Lesson 1 RIGHT OF APPRAISAL
Lesson 1 RIGHT OF APPRAISAL
Lesson 1 RIGHT OF APPRAISAL
Right of appraisal-
Under Section 80, the right of appraisal is the right of stockholder to demand
payment of the fair value of his shares after dissenting from a proposed
corporate action involving a fundamental change in the corporation in the cases
provided for by law.
It is available when:
(a) Articles are amended and such has the effect of changing or restricting the
rights of a shareholder or a class of shares or authorizing preferences in any
respect superior to those outstanding shares of any class
(b) extending or shortening the corporate term
(c) in cases of sale, lease, exchange transfer, mortgage, pledge or disposition of all
or substantially all of corporate assets or property
(d) in cases of mergers/consolidations
(e) investment by the corporation in another corporation or business other than
its primary purpose
(f) a stockholder in a close corporation for any reason may compel the said
corporation to allow the exercise of his appraisal right.
Manner of exercise-
Under Section 81, after voting against the proposed corporate action, the
dissenting stockholder shall make a written demand on the corporation within
30 days after the date on which the vote was taken for payment of the fair value
of his shares.
Under Section 85, the stockholder must also submit his certificate of stock within
10 days for notation that such shares are dissenting shares.
If the certificate is not submitted for notation within 10 days, the corporation
may consider the exercise of the right terminated at its option. If the shares
bearing a notation is transferred and the certificates consequently cancelled, the
rights of the transferor as a dissenting stockholder shall cease and the transferee
shall have all the rights of a regular stockholder, and all dividend distributions
which would have accrued are paid to the transferee.
Under Section 82, upon a demand, all rights accruing to the share are suspended
including voting and dividend rights, only the right to receive the fair value is not
suspended but, if there is no payment within 30 days after the award, he is
restored to all his rights.
However, under Section 83 the exercise of the right after demand is made shall
cease if: (a) stockholder withdraws his demand and the corporation consents (b)
proposed action is abandoned or rescinded (c) SEC disapproves the action, if its
approval is necessary (d) SEC determines that the stockholder is not entitled to
the exercise of the right. The effect is that he is restored to all rights and accrued
dividends are paid to him.
The corporation then pays the stockholder the fair value upon surrender of the
certificate.
The value paid is the value as of the day prior to the date on which the vote is
taken, excluding any depreciation or appreciation in anticipation of the
corporate action.
If the fair value cannot be determined within 60 days from the date corporate
action was approved, it shall be appraised by 3 disinterested persons one chosen
by the stockholder, one chosen by the corporation and one chosen by both
representatives. A decision of a majority shall be final and the award paid within
30 days after such award is made.
Under Section 84, the cost of the valuation shall be shouldered as follows: (a) the
corporation, unless the fair value as ascertained is equal to or approximates that
which it offered, then it will assessed against the shareholder (b) if suit is
brought to recover payment, the corporation shall be liable unless the
shareholder is found to have an unjustifiable reason not to receive payment.
Provided, in all cases (a) no payment can be made if the corporation has no
unrestricted retained earnings, and (b) that the shareholder shall forthwith
transfer his shares to the corporation.
TRANSCRIBED
Q: what is the right of appraisal?
Under section 80 and other provisions of the revised corporation code they are
available when:
1. The articles are amended and the effect of the amendment is to change or
restrict the rights of a shareholder or a class of shares or authorizing preferences
in any respect superior to those of outstanding shares of any class.
Some authorities say that what you find in section 104 which is the chapter on
closed corporations where a stockholder in a closed corporation may for any
reason compel the corporation to allow or to compel it to purchase his shares at
its fair market value.
Some authorities say that this is pursuant to the exercise of a right of appraisal.
However if you read the provision closely it says there he may compel or a
stockholder in a closed corporation may compel the purchase of his shares at its
fair market value for any reason.
So going back to the definition of the exercise of the right of appraisal you have a
demand for payment of fair market value after descent to a proposed corporate
action.
Section 104 does not contain any condition regarding the need to descend to a
proposed corporate action, although it may be understood to have been implied
from the demand to compel payment of the fair market value of his shares
because why would a stockholder in a closed corporation just demand payment
of the fair market value of his shares. There must be some compelling reason for
him to demand payment of the fair market value of his shares.
Another thing that mitigates against it not being considered the exercise or an
exercise of the right of appraisal is the amount that is to be paid. If one is to
exercise his right of appraisal, he is supposed to be paid the fair market value of
his shares on the day prior to the date on which the vote was taken. So this can
be a situation where if the par value is 100 but because of good management the
value now is 120 pesos then the amount that should be paid will be 120 pesos
because that is the value of the share on the date prior to the date on which
the vote was taken.
On the other hand, let us say that the value has deteriorated or depreciated and it
is now worth 70 pesos on the market. So you have par value at 100 but the actual
or the fair market value is only 70. If that is the value on the day prior to the date
on which the vote was taken then the amount that should be paid is 70 pesos per
share.
So for example the vote was taken on march 1 then within 30 days from march 1
there must be a written demand for the payment of the fair market value of the
shares pursuant to the exercise of the right of appraisal.
So once this has been done upon a demand and submission of the certificate of
stock all rights of the stockholder are now suspended except the right to receive
the fair market value of his shares which amount should be paid within 30 days
after an award.
If an award or the fair market value cannot be arrived at mutually, then there can
be a submission to appraisers so they will now appraise the fair market value.
If within 60 days from the date the corporate action was approved it cannot be
determined, these appraisers now, one chosen by the stockholder one chosen by
the corporation and one chosen by both representatives shall make a
determination of fair market value.
A decision of a majority of the appraisers shall be final and the award should be
paid within 30 days after such date.
1. so you have determination of fair market value - so this can happen mutually
or it can happen by way of appraisers.
If it happens mutually and let us say they decide that the fair market value is 100
per share then on the date they decided to on the fair market value within 30
days it should be paid.
If it cannot be decided within 60 days after approval of the corporate action
then we would have to go to appraisers who are now supposed to determine it
by way of a majority vote and once they have so determined it that should also
be paid within 30 days from a determination.
If there is no payment within the 30-day period irrespective of how the fair
market value was arrived at, then the stockholder who is exercising the right of
appraisal is restored to all his rights as a stockholder.
If it turns out that the offered fair market value by the corporation is much less
than the determined fair market value upon evaluation that is going to be
shouldered by the corporation.
Q: When he has successfully exercised the right of appraisal, how many shares
are to be bought from him or how many shares are supposed to be paid for?
A: He would have to be paid the fair market value of the 100 shares
Q: why is he supposed to be paid the fair market value of 100 shares when he has
only paid 50%?
A: this is based on the doctrine of indivisibility of the subscription
That is why he must be paid the entire value or for 100 shares.
SUMMARY:
When we are talking of a subscriber or one who was not yet paid for the entire
consideration as provided in his subscription contract, He can exercise the right
of appraisal as long as he is not delinquent.
If he has a balance, such balance due on his subscription is deducted from the
determined fair market value.