SEC releases draft guidelines on right to inspect records of corporations

The Securities and Exchange Commission (SEC) is finalizing the guidelines that would affirm the right of directors, trustees, stockholders and members to inspect the records of corporations.

The Commission on June 23 released the draft memorandum circular providing the Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records, for public comment.

The draft Guidelines will operationalize Section 73 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines, which provides that corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation.

The director, trustee, stockholder or member may inspect the corporate records in person or through a representative at reasonable hours on business days, as well as demand in writing and at his/her expense for copies of such records.

The Revised Corporation Code further provides that an aggrieved party may report the noncompliance of a corporation to the SEC and, within five days from receipt of such report, the Commission shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records.

Any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the Revised Corporation Code shall be liable to the requesting party for damages and, in addition, shall be guilty of an offense punishable under the law.

Under the draft Guidelines, the following may constitute a violation of the right of a director, trustee, stockholder or member to inspect and/or reproduce corporate records:

a.     Outright refusal to allow the director, trustee, stockholder, or member of the corporation, to peruse any of the corporate records in person, or by a representative; 

b.     Failure to take, within a reasonable amount of time, the necessary steps that would allow the director, trustee, stockholder, or member of the corporation, to peruse any of the corporate records in person, or by a representative;

c.     Failure to give the director, trustee, stockholder, or member a reasonable amount of time to peruse any of the corporate records in person, or by a representative;

d.     Outright refusal to allow the director, trustee, stockholder, or member of the corporation, to reproduce any of the corporate records in person, or by a representative, at his/her own expense;

e.     Failure to take, within a reasonable amount of time, the necessary steps that would allow the director, trustee, stockholder, or member of the corporation, to reproduce any of the corporate records in person, or by a representative, at his/her own expense; or

f.       Failure to give the director, trustee, stockholder, or member a reasonable amount of time to reproduce any of the corporate records in person, or by a representative, at his/her own expense.

An aggrieved party may file a verified report with the SEC Company Registration and Monitoring Department (CRMD), or any of the SEC Extension Offices.

The verified report shall detail the relevant facts and circumstances pertaining to the violation of the aggrieved party’s right to inspect and/or reproduce corporate records, and include evidentiary support, among others.

Within five calendar days from the filing of the verified report and payment of the filing fee, the CRMD or the concerned SEC Extension Office shall issue a summons to the respondent corporation or officer.
The respondent shall have 10 calendar days from the receipt of the summons to file and serve a verified answer. The CRMD or the concerned SEC Extension Office may conduct a clarificatory conference not later than 30 days after the filing of the last verified answer.

Within 30 days after the conclusion of the clarificatory conference or the receipt of the last affidavits, documents or papers, or the expiration of the filing period, the CRMD or the concerned SEC Extension Office shall issue a final order, containing the appropriate order, sanction, relief or denial thereof or such other conditions or terms to be imposed, and a demand for payment of the penalties, if applicable.
The SEC may impose any or all of the sanctions under Section 158 of the Revised Corporation Code, taking into consideration the extent of participation, nature, effects, frequency and seriousness of the violation.

If the final order includes a directive to the respondent to allow the aggrieved party to inspect and/or reproduce any of the corporate records, both parties shall file a verified status account (VSA) jointly or separately within 15 days from the date of compliance, or from the last day of the period within which to comply.

Unless contradicted and overcome by other evidence, the respondent is presumed to have failed to comply with the final order if the respondent failed to file a VSA within the prescribed period.
The CRMD or the concerned SEC Extension Office may order the respondent to show good cause as to why the Commission should not impose sanctions or penalties for its noncompliance with the final order.

On the other hand, the respondent is presumed to have complied with the final order if the aggrieved party failed to file a VSA within the prescribed period, unless contradicted and overcome by other evidence. 

Upon the order of the Commission En Banc, the authorization from the Chief State Prosecutor or a Regional State Prosecutor, and the approval of the court, the SEC may assist in the prosecution of the violation of the right to inspect and/reproduce corporate records.

The task of assisting in the prosecution of the said violation may be designated to the Enforcement and Investor Protection Department (EIPD) and/or the Company Registration and Monitoring Department.
The draft Guidelines in Conducting Investigations of Violations of the Right to Inspect and/or Reproduce Corporate Records is available on the SEC website. All interested parties may email their comments and inputs to the CRMD, through Atty. Fermo B. Avila II at fbavilaii@sec.gov.ph not later than Juny 3, 202