SEC tightens rules on directors, officers

MANILA, Philippines — The Securities and Exchange Commission (SEC) is tightening rules governing directors, trustees, and officers of corporations as part of efforts to promote good corporate governance.

It has released for public comment draft rules on the grounds for disqualifications of corporations directors and officers and the process to implement this.

The proposed rules seek to operationalize Sections 26 and 27 of Republic Act 11232 or the Revised Corporation Code of the Philippines (RCC), which state that a person shall be disqualified from being a director, trustee or officer of any corporation if within five years prior to their election or appointment, the person was convicted by final judgment of an offense punishable by imprisonment for a period exceeding six years, as well as for violating the RCC or Republic Act 8799 or the Securities Regulation Code (SRC).

The RCC provisions also state that the SEC can order the removal of a director or trustee elected despite the disqualification or whose disqualification arose or is discovered subsequent to an election.

Under the SEC’s proposed rules, directors, trustees or officers shall be disqualified if within their tenure they were convicted by final judgment of an offense punishable by imprisonment for a period exceeding six years, or for violating the RCC or the SRC; found administratively liable for any offense involving fraudulent acts; or found liable by a foreign court or equivalent regulatory authority for acts, violations or misconduct similar to the aforementioned conditions.

Furthermore, the SEC, as well as the Philippine Competition Commission, may impose other qualifications or disqualifications in its promotion of good corporate governance, or as a sanction in its administrative proceedings.

The SEC will first issue an order directing the director, trustee, and officer of the corporation to show cause why they should not be disqualified from their position or be administratively penalized.

They will be given a chance to file a verified response. Failure to answer the SEC’s show cause order may, motu proprio, render a judgment imposing the sanction/s, as the evidence presented or established in the course of the proceedings may warrant,” the SEC said.

The erring directors will likewise face monetary penalties.

“In addition to the removal of the director, trustee, and/or officer, the SEC may also issue a permanent cease and desist order, and/or impose a fine from P10,000 to P400,000 for each violation of the SEC’s orders or any relevant laws and regulations,” it said.