Liquidation Definition: LIQUIDATION is the settlement of the affairs of a corporation which consists of adjusting the debts and claims,

that is, of collecting all that is due to the corporation, the settlement and adjustment of claims against it and the payment of its just debts. Law Governing: Corporation Code Sec. 122- Corporate Liquidation Sec. 94- Rules of Distribution of Assets in Non Stock Corporations

LIQUIDATION IN CORPORATION CODE Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss. PVB Employees Union-N.U.B.E. v. Vega, 360 SCRA 33 (2001). xxx under Sec s. 77 and 78 of Corporation Law, the Legislature intended to let the shareholders have the control of the assets of the corporation upon dissolution in winding up its affairs. The normal method of procedure is for the directors and executive officers to have charge of the winding up operations, though there is the alternative method of assigning the property of the corporation to the trustees for the benefit of its creditors and shareholders. While the appointment of a receiver rests within the sound judicial discretion of the court, such discretion must, however, always be exercised with caution and governed by legal and equitable principles, the violation of which will amount to its abuse, and in making such appointment the court should take into consideration all the facts and weigh the relative advantages and disadvantages of appointing a receiver to wind up the corporate business. China Banking Corp. v. M. Michelin & Cie, 58 Phil. 261 (1933)

Liquidation Methods: Liquidation by the corporation itself or its board Liquidation by trustees to whom the board had conveyed the corporate assets Liquidation by a duly appointed receiver Trustee vs. Receiver A trustee assumes naked title to the property placed in trust. He is not appointed by the court, but he is actually a transferee who holds legal title to the corporate assets and he is accountable under the terms of the trust agreement. A receivership on the other hand, is created by means of a judicial or quasi-judicial appointment of the receiver. He is actually an officer of the Distribution of Assets in General The corporations property constitutes a trust fund for the payment of distribution of debts and distribution to stockholders. o The trust fund doctrine epitomizes the idea of equal protection to creditors and pro rata distribution in case of inadequacy of corporate assets to pay all debts.

The stockholders are entitled to participate, pro rata, in the assets, after payment of the creditors, unless regulated by the AI. Distribution of Assets in Nonstock Corporations Rules for distribution (Sec. 94): Payment of all liabilities and obligations or adequate provision therefor shall be made. Return of all assets held upon a condition requiring return, transfer or conveyance thereof and which condition occurs by reason of dissolution. Assets held subject to limitations permitting their use only for educational purposes shall be transferred to 1 or more similar educational corporations. Assets other than the above shall be distributed in accordance with the provisions of the AI or BL. In any other case, assets may be distributed to such persons, societies, organizations or corporations as may be specified in the plan of distribution (adopted by the BOT thru a resolution; written notice of the meeting on the proposed plan given to members; approval by at least 2/3 of the members required)(S95

CAN A CREDITOR STIL RECOVER DEBTS AFTER THE THREE YEAR PERIOD OF LIQUIDATION? There is nothing in Sec. 122 which bars an action for the recovery of the debts of the corporation against the liquidator thereof, after the lapse of the said three-year period. It is immaterial that the present action was filed after the expiration of the three years . . . for at the very least, and assuming that judicial enforcement of taxes may not be initiated after said three years despite the fact that actual liquidation has not terminated and the one in charge thereof is still holding the assets of the corporation, obviously for the benefit of all the creditors thereof, the assessment aforementioned, made within the three years, definitely established the Government as a creditor of the corporation for whom the liquidator issupposed to hold assets of the corporation. Republic v. Marsman Dev. Co., 44 SCRA 418(1972).

SUMMARY OF PRINCIPLES: The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. The corporation continues to be a body corporate for 3 years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may during the term appoint a trustee or a receiver who may act beyond that period. If the 3 year extended life has expired without such appointment, the Board may continue as trustees by legal implication to complete the corporate liquidation. Still in the absence of the Board, those having any pecuniary interest might make proper representations with the SEC.

Reported By: Diosa Mae G. Sarillosa