Published 1 July 2019, The Daily Tribune
In my previous column, I stressed that corporate officers and directors have no legal authority to close the office doors against shareholders for whom they are only agents, and withhold from them the right to inspect the books which furnishes the most effective method of gaining information which the law has provided and the right of inspection can not be denied on mere doubt or suspicion as to the motives of the shareholder. The burden is not upon the stockholder to show the propriety of his examination or that the refusal by the officers or directors was wrongful, except under statutory provisions. (Terelay Investment and Development Corporation vs Cecilia Teresita Yulo, GR. 160924, 5 August 2015.)
Lack of stock certificate evidencing share ownership is also not a bar to the exercise of right of inspection for as long as the stockholder has subscribed to the shares of the corporation even though the subscription is not yet fully paid. (Insigne vs Abra Valley Colleges Inc. G.R. 204089, 29 July 2015.) The right subsists even after dissolution of the corporation during the three-year liquidation period. (Roque vs People of the Philippines, GR. 211108, 7 June 2017.) If a the stockholder is deprived of the exercise of an effective right of inspection, a criminal offense is committed, regardless of the intent of the responsible directors and officer of the corporation. (Alfredo L. Chua vs People Of The Philippines, G.R. 216146, 24 August 2016.)
In another case, the Supreme Court explained that the stockholder’s right of inspection can only be violated by the corporation, acting through its responsible directors, officers or agent. Thus, the former corporate secretary who refused to surrender the stock and transfer book to the incumbent corporate secretary cannot be criminally charged for violation of the stockholder’s right of inspection. (Yujuico vs Quiambao, GR. 180416, 2 June 2014.) He can be charged though with theft because the stock and transfer book is considered property of the corporation.
Under the Revised Corporation Code, the demand to examine and copy the corporation’s records and minutes could be refused when the corporation puts up as a defense that the person demanding had improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand or is a competitor of the corporation or representing the interest of the competitor. The inspecting party shall remain bound though by confidentiality rules under prevailing laws such as the Intellectual Property Code, Data Privacy Act, the Securities Regulation Code and the Rules of Court. Any stockholder who abuses the right granted to him may be criminally penalized under the Code, as well as the special laws above-mentioned. (Section 73 of the Revised Corporation Code)
There are various remedies available to the shareholder where the right to inspect is violated, such as petition for inspection of corporate records with the competent court, complaint for damages or a criminal action against the person/s who denied the request to inspect on behalf of the corporation. If the refusal is made pursuant to a resolution or order of the board of directors or trustees, the directors or trustees who voted for the refusal shall be made liable. The Revised Corporation Code expands the remedies to include reporting the denial or inaction of the corporation to the Securities and Exchange Commission. The SEC is required to conduct a summary investigation within five days from receipt of the complaint and if warranted, order the inspection or reproduction of the requested records.
Very clearly, the law vigorously protects the shareholder’s right to inspect corporate records and books. But with any right comes a correlative responsibility and expectation of good faith; thus, it is hoped that the shareholder asserts the right to inspect out of a legitimate concern for the corporation and his interests therein.
For comments and questions, please send an email to cabdo@divinalaw.com.
