Director Died, Resigned or Abroad Long-Term: What to Do When a Philippine Board Is Short

Death, resignation and absence are three different things

Only the first two create a vacancy, and the date the vacancy begins is not the same in each.

• Death. The seat is vacant from the date of death. The shares in the director's name fall into the estate and follow the succession process, covered in what to do when a shareholder is missing or deceased.
• Resignation. There must be a written resignation. When it takes effect usually depends on the date stated in the letter and on the bylaws. Saying "I am out" or simply ceasing to appear is not a resignation.
• Long absence abroad. Being overseas does not affect a person's status as director. The seat is not vacant. The only problem is physical attendance.

Then count quorum. A board meeting generally needs a majority of the number of directors stated in the articles, unless the articles or bylaws set a higher figure. Note that the base is the number in the articles, not the number of people left. To illustrate the structure: with five directors in the articles, one death and one resignation leave three, which is still a majority, and the board can meet. Lose one more and the two who remain cannot form a quorum.

Confirm two more points. First, whether the company is a One Person Corporation. Its rules are entirely different: when the single director dies or loses capacity, the nominee designated in advance takes over, as explained in One Person Corporation requirements and reporting duties. Second, whether the departing director also served as president, treasurer or bank signatory. The more roles one person held, the more threads you will have to deal with at once.

The first few days: confirm the vacancy, record it, and three things not to do

In the first few days, fix the facts in writing and tell the offices and banks that need to know. Do not try to keep it quiet while you get the pending signatures done.

1. Obtain written proof. For a death, a copy of the death certificate. For a resignation, the original letter, signed by hand and stating its effective date.
2. Have the corporate secretary record it and report to the Securities and Exchange Commission. A company must report the death, resignation or other cessation of a director within the prescribed period. The exact period and method are set by the Commission's current rules. If the secretary cannot be reached either, deal first with what to do when the corporate secretary or treasurer is unreachable.
3. List what passed through their hands. Bank signing authority, online banking tokens, the company seal, original licences and any authority to sign contracts. Note who holds each one now.
4. Read the bylaws. Check for specific provisions on filling vacancies, notice periods and remote attendance.

Three things to avoid:

• Do not keep using the signature, e-signature or online banking access of a director who has left or died. Anything signed in the name of a deceased person has no effect and exposes whoever did it to a falsification charge.
• Do not backdate resolutions to a date before the vacancy arose.
• Do not hold a "meeting" and issue resolutions without a quorum. A bank or the Commission may not notice at first. But once anyone challenges it, every change resting on that resolution falls with it, and the individuals who certified the meeting are answerable.

Filling the seat: three routes and when each applies

Which route you take depends on whether the remaining directors still form a quorum and on how the vacancy arose.

1. The remaining directors still form a quorum. A vacancy caused by death, resignation or similar reasons can usually be filled by majority vote of the remaining directors. The replacement serves only for the unexpired term. This is the fastest route.
2. The remaining directors do not form a quorum, or the vacancy arose from removal or expiry of term. The shareholders must elect at a regular meeting or one called for the purpose. That brings you back to whether a stockholders' meeting can be validly held. Notice periods and who may call the meeting follow the bylaws.
3. No quorum, and something cannot wait. Current company law provides for an emergency board. Where the vacancy prevents a quorum and immediate action is required to prevent grave, substantial and irreparable loss, the remaining directors may by unanimous vote temporarily fill the seat from among the company's officers. The authority extends only to the emergency in question, ends when the emergency passes or a replacement is properly elected, and must be reported to the Commission within the prescribed period. It is a stopgap and cannot be used as a standing arrangement.

Whichever route applies, the new director must be qualified. They must hold at least one share in their own name, recorded in the stock and transfer book, and must not fall under any legal disqualification. Where an industry sets nationality requirements for the board, check them at the same time so that filling one seat does not upset the foreign-equity position.

If the company no longer needs so many directors, reducing the number in the articles is possible. That is an amendment of the articles, requiring a higher vote of both board and shareholders and the Commission's approval. It takes longer and does not solve an immediate quorum problem.

