5th Feb 2015

Labor

Access to corporate records is vital in any corporation. Whether these records pertain to financial documents, human resources, operation endeavors, future plans, or even building and floor plans, these records help the officers, directors, and the stockholders map out the present and future directions for the company.

In view of their significance, access to the records of any corporation are always limited and regulated. As some of these records contain vital and confidential corporate information, which in the wrong hands, may lead to devastating consequences for the company, great pains are taken by the records custodians of the corporations themselves, to ensure that corporate data will be accessed and made known only to the proper persons, at the right time, and for the right reasons.

At some point, conflict in the corporate environment arises because of refusal of a corporation to give access to its corporate records. Often times, this refusal is proper. Since a corporation is governed by a collegial body composed of its board of directors, the decision withhold access to these records normally partakes of a decision by the majority of the board of directors. If, for example, an unrelated person or even a stockholder seeks to look at the corporate records of a company which are trade secrets, then the board of directors might properly deny such person access to the requested records. Likewise, a stockholder or even director, who after investigation, was uncovered to be acting for the interest of a competitor, or who is guilty of disloyalty, may also be properly denied access to corporate records.  Working as a majority, it is presumed that the persons serving as directors have the interest of the company at heart.

Of course, there is instances where a person’s right to access corporate records is proper, but is nonetheless denied by a corporation or its board of directors. For instance, if a lone or minority stockholder wishes to contest the decision of the majority, and he or she may be able to do so only by accessing relevant financial information of a company, the dynamics of the actions of the majority may lead them to prevent the lone or minority stockholder from accessing corporate information which the latter needs. Here comes the conflict.

Another permutation of this scenario is where a stockholder, in good faith, wishes to refute the actions of the majority, but is prevented by the latter, also in good faith believing that the protesting stockholder has no right to access the records requested. Another conflict arises.

Then again, there is a scenario where a stockholder, with malice, wishes to access corporate records to cause damage to the corporation. Then again, another conflict within the corporation ensues.

There will be as many permutations of these scenarios as there will be conflicts that will arise. For a person in the exercise of his rights and in good faith, there will always be a way.

There is a remedy under the law for the person denied access to corporate records. A petition for mandamus is the proper remedy to compel the enforcement of the stockholder’s right of inspection of corporate books and records.

In this regard, Section 3, Rule 65 of the Rules of Court provides:

Section 3. Petition for mandamus. — When any tribunal, corporation, board, officer or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent, immediately or at some other time to be specified by the court, to do the act required to be done to protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the wrongful acts of the respondent.

In BPI Family Savings Bank, Inc. vs. Manikan, G.R. No. 148789, 16 January 2003, the Supreme Court stated that “the principal function of the writ of mandamus is to command and to expedite, not to inquire and to adjudicate; thus, it is neither the office nor the aim of the writ to secure a legal right but to implement that which is already established. Unless the right to the relief sought is unclouded, mandamus will not issue.

In an intra-corporate controversy, in a situation where the officers of the corporation wrongfully denies a stockholder or member of the right to inspect corporate books or papers, the usual remedy to enforce his right is by filing with the commercial court an action for mandamus against the corporation. (De Leon Deleon, Jr., The Corporation Code of the Philippines (Annotated), Tenth Edition, 2010, p. 594, citing the Security and Exchange Commission Opinion dated 27 April 1970).

In fact, in the case of Gokongwei, Jr. vs. Security and Exchange Commission, G.R. No. L-45911, 11 April 1979, the Supreme Court stated that the proper remedy to compel the corporation allow a stockholder to inspect the corporate books and records of the Corporation is mandamus, to wit:

Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the corporations may be required to be produced for examination,  and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the parent even though subsidiary was not named as a party.  mandamus was likewise held proper to inspect both the subsidiary’s and the parent corporation’s books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto.

It is in the Petition for Mandamus where the judge will determine whether the corporation’s denial of access to the records is proper, whether the purpose of the requesting stockholder or party for the inspection is valid, and whether the latter is permitted, under the law and the relevant regulations (Corporation Code, Articles, By-Laws, and corporate regulations), to access the information which he or she was denied access to.

This is how you can force or compel a corporation to grant access to its corporate records.

Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392, or email us atinfo@ndvlaw.com.

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