere temporary breaches however, since upon election of the replacement directors, the tenure of the emergency directors ceases.

Just like any appointive position, the designation of emergency directors from among the corporate officers would require their acceptance and assumption of duties. Upon such acceptance and assumption, they become mandated to perform their duties as directors, as prescribed by law, rules of good governance, and bylaws of the corporation. They assume duties of care, loyalty and fidelity and their failure to do so will make them solidarily liable for damages suffered by the corporation and third parties (Herbosa&Recalde, ibid, p. 149). They are also subject to prescribed qualification and disqualification requirements such that if there are grounds to disqualify them, these grounds can be applied against them.

* * *

The above comments are the personal views of the writer. His email address is dezunigajuan@gmail.com

C

Atty. Jun De Zuñiga

Close corporation

Doctrine of ‘doing business’

Corporate claim for moral damages

Emergency board

Composition of executive committee