Business Consulting BlogClosing down your business in the Philippines due to Covid-19

July 8, 20200
https://www.tripleiconsulting.com/wp-content/uploads/2020/05/SEC-Philippines-Corporations.jpg

It’s never an easy topic to talk about albeit an important one in the life cycle of any business. Sometimes due to unforeseeable events companies are forced to consider the most extreme of circumstances. The Corona pandemic has affected every business on the planet. Most of these changes are negative in their impact to either revenue or to operating expenses of a business.

Some companies will be able to weather this storm, either they have the funds to sustain the business until brighter days, or they are able to transform their business to meet the demands of the “New Normal”, or some lucky ones find their category in the rapid demand for services or products that are now relevant. For other companies that have been so severely impacted ceasing operations may be the only solution.

While companies are eager to stop any losses and quickly cease operations, it is very important that this is done properly to avoid any liabilities to the parent company or shareholders. Foreign companies may believe that they will never re-enter the Philippines but never is a long time and the Securities and Exchange Commission has a longer memory. I have previously dealt with a large foreign company (a global electronics brand) that had a sister company improperly close down several years prior. The SEC went after this company even though they were of a separate legal entity.

I only mean that we don’t know what tomorrow will bring and certainly this too will pass. The Philippines economy is expected to recover at the start of next year, and many brands that will cease operation today in 3-5 years may hunger for the Philippines consumer or labor market.

As previously mentioned, while Philippines incorporation is relatively simple in process, closing down a company is much more complex. Below are the steps foreign and local corporation must take to stop operations or close down their business.

Option 1: – Dissolution/Withdrawal of License

This may be opted by clients who are certain to close business for reasons such as the impossibility of recuperation in financial distress, the repercussions will be:

1.   After completion of the process, the company can no longer conduct business operations

2.   there will be termination of employees

Steps:

  1. Retirement of Business with the Barangay
  2. Retirement of Business in pertinent City Hall
  3. Retirement of Business in Bureau of Internal Revenue
  4. Notice and Clearances from other Government Agencies
  5. Closure of the Business with the DTI or SEC
  6. Notice to  SSS, Philhealth and HDMF (Pag-ibig)
  7. Termination of Employees – DOLE

Option 2: – Suspension of Business Operations

This may be opted by the client in order to mitigate losses and to buy time to re-think business strategies but still foresee to continue the business. The allowable period of suspension of business is not exceeding 6 months.  Possible reasons for availing are : serious financial losses or business reverses, force majeure (fire, flood, typhoon etc), failure to obtain a permit or license to operate, lawful order by a competent authority. As long as dire exigency for suspension of business operations exists and the employer can prove it, then it will be a valid ground for suspension of business operations.
The Burden of Proof to show that valid ground of suspension of business operations exists rests with the employer. Examples are audited financial statements, balance sheets, profit and loss statements, annual income tax returns, attachment of law or order, presentation of the analysis of independent certified public accountant that there will be impending future losses.
The repercussions of option 2 are:

1.   No termination of employment. Only a temporary displacement of employees

2.   Still has to file compliances with registered government agencies otherwise there will be penalties. Ex. GIS,  tax returns

3.   The employee cannot claim to have been dismissed from employment.

4.   Remittance of mandatory contributions will be suspended but will resume upon the continuance of operations.

 

Steps:

  1. File Notification of suspension of operation in SEC, pertinent barangay, city hall, BIR RDO, other government agencies where the business is registered.
  2. File Establishment Termination Report (ETR) to DOLE with attachment proving the basis of the temporary suspension. This will report employees that will be affected because of suspension of business operations.
  3. File Notice of Temporary Suspension with SSS, Philhealth and Pag-ibig attaching the basis of temporary suspension.
  4. Once operations resume (which must not be beyond 6 mos) and employees report back for work, the employers are required to notify the above mentioned government agencies and to continue remittances to SSS, Philhealth and Pag-iBig.

Neither of the above processes is a simple business decision for any company to make but Triple i Consulting is here to help. If you need any assistance with closing down a Philippines corporation or ceasing operations due to the Corona pandemic please contact us at info@tripleiconsulting.com for more information.

Leave a Reply

Your email address will not be published. Required fields are marked *