Corporate Securities Info
Suit against foreign companies
LAST week, the Supreme Court amended the Rules of Court on the service of summons on foreign private juridical entities or, in layman’s language, corporations.
By way of background, summons is a writ issued by a court to a defendant ordering it to file its answer to a complaint. Upon proper service of summons, the court acquires jurisdiction over the defendant’s person and the subject of the suit.
If the service is defective or does not comply with the procedural requirements, the validity of any order or judgment that may be rendered by the court in the case can be questioned.
For domestic corporations, the rules on service of summons are simple. It should be served on the defendant’s last known address. In case it has moved out and did not leave a forwarding address, service can be made through publication.
This otherwise routine procedure sometimes becomes problematic if the defendant is a foreign business entity doing business in the country.
Depending on its business plans, that company may engage in an isolated transaction, i.e., it leaves as soon as the deal is completed, or maintain a physical presence, i.e., it puts up an office that will handle on a long term basis its activities in the country. The service process varies.
Coverage
The amended rules provide that “when the defendant is a foreign private juridical entity which has transacted business in the Philippines,” service may be made in three ways.
First, on its resident agent designated in accordance with law for that purpose; second, if there is no such agent, on the government official designated by law to that effect, and third, on any of its officers or agents within the Philippines.
With the use of the phrase “has transacted business in the Philippines,” it can be inferred that the tribunal refers to a company that has been issued a license to do business in the Philippines by the Securities and Exchange Commission.
That license, under SEC rules, is issued on condition, among others, that the company shall designate a resident agent who shall receive summons and other legal processes that may be served on it.
In the absence of such agent or upon the cessation of its operation in the Philippines, any summons or legal processes may be served on the SEC as if it was made on the corporation at its home office.
Authority
The tribunal’s directive that, if there is no such agent, summons may be served “on the government official designated by law to that effect” is at odds with Sec. 128 of the Corporation Code, which states that the authority to receive summons on behalf of a foreign corporation rests with the SEC, not with any other government office or government official.
I do not recall any law having been enacted extending the same power to any other government office or government official.
The grant of authority to the SEC is understandable because it is the government office that gives the foreign company the license or key to lawfully operate in the Philippines.
Since the company’s Articles of Incorporation and other significant corporate documents are submitted to the SEC, the latter is in the best position to determine where and how summons can best be served in case no resident agent is around or refuses to receive it.
It also helps that the SEC has links with its counterpart in other parts of the world with whom it can coordinate or consult with on the service of summons on corporations within the latter’s jurisdiction.
Registration
The amended rules also cover a situation wherein the foreign company “is not registered in the Philippines or has no resident agent.”
In this instance, service may, with the court’s permission, be made outside of the Philippines through any of the following means:
-Personal service coursed through the appropriate court in the foreign country with the assistance of the Department of Foreign Affairs;
- Publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy of the summons and the court order by registered mail at the last known address of the defendant;
- Facsimile or any recognized electronic means that could generate proof of service; and
- Such other means as the court may in its discretion direct.
Except for the electronic process, which is a concession to advances in digital technology, the rest are already known to law practitioners.
Some clarification, though, has to be made in connection with the tribunal’s reference to foreign corporations that are “not registered in the Philippines.”
The Corporation Code does not require foreign corporations to register with the SEC or any government agency to be able to operate in the country.
These corporations only have to apply for a license to transact business in the Philippines without having to go through the registration process in the SEC like ordinary domestic companies.
As long as a foreign corporation can prove through documents authenticated by our consular officials abroad that it has been given juridical personality by its own government, that corporate status is respected and no further re-registration is required.
The license issued by the SEC depends on the nature of the presence they want to maintain here, either as a branch office, representative or liaison office.
However, no license has to be issued if a foreign corporation separately registers itself with the SEC because, by that action, it ceases to be foreign in character and is transformed to a domestic corporation.
Hairsplitting? No, it’s not. There are specific rights, duties and responsibilities that are given to corporations that are SEC-registered and those issued a license to transact business here.
(For feedback, write to rpalabrica@inquirer. com. ph.)
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