Corporation Law: The Revised Corporation Code of the Philippines - Sec 74

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VIII - CORPORATE BOOKS AND RECORDS

Section 74. Right to Financial Statements. 

A corporation shall furnish a stockholder or member, within ten (10) days from receipt of their written request, its most recent financial statement, in the form and substance of the financial reporting required by the Commission.

At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed and certified in accordance with this Code, and the rules the Commission may prescribe.

However, if the total assets or total liabilities of the corporation are less than Six hundred thousand pesos (₱600,000.00), or such other amount as may be determined appropriate by the Department of Finance, the financial statements may be certified under oath by the treasurer and the president.

l. Right to Financial Statements. 

• The stockholder or member is also entitled to the financial statements of the corporation. 
•  Under Section 74, the same must be furnished within 10 days from receipt of a written request. 
• The financial statements shall be audited by an independent certified public accountant. 
• If the total assets or total liabilities of the corporation are less than P600,000.00, or another amount as the Department of Finance may determine to be appropriate, the financial statements shall be certified under oath by the corporation's treasurer/chief financial officer and the president.

2. Submission to SEC. 

• Section 177 of the RCCP provides that except as otherwise provided in the RCCP or in the rules issued by the SEC, every corporation, domestic or foreign, doing business in the Philippines shall submit to the SEC annually and within such period as may be prescribed: 

1. Annual financial statements audited by an independent certified public accountant. However, if the total assets or total liabilities of the corporation are less than Six hundred thousand pesos (P600,000.00), the financial statements shall be certified under oath by the corporation's treasurer or chief financial officer; and 
2. A general information sheet.

a. Vested with Public Interest. 

• Corporations vested with public interest must also submit the following:

1. A director or trustee compensation report; and 
2. A director or trustee appraisal or performance report and the standards or criteria used to assess each director or trustee. 

b. Delinquent. 

• Under Section 177, the SEC may place the corporation under delinquent status in case of failure to submit the reportorial requirements three (3) times, consecutively or intermittently, within a period of five (5) years. 
• The SEC shall give reasonable notice to and coordinate with the appropriate regulatory agency prior to placing on delinquent status companies under their special regulatory jurisdiction. 

c. Confidential Information. 

• Any person required to file a report with the Commission may redact confidential information from such required report. 
• Such confidential information shall be filed in a supplemental report prominently labelled "confidential," together with a request for confidential treatment of the report and the specific grounds for the grant thereof. 

d. Management Responsibility. 

• Any deficiency in the Financial Statements and any deviation from accounting and audit standards may subject the company concerned, its officers and auditors to appropriate penalties.
• SEC rules expressly provide that the "management of the company is responsible for the preparation and presentation of financial statements in accordance with the applicable financial reporting framework, including all disclosures and their supporting documentation."
• The Memorandum Circular enumerates the matters that must be provided by management to the auditor 51 and requires the Chairman of the Board, Chief Executive Officer and the Chief Finance Officer or persons holding equivalent positions under the By-Laws to sign the Statement of Management's Responsibility (SMR) as prescribed by SRC Rule 18.52 3. 

Criminal Liability.

• To strengthen the rules, Section 162 of the RCCP expressly provides for criminal liability on any person who willfully certifies a report required under the RCCP, knowing that the same contains incomplete, inaccurate, false, or misleading information or statements. 
• A higher penalty is imposed when the wrongful certification is injurious or detrimental to the public. 
• Section 163 of the RCCP also provides for the penalty in case "an independent auditor who, in collusion with the corporation's directors or representatives, certifies the corporation's financial statements despite its incompleteness or inaccuracy, its failure to give a fair and accurate presentation of the corporation's condition, or despite containing false or misleading statements."

PROBLEMS:

Q: A owns 100 out of 10,000 shares in the Manufacturers' Bank. He filed a suit against B for damages due to an alleged breach of contract. A secures a favorable judgment against B but fails to obtain full satisfaction thereof. A receives a tip that B has a big time deposit with Manufacturers' Bank. B is not aware that A is stockholder in the said bank. A goes to the bank and demands the right to inspect the records of the bank to find out whether B has indeed such a time deposit and how much. The bank manager refuses to accede to his demand. A threatens to sue him on the ground that as a stockholder of the corporation, he is given by the RCCP the right to inspect all the books of the corporation. Is A entitled to look at the bank's records of deposits? Explain. 

No. A stockholder's right to inspect does not cover inspection of bank accounts. The Secrecy of Bank Deposits Law makes all bank deposits of whatever nature absolutely confidential in nature and the same may not be inquired into by any person except under specified circumstances. The circumstances herein involved do not fall under any of the exceptions under the Bank Secrecy Law. Independent of the foregoing, the purpose of the inspection is likewise not acceptable because it is alien to all the other rights of the shareholder. (1983 Bar) 

Q: Petitioner who is a stockholder of Bilmoko Corporation wanted to examine the books and records of a foreign subsidiary wholly owned by Bilmoko Corporation. The books and records of the foreign subsidiary were in the possession ofBilmoko Corporation. The latter's board of directors refused to allow the petitioner to examine the said books and records, contending that the foreign subsidiary is a separate and distinct corporation domiciled in another country; hence, the petitioner was not within the class of persons having an interest in the operations of the foreign subsidiary. 

a. Decide the case. 

The case should be decided in favor of the petitioner. The right of a stockholder to inspect the books and records of a corporation extends to a subsidiary wholly owned by the corporation. It is in consonance with equity, good faith and fair dealing if the right of the shareholder will be so extended.

b. What are the limitations on a stockholder's right to inspect corporation books and records?

The shareholder's right to inspect the corporate book may be exercised only if the following are present: 

1. When it is exercised at reasonable hours on business days; 
2. When the stockholder has not improperly used any information he secured through any previous examination; and 
3. When the demand is made in good faith or for a legitimate purpose. Hence, absent any of the foregoing, the corporation can deny the stockholder's exercise of the right to inspect corporate books or records.

Q: Don Mariano was able to secure a favorable judgment against Nestor Pe for recovery of a sum of money and the said judgment had become final and executory. Don Mariano was informed by someone that Nestor Pe might have a sizable savings deposit with Xena Commercial Bank, of which Don Mariano was a stockholder, with one share registered in his name. Immediately, he rushed to the Bank and demanded from the Bank Manager that he be shown the Bank records to see if Nestor Pe really had such savings deposit. When the Bank Manager refused and invoked Republic Act No. 1405, Don Mariano cited his right as a stockholder to inspect corporate records. Is the stand of the Bank Manager legally tenable? Explain. 

Yes, the stand of the Bank Manager is legally tenable. A stockholder has the right to inspect the corporate books under Section 73 of the RCCP. However, the right to inspect the books of a corporation is subject to special law, like Republic Act No. 1405 or the Bank Deposit Secrecy Law which operates as an exception to the general rule. (1985 Bar)