Investor Signed the Subscription but Never Paid: Demand, Unpaid Shares and Fixing the SEC Filing

Establish three facts first: what was signed, how far the SEC filing went, how much was actually paid

The right sequence depends on three facts, so pin them down before deciding how hard to push and what to do with the SEC record. Companies that start with "let's kick him out" often discover they do not even hold a complete subscription agreement.

First, what was signed. Gather every document connected to this investor: the subscription or investment agreement, board and shareholder resolutions, any shareholders' agreement, the subscription form, declarations made to the company or the SEC, and the bank certification template used. Read for three things: the payment deadline, the stated consequences of default (automatic forfeiture, interest, penalty) and any termination clause. If all you hold is a short letter of intent, your leverage is thinner than you think.

Second, how far the SEC filing went. There are three states: filed and approved, so the public record already shows the new shareholder or new capital; filed and still under review; or prepared but not yet submitted. Each calls for a different correction, covered in the fourth section. Pull the latest General Information Sheet and check whether the investor already appears on it; if so, the GIS will need correcting too. How the GIS works is explained in the General Information Sheet guide.

Third, how much actually arrived. Reconcile the bank statements against the stock and transfer book: nothing paid, partial payment, or a non-cash contribution dressed up as "advanced expenses" or "equipment in kind." Partial payment is the most common and the most contentious case, because the investor will argue "I paid, so I am a shareholder" while the company argues "not fully paid, so not a shareholder." Neither is entirely right; the answer sits in the subscription agreement and the by-laws. Tabulate every incoming transfer with date, amount and reference.

Reduce these three facts to a one-page summary, attach copies of the documents, and hand the pack to counsel. Every later action rests on it.

Do this now: written demand, suspension of rights, and no more presenting him as a shareholder

Three actions today: issue a formal demand, have the board suspend the investor's shareholder rights internally, and stop every outward representation that he is a paid-up shareholder. None of these waits for a full legal opinion, though the demand letter should be reviewed by a lawyer before it goes out.

1. Formal demand. State the number of shares subscribed and the subscription price, the contractual payment deadline, amounts paid and unpaid, a final date for payment, and the measures the company will take under the agreement and the by-laws if the date passes (declaring the shares delinquent, terminating the agreement, claiming losses). Send it by a method that proves delivery, such as a courier with signature plus email, and keep the proof. Keep the tone factual and restrained; this letter may become evidence.
2. Suspend rights. By board resolution, suspend voting, dividend and inspection rights until the price is paid, provided the by-laws or the subscription agreement allow it; have the corporate secretary confirm. File the resolution and notify the investor.
3. Stop outward representations. Remove the investor from the website, pitch decks and introductions to banks and clients. If he was already added as a bank signatory, assess removing him first; see dealing with a departed or hostile bank signatory. Anything he signs in the company's name should be disowned in writing promptly.

Two things not to do: do not transfer the shares registered in his name to someone else without the proper procedure, and do not strike his name from the stock and transfer book yourself. The book is a statutory record and tampering with it puts the company on the back foot. Every change needs a resolution, a procedure and counsel's confirmation.

If the investor is merely short of cash and the company genuinely wants him to stay, the demand can offer a conditional instalment plan, but the instalment terms must be signed separately and state what happens on a second default.

Subscribed but unpaid shares: the routes available under the by-laws and the Corporation Code

The core principle: subscribed shares do not vanish because the subscriber failed to pay, nor do they revert to the company automatically. The company must follow the procedure in its by-laws and the Revised Corporation Code as currently applied, step by step, with counsel. The usual routes are below, each with its own conditions.

Route one: call and declare delinquency. The Code sets a procedure for calling unpaid subscriptions and for what follows when the call is ignored: a board resolution making the call, notice to the subscriber, a payment period, and after it lapses, a declaration that the shares are delinquent. Delinquent shares are then dealt with under a further procedure, which may include a sale by the company or, where no bidder appears, the shares being held by the company. Every step carries formal requirements on notice, timing and authority, and a defective step can void the whole exercise.

Route two: termination by agreement. If the subscription agreement has a termination clause, or both sides prefer a clean break, sign a release stating that the subscription is cancelled, how any amount already paid is treated, and whether claims are mutually waived or reserved. This is the fastest route, but the SEC record and the stock and transfer book must be corrected at the same time or the public record will still show him as a shareholder.

