MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY.
MELO L NOTES BLOCK2014A
BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 1
Who becomes liable for the debts when a corporation sells or otherwise transfers its assets to another corporation?
General Rule
The transferee does not become liable for the debts of the transferor.
Exceptions
(a) Purchaser expressly or impliedly agrees to assume debts; (b) Purchaser acted in collusion with transferring corporation; (c) Purchasing corporation continues business of transferring corporation in defraud of creditors; (d) Transaction amounts to consolidation or merger of corporations.
Three-Levels of Corporate Acquisitions and Transfers Business Enterprise (c) Purchasing corporation continues business of transferring corporation GEN. transferee liable for debts and liabilities of transferor Assets-Only
(a) Purchaser expressly or impliedly agrees to assume debts GEN. transferee not liable for debts and liabilities of transferor EXCEPT when 1) express or implied agreement of transferee 2) transfer was in fraud of creditors (b) Purchaser acted in collusion with transferring corporation in defraud of creditors Equity (d) Transaction amounts to consolidation or merger of corporation GEN. transferee NOT liable for debts and liabilities of transferor EXCEPT. transferee expressly or impliedly agrees to assume debts
BUSINESS ENTERPRISE
What is an business enterprise level transfer? Covers the sale or transfer of all or substantially all of corporate assets (Sec. 40, Corporation Code); what constitutes the ability of the corporation to earn or realize business income.
Is the transferee obliged to retain the employees of the transferor? NO. In a bona fide business enterprise transfer, the transferor is liable to pay the separation pay of the employees and the transferee is not liable to ay separation pay or obliged to retain the employees for the business enterprise bought (CLV, p.711; See San Felipe Neri School of Mandaluyong Inc. v. NLRC). The most that they can do is give preference to the transferors employees in hiring. Such employees, however, must pass the requirements and screening process set out by the transferee.
ASSETS-ONLY
What is an assets-only level transfer?
EQUITY
What is an equity level transfer?
18 JUNE 2013
Refresher: What is the procedure for the merger or consolidation? (1) PLAN (2) APPROVAL OF STOCKHOLDERS/MEMBERS (3) RIGHT OF APPRAISAL (4) AMENDMENT OF PLAN OF MERGER/CONSOLIDATION (5) ARTICLES OF MERGER OR CONSOLIDATION (6) REQUIREMENTS ON SUBMISSION OF FINANCIAL STATEMENTS (7) APPROVAL OF SEC
What do you need to know about mergers and acquisitions?
1. Know what youre acquiring. CORPORATIONS, ACQUISITIONS, MERGERS AND CONSOLIDATIONS MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY. MELO L NOTES BLOCK2014A
BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 2 2. Ad
What does Sec. 80 of the Corp. Code provide?
It provides for the effects of mergers and acquisitions. There are five (5) effects [SEPAR]:
1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation; 2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation; 3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code; 4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and 5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. (n)
What are the effects thereof?
1. Taxes. Specific exemption in tax code.
Exceptions to piercing the veil: 1) buyer expressly assumes 2) transfer was done in bad faith, done in order to evade liability
How do you show that there is no bad faith? 1) Pesi Cola case - clear break rule; if there is a clear break then there is a defense; Tanduay [Yu case]
Type Advantages Disadvantages 1. Asset Sale Can isolate the asset Tax Needs to comply with bulk sales law 2. Business Enterprise
More like an asset sale
If bought as a whole, you buy something that can hit the ground running
3. Equity Sale Tax based on value of the asset Easy to transfer since sale of shares/movables Lots of admin req
4. Mergers, Consolidatio ns
Continuation of the entity [EVERYTHING CONTINUES]
5. Spin-offs
MERGERS MIDTERMS REVIEWER UNDER DEAN GRUBA & ATTY. MELO L NOTES BLOCK2014A
BASED ON PHILIPPINE CORPORATE LAW BY C.L. VILLANUEVA, CLASS READINGS, NOTES, AND CASES 3 DOCTRINES ON MERGERS AND CONSOLIDATION
1. EDWARD J. NELL COMPANY V. PACIFIC FARMS (1965)
Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter does not become liable for debts and liabilities of the transferor except:
1) where the purchaser expressly or impliedly agrees to assume such debts; 2) the transaction amounts to a consolidation or merger of the corporations;
3) where the purchasing corporation is merely a continuation of the selling corporation and ;
4) where the transaction is entered into fraudulently in order to escape liability for such debts.
2. PNB V. ANDRADA ELECTRIC (2002) [GR 142936, 17 APRIL 2002]
3. MCLEOD V NLRC (2007) - DATION IN PAYMENT WITH LEASE
4. PEOPLE V WONG (50 O.G. 4867, CA CASE)
In People vs. Wong Szu Tung, CA-G.R. No. 9776-R, March 26, 1954, 50 0.G. 4867, the Court of Appeals held that the sale of a foundry shop was not covered by the Bulk Sales Law, where what was sold was the shop itself, together with the goodwill and credits, equipment, tools and machinery, including a Dodge truck, because this did not constitute a sale of a stock of merchandise, goods, wares, provisions or materials in bulk.
5. GONZALES V SUGAR REGULATORY ADMINISTRATION (1989)
6. VILLA REY TRANSIT V FERRER (1968)
7. TAYAG V BENGUET CONSOLIDATED (1968)
8. ANG PUE V SECRETARY OF COMMERCE (1962)
9. STOCKHOLDERS OF F. GUANZON AND SONS V REGISTER OF DEEDS (1962)
10. CALTEX V PNOC SHIPPING (2006)
11. RIVERA V LITAM (1962)
12. ERIKS PTE. LTD. V. CA (1997
13. A.D. SANTOS V VASQUEZ (1968) BUAN V ALCANTARA (1984)
14. QUIMSON V ALAMINOR (1941)
15. DETECTIVE AND PROTECTIVE BUREAU V UNITED EMPLOYEES WELFARE (1956)
16. CAGAYAN VALLEY ENTERPRISES V CA (1989)
17. SAN TEODORO DEV. ENTERPRISES V SSS (1963)
18. OROMECA LUMBER V SSC (1962) LAGUNA TRANS V SSS (1960)