A director abroad long-term: not a vacancy, a different way of meeting

A director who lives overseas does not need to be replaced. Start by using remote attendance. Current company law allows directors to attend and vote at board meetings by videoconference, teleconference or similar means. The Commission has accompanying requirements on notice, confirming identity and keeping minutes for remote meetings, and matching clauses in the bylaws make the position safer.

There is one line that is easy to cross. A director cannot appoint someone else to attend a board meeting or to vote in their place. This differs from shareholders, who may give a proxy. Directors act on their own judgment. Having someone "sit in" or having a person in the Philippines sign a resolution on the director's behalf is not recognised.

In practice the difficulty is rarely the meeting. It is the documents that need a wet signature, notarisation or personal appearance. Arrange things as follows:

• Pass routine resolutions at remote meetings and have the corporate secretary issue a certificate, so that fewer documents need every director's signature.
• Where the overseas director must sign and notarise a document, have it notarised and apostilled or consularised where they are and couriered back. Allow time for delivery.
• Move bank signing authority away from anyone who is rarely in the country and give it to people who are resident.
• If the person is also the president or another officer who signs frequently, the board can elect a different officer while they keep the board seat.

If the director cannot return because of a visa problem, a refused entry or ill health, and there is no realistic prospect of return, it is time to discuss resignation and replacement in earnest. A company should not be organised around someone who cannot be present. The immigration position of a foreign director can be assessed alongside this through our visa and HR services.

During and after the election: following through with the bank and the SEC

Electing a replacement inside the company is not the end of it. The bank and the Commission each need to be updated, and doing it in the wrong order means doing it twice.

• The Commission. Changes of directors and officers are reported through an updated General Information Sheet certified by the corporate secretary. The report of the vacancy and the report of the new director each have their own deadline under the current rules. If beneficial ownership information changes as a result, update that too; see how beneficial ownership reporting works.
• The bank. A bank recognises only the signatories and resolutions in its own file. If the departing director was a signatory, the change requires a new board resolution and secretary's certificate, and banks commonly ask for the updated General Information Sheet as well. The sequence and interim payment arrangements are in what to do when a bank signatory is gone and the account is stuck.
• The tax office, city hall and other licences. Where registration records name a responsible officer or authorised representative, update them as each office requires.
• Contracts. Tell key customers, the landlord and suppliers who will sign for the company from now on, and supply the authority.

In the interim, the acts of sitting officers within their ordinary authority remain valid. The president signs everyday contracts and the treasurer handles everyday receipts and payments. Matters that need a board resolution must wait until the board has a quorum again or an emergency arrangement is in place. These include opening or changing bank accounts, borrowing, disposing of major assets and appointing or removing officers.

Where the same person was both director and shareholder, a death sets two separate processes in motion. The seat is dealt with by election and the shares by succession and transfer. Completing one does not complete the other.

Not being stopped by one empty seat again, and what Yixing can do

What a board should fear is not that someone leaves. It is that the person who leaves also holds the signing authority, the seal and every password. Arrangements worth making in advance:

• Keep some margin in the number of directors. A board sized exactly at quorum cannot meet once a single person is gone.
• Put rules on remote attendance and electronic notice into the bylaws.
• Have at least two resident bank signatories, with signing rules that let one cover for the other.
• Agree the resignation procedure and a handover checklist with each director when they take office.
• Do not fill seats with people who are directors in name only and cannot be reached. For what happens when such arrangements go wrong, see when a nominee shareholder turns hostile.
• Keep a complete set of corporate records in the company's own hands, not solely with one director or an outside agent.

Yixing Travel Consultancy (SEC Registration No. CS202009551, Bureau of Immigration Accredited Agency No. CA-202624381-1) provides company setup and amendment services. We help prepare the notices, resolutions and secretary's certificates needed to fill a vacancy, file the updated General Information Sheet and related reports, and update registration records with the bank, the tax office and city hall in step. Where a foreign director is involved, we also assess the effect on their visa. Disputes between directors, succession matters, whether an emergency board is available and any court process are for licensed counsel to assess and handle, and we can introduce you. We are a private firm with no affiliation to any government office, and we cannot promise any outcome. For your specific case consult a licensed lawyer; this article is not legal advice.