1. What Is Liquidation?
Corporate liquidation, also known as winding up, is the formal process of ceasing operations,
converting assets into cash, paying creditors, and distributing any surplus to shareholders. It
can be either:
● Voluntary: Initiated by shareholders/directors.
● Involuntary: Court-mandated, often due to insolvency or legal violations
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nvestopedia.com.
2. Roles & Priority in Liquidation
● A liquidator (or trustee/receiver) oversees asset collection, debt settlement, and
distribution en.wikipedia.org+8investopedia.com+8lawyer-philippines.com+8.
● Liquidation follows a strict priority order:
1. Secured creditors
2. Priority unsecured creditors (e.g. employees, taxes)
3. General unsecured creditors
4. Shareholders—preferred first, then common
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3. Philippine Corporate Liquidation Process
A. Dissolution → Liquidation
1. Dissolution: Company must first be lawfully dissolved via:
○ Voluntary dissolution (shortened corporate term or with creditor notice)
○ Involuntary dissolution (by SEC or court due to noncompliance, fraud,
insolvency) en.wikipedia.org+15respicio.ph+15taxacctgcenter.ph+15.
2. After dissolution, a 3‑year “winding‑up” period begins for settling affairs
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B. Liquidation Mechanisms
● Board-led: Board may manage liquidation.
● Trustee appointment: Assets transferred to trustee, who liquidates beyond the 3‑year
period pnl-law.com+11ndvlaw.com+11reddit.com+11.
● Receiver appointment: SEC or court-appointed receiver handles insolvent companies
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C. Required Steps
● Voluntary w/ no creditors: File SEC forms (D‑1), affidavit of no creditors, audited FS,
BIR clearance, and publish notice lawyer-philippines.com+1taxacctgcenter.ph+1.
● Voluntary w/ creditors: Notify creditors, publish notice, and resolve claims before SEC
approval lawphil.net+9respicio.ph+9investopedia.com+9.
● Involuntary: SEC or court notifies stakeholders, then appoints liquidator/receiver
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D. Tax & Regulatory Closures
● File final tax returns and obtain BIR tax clearance (covers 3 years prior)
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● Settle capital gains, documentary stamp taxes, and withholding obligations respicio.ph.
● Cancel local permits (Mayor’s Permit, LGU), and finalize employee contributions
lawyer-philippines.com.
4. Timing & Costs in the Philippines
● Typical dissolution and liquidation takes 3–6 months, or longer depending on creditor
issues investopedia.com+5lawyer-philippines.com+5respicio.ph+5.
● Important costs include:
○ SEC filing fees (~₱1k–₱8k)
○ Newspaper notices (~₱5k–₱15k)
○ BIR/LGU fees
○ Professional services (~₱15k–₱100k+)
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m.
5. Legal Framework & Court Role
● The Revised Corporation Code requires a lawful dissolution before liquidation. The
company remains a legal entity for winding‑up for three years
pnl-law.com+3ndvlaw.com+3lawyer-philippines.com+3.
● Creditors/stockholders can challenge claims within 30 days; the liquidator must submit a
liquidation plan to the court within 3 months lawphil.net.
● After the third year, if no trustee was appointed, directors may continue as implied
trustees under Gelano vs CA reddit.com.
6. Final Steps & Termination
● Post-liquidation, a final report is filed with the SEC.
● Remaining assets (after debts and statutory priority distributions) are disbursed to
shareholders ndvlaw.com+6duranschulze.com+6wafeq.com+6.
● The entity is formally deregistered/dissolved after fulfilling obligations.
📋 Summary – Liquidation at a Glance (Philippines)
Stage Key Activities
Dissolution Board/shareholder resolution, SEC filing, public notice
Liquidation Appoint trustee/receiver, asset sales, creditors notice
Claims Creditors submit claims; liquidator/court approval required
Handling
Tax Clearances Final tax returns; BIR clearance; local government permits
Distribution Pay debts, taxes, employee claims → creditor tiers →
shareholders
Winding-Up 3-year default; trustee may extend payment cycle
Period
Finalization SEC-approved liquidation report; entity deregistration
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