EXIT Corp., no longer wanting to continue with its business, transferred to Entra, Inc. under an Asset Purchase Agreement all its properties and assets including goodwill. A creditor of EXIT Corp. demanded from Entra, Inc. the payment of EXIT Corp.’s debt for the reason that the transaction amounted to a merger and, therefore, the surviving corporation, Entra, Inc., must assume the debts of the absorbed corporation, EXIT Corp. Is the creditor’s demand tenable? Explain briefly. (5 points)
Suggested answer only. Not an official answer and not legal advice.
No, the creditor's demand is not tenable. Under the Revised Corporation Code and Bank of Commerce v. Radio Philippines Network, Inc., a merger does not occur by the mere execution of an asset purchase agreement transferring corporate properties and goodwill. A statutory
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Quick check
Under the Revised Corporation Code, when does a statutory merger legally take effect between constituent corporations?
A statutory merger takes legal effect exclusively upon the issuance of the certificate of merger by the SEC.
In Bank of Commerce versus Radio Philippines Network, does an Asset Purchase Agreement automatically constitute a merger?
Bank of Commerce holds that an asset purchase does not constitute a merger without statutory SEC approval.
Under the Nell Doctrine, what is the general rule regarding the liabilities of an asset seller?
Under the Nell Doctrine, an asset purchaser is generally not liable for the seller's debts unless an exception applies.
Which of the following is an exception to the Nell Doctrine where an asset buyer assumes seller liabilities?
Choices available with full access.
Which statute governs statutory mergers and corporate asset transfers in the Philippine jurisdiction?
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Learn more about these topics
1. Statutory Merger Requirements
Under Section 75 to Section 79 of the Revised Corporation Code (Republic Act Number 11232), a statutory merger requires strict compliance with statutory procedures. These include board approval of the plan of merger, majority stockholder or member approval, execution of articles of merger, and formal approval by the Securities and Exchange Commission through the issuance of a certificate of merger. A merger takes legal effect exclusively upon the issuance of the certificate of merger by the Securities and Exchange Commission. Without the certificate of merger, no statutory merger exists in law.
2. Asset Purchase Distinction
In Bank of Commerce versus Radio Philippines Network, Incorporated, the Supreme Court established that an asset purchase transaction transferring corporate property and goodwill does not automatically result in a merger. In a sales transaction involving corporate assets, the purchasing corporation assumes no liability for the seller corporation's debts unless expressly stipulated in the agreement or falling under recognized legal exceptions. Transferring assets via an Asset Purchase Agreement does not absorb the seller's corporate identity or automatically transfer contractual obligations or debt liabilities to the buyer.
3. Nell Doctrine Exceptions
Under the Nell Doctrine established in Edward J. Nell Company versus Pacific Farms, Incorporated, a corporation that purchases the assets of another corporation is generally not liable for the debts and liabilities of the selling corporation. Liability attaches only under four recognized exceptions: where the buyer expressly or impliedly agrees to assume liabilities, where the transaction amounts to a merger or consolidation, where the purchasing corporation is a mere continuation of the seller, or where the transaction is entered fraudulently to escape liability.