When does merger or consolidation of corporations become effective?
This was answered in one recent decision rendered by the High Court. The
pertinent part of the decision illuminates as follows:
"Ordinarily, in the
merger of two or more existing corporations, one of the corporations survives
and continues the combined business, while the rest are dissolved and all their
rights, properties, and liabilities are acquired by the surviving corporation. Although
there is a dissolution of the absorbed or merged corporations, there is no
winding up of their affairs or liquidation of their assets because the
surviving corporation automatically acquires all their rights, privileges, and
powers, as well as their liabilities.
The merger, however,
does not become effective upon the mere agreement of the constituent
corporations. Since a merger or consolidation involves fundamental changes
in the corporation, as well as in the rights of stockholders and creditors,
there must be an express provision of law authorizing them.
The steps necessary to
accomplish a merger or consolidation, as provided for in Sections 76, 77, 78,
and 79 of the Corporation Code, are:
(1) The board of each corporation draws up a
plan of merger or consolidation. Such plan must include any amendment, if
necessary, to the articles of incorporation of the surviving corporation, or in
case of consolidation, all the statements required in the articles of
incorporation of a corporation.
(2) Submission of plan to stockholders or
members of each corporation for approval. A meeting must be called and at least
two (2) weeks’ notice must be sent to all stockholders or
members, personally or by registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed.
Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred
to as the articles of merger o[r] consolidation, by the corporate officers of
each constituent corporation. These take the place of the articles of
incorporation of the consolidated corporation, or amend the articles of
incorporation of the surviving corporation.
(4) Submission
of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing,
notifying all corporations concerned at least two weeks before.
(6) Issuance
of certificate of merger or consolidation.
Clearly, the merger shall only be effective upon
the issuance of a certificate of merger by the SEC, subject to its prior
determination that the merger is not inconsistent with the Corporation Code or
existing laws. Where a party to the
merger is a special corporation governed by its own charter, the Code
particularly mandates that a favorable recommendation of the appropriate
government agency should first be obtained.
In this case, it is undisputed that the articles
of merger between FISLAI and DSLAI were not registered with the SEC due to
incomplete documentation. Consequently, the SEC did not issue the required
certificate of merger. Even if it is true that the Monetary Board of the
Central Bank of the Philippines recognized such merger, the fact
remains that no certificate was issued by the SEC. Such merger is still
incomplete without the certification.
The issuance of the certificate of merger is
crucial because not only does it bear out SEC’s approval but it also marks the
moment when the consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and properties,
as well as liabilities, shall be taken and deemed transferred to and vested in
the surviving corporation.
The same rule
applies to consolidation which becomes effective not upon mere agreement of the
members but only upon issuance of the certificate of consolidation by the SEC. When
the SEC, upon processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not inconsistent with
the provisions of the Corporation Code and existing laws, it issues a
certificate of consolidation which makes the reorganization official. The
new consolidated corporation comes into existence and the constituent
corporations are dissolved and cease to exist."(MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., vs. EDWARD WILLKOM, G.R. No. 178618, October 11, 2010)
It is thus clear from the decision that the effectivity and legal consequences of corporate
mergers or consolidations are set into motion not by the mere execution of the
articles of merger or consolidation, but by the approval thereof by the
Securities and Exchange Commission and its issuance of the corresponding
certificate of merger or consolidation.
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