Under the Corporation Code of the Philippines, two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. The question is, when does the merger or consolidation become effective?
The Supreme Court of the Philippines answered this question in Mindanao Savings and Loan Association, Inc. v. Willkom, G.R. No. 178618, 20 October 2010, stating that a merger does not become effective upon the mere agreement of the constituent corporations. Rather, it shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC) after its prior determination that the merger is not inconsistent with the Corporation Code or existing laws.
The Supreme Court ruling on this matter is instructive:
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.”
