Title X

Question 1

Define what is appraisal right

Answer 1

Based on Section 80 of the RCCP, an appraisal right may be defined as the right of a shareholder to dissent and demand payment of the fair value of his shares in the instances provided under the RCCP.

Question 2

What is the rationale of appraisal right?

Answer 2

The rationale of the appraisal right is to protect minority shareholders who disagree with significant corporate decisions. The appraisal right allows shareholders to demand payment for the fair value of their shares if they dissent from certain corporate actions.

Question 3

What instances is appraisal right available?

Answer 3

• In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares
• In case of any amendment to the articles of incorporation authorizing preferences in any respect superior to those of outstanding shares of any class
• In case of amendment to the articles of incorporation extending the corporate term.
• In case of amendment to the articles of incorporation shortening the term of corporate existence
• In case of sale, leas, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the RCCP.
• In case of merger and consolidation
• In case of investment of corporate funds in another corporation or business or for any purpose other than the corporation’s primary purpose and
• In a close corporation under Section 104 of the RCCP

Question 4

What shares are covered in a shareholders appraisal right?

Answer 4

all the shares held by the shareholder

Question 5

What are the conditions for the exercise of appraisal right

Answer 5

• Any of the instances set forth by law for the exercise of the appraisal right by a dissenting stockholder must be preset
• The dissenting stockholder must have voted against the proposed corporate action
• The written for payment of the fair value of shares must be made by the dissenting stockholder within 30 days from the date the vote on the proposed corporate action was taken. Failure to make such demand within such period shall be deemed waiver of the appraisal right
• The price of the shares must be based on the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of the corporate action, as determined under Section 81 of the RCCP
• Within 10 days from written demand for payment for his/her shares, the dissenting shareholder should submit his/her share certificate to the corporation for notation that the same are dissenting shares.
• The payment of shares shall be made only when the corporation has unrestricted retained earnings in its books to cover such payment
• The stockholder must transfer his shares to the corporation upon payment by the latter of the agreed or awarded price to the former

Question 6

What does “Fair value” mean in determining the value of the share in appraisal right

Answer 6

The law does not prescribe the method in determining the fair value. Section 81 provides that the dissenting shareholder is entitled to the fair value of the shares “as of the day before the vote was taken, excluding appreciation or depreciation in anticipation of such corporate action.

Question 7

What is the remedy if the corporation unjustifiably refuses to pay the dissenting stockholder despite the full compliance with all the requirements for the valid exercise of appraisal right and despite the fact that the corporation has sufficient unrestricted retained earnings?

Answer 7

The aggrieved stockholder may file the appropriate action before the Regional Trial Court to compel the corporation to allow him to exercise his appraisal right.

Question 8

When does the corporation suspend the rights of the stock holder pertaining in appraisal right

Question 9

What are the cases where the right to payment ceases and/or the right of appraisal is lost?

Answer 9

• Where the demand for payment is withdrawn with the consent of the corporation
• If the proposed corporate action is abandoned or rescinded by the corporation
• If the proposed corporate action is disapproved by the SEC where approval is necessary
• If the SEC determines that such stockholder is not entitled to the appraisal right
• Failure to make a demand with the 30-day period provided for in Section 81 of the RCCP
• The shared are transferred by the dissenting shareholder
• The dissenting shareholder failed to submit the stock certificate/s within 10 days from his written demand for payment of the value of his shares.

Question 10

Rationale why payment can only be made to any dissenting stockholder if there is unrestricted retained earnings on the books of the corporation

Answer 10

This requirement is designed to protect the creditors who may be disadvantaged if a stockholder will withdraw his investment from the corporation.

Question 11

What is the effect of transfer of shares of a dissenting shareholder?

Answer 11

It will result in the abandonment of the appraisal right.