Alternatives when the stock and transfer book is inaccessible

A stock and transfer book (STB) as defined in Section 74 of the Corporation Code of the Philippines, contains the records of all stocks in the names of the stockholders alphabetically arranged; the installment paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe.

The STB shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days. In Torres Jr. vs. Court of Appeals1, the Court ruled that it is the Corporate Secretary who is responsible to serve as custodian of all the records of the corporation, to keep the stock and transfer books, and the only person authorized to make the entries therein.     

On 03 July 2015 the Securities and Exchange Commission (SEC) issued SEC-OGC Opinion No. 15-03 in response to the letter-request from the Corporate Secretary of Golden Dragon International Terminals, Inc. (GDITI) focusing on 2 major questions:

1. What are the alternative references to prove stock ownership in the absence of STB, for purposes of sending notices for an annual stockholders’ meeting; and

2. The validity of recording sales or transfer of shares of stocks without the submission of the Certificate Authorizing Registration (CAR) issued by the Bureau of Internal Revenue (BIR).

The letter-request of the Corporate Secretary mentioned that due to an ongoing squabble for control of management of the GDITI, the STB was inaccessible.

Citing the ruling enunciated in Lanuza vs. Court of Appeals 2, the SEC said that although the STB is necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock, it is however, not a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein.

The SEC in its previous opinions said that extrinsic evidence of the acts or matters which are or should be recorded in the corporate books and records may be admitted where the original corporate records are lost, mislaid or destroyed or are otherwise inaccessible. But the proper foundation or proof explaining the failure to produce the original books and records must first be laid for the introduction of the other evidence. Such secondary evidence ordinarily consists of copies of the records, either certified or sworn to, or parol testimony. Hence, when the original stock and transfer books of a corporation has been lost, destroyed, secondary or extrinsic evidence may be introduced to reconstitute its contents.  

The SEC advised the Corporate Secretary of GDITI to take the following necessary measures to make the STB accessible:

1. File an action in court to gain access and assume custody of the STB; or

2. Have the STB reconstituted if appropriate, i.e. when it is lost or destroyed.         

With respect to the question of validity of the recording of sales and transfer of shares of stocks in the STB when no CAR is submitted, the SEC recognized that it is not the proper agency to comment on the implementation of Revenue Regulation (RR) No. 06-08 as clarified by Revenue Memorandum Circular (RMC) No. 37-2012 which requires the issuance of CAR before transfer of shares may be entered in the STB of the corporation. However, for purposes of discussion, the  SEC quoted Section 11 of RR No. 06-08 (that no sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any shares of stock shall be registered in the books of the corporation unless the receipts of payment of the tax herein imposed is filed with and recorded by the stock transfer agent or secretary of the corporation) and concluded that the recording of the shares of stock without the submission of the CAR is invalid. The SEC further mentioned that proof of being a stockholder of record includes the presentation of documents evidencing sales and transfer of shares of stock together with the CAR.

It should be noted that RMC No. 37-2012 already clarified the perceived confusion in Section 11 of RR No. 06-08, since this section does not expressly mention the CAR.  The clarification portion of RMC No. 37-2012 states that in order to transfer ownership of stocks not traded in the Stock Exchange, it is necessary to secure a CAR pursuant to the process laid down in Revenue Memorandum Order No. 15-20103, and that the receipts of the payment of tax should also be filed with and recorded by the Secretary of the corporation.        

Ma. Louise C. Aviso is a Supervisor from the Tax Group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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