Route three: reduce the subscription. Where part of the price was paid, the parties can agree to cut the subscription to the number of shares the payment covers and deal with the balance separately. This requires an amended agreement and probably an SEC correction, and suits a company that wants the investor to stay but will not wait any longer.

Route four: transfer to another subscriber. If the by-laws permit and another shareholder or a third party will pay, the unpaid shares can be placed elsewhere, subject to existing shareholders' pre-emptive rights and foreign ownership ceilings. The related considerations are discussed in the capital call deadlock guide in this series.

Whichever route applies, update the stock and transfer book and certificate records in step; their status and reconstruction are covered in lost stock certificates and the stock and transfer book.

The SEC record already changed: correct, withdraw or refile, and be honest about why

The answer depends on how far the filing travelled: not yet submitted means simply revise; under review means withdraw or amend; already approved means a correction or a new amendment with a truthful explanation. The one thing never to do is let the public record and reality diverge for long.

Not yet submitted. The easiest case. Hold the filing, finish the default process, then prepare documents that reflect what actually happened. If the company already issued a shareholder list or a capital certification for the filing, cancel those documents and minute the cancellation.

Filed and under review. Apply to withdraw or amend, explaining that the subscriber failed to pay. Capital increase filings normally attach proof that the capital is in; if the original filing relied on the investor's promise to pay or on funds advanced by someone else, be careful. Whether the company represented the facts truthfully at filing affects how the correction is handled, so have counsel assess before contacting the SEC.

Approved. The registered capital or shareholder structure has already changed publicly while the money never arrived. The usual path is to complete the internal default procedure or the termination agreement first, then file the corresponding amendment with the SEC, such as a capital decrease, a change in shareholders or a correction of information, and reflect the truth in the next GIS. A decrease carries creditor-protection steps; see the capital increase and decrease process.

Central bank registration. If the investor is foreign and the company registered, or prepared to register, the inward investment with the central bank, cancel or correct that registration too; otherwise future dividend remittances will not reconcile.

Tax. Subscriptions, cancellations and transfers each have tax consequences, particularly where shares change hands or money is refunded. Have the accountant check for filing obligations now rather than at year end.

Keep every communication with the SEC in writing, and retain copies and receiving stamps for every document submitted.

Contractual recourse and negotiation: claim, release, or the investor who wants a refund

The company can pursue, release, or keep the investor on conditions. Which one fits depends on why he defaulted, how badly the company needs cash, and the realistic cost of enforcement. Decide what you actually want, the money, the shares back cleanly, or this person staying, before choosing a strategy.

Claiming damages. If the subscription agreement provides for penalties, interest or damages, the company can claim under it; even without such clauses, actual losses caused by the default, such as the cost of emergency financing, may be recoverable. Options range from a written claim through mediation to litigation or arbitration, with very different costs and timelines, so decide with counsel whether pursuit is worthwhile. If the investor is abroad with no Philippine assets, assess enforceability before spending money.

Mutual release. When the investor has changed his mind and the company does not want a fight, a termination agreement is the simplest route. It should state that the subscription is void, how any payment is treated (refund, set-off against losses, or partial refund), which claims are released or reserved, confidentiality and non-disparagement, and the investor's duty to sign whatever is needed to correct the SEC record and the stock and transfer book. The last point matters: corrections may need his signature, and you do not want to discover that after he has gone.

The investor demands a refund. Check the agreement for forfeiture, set-off or refund conditions. Absent a clause, the amount is a matter of negotiation. Remember that if the money was booked as capital and reported to the SEC, a refund requires the corresponding procedure first; otherwise it looks like capital being withdrawn.

Keeping him on conditions. If the company really needs this investor, sign a supplement with a new payment schedule, the shares attached to each instalment, and automatic consequences for a further default, drafted in a form the by-laws and the Code allow.

Whatever you choose, keep every negotiation in writing. Verbal promises count for nothing.

Next time: let the filing follow the money, and what Yixing can do

The lesson in one line: SEC filings follow the money, never the other way round. Most of the pain in a subscription default comes not from the default itself but from the company amending its public record early, to look well-capitalised or to meet the investor's timetable.

1. Collect first, file second. After signing, receive the price, or at least the first tranche, into the company account, obtain the bank certification, and only then file the increase or shareholder change. An investor who insists on "register me first" can be offered an escrow or a conditional arrangement instead.
2. Write the default terms into the subscription agreement. Payment deadline, interest or penalty, the fate of unpaid shares, termination conditions, and a duty to cooperate in correcting public records.
3. Tie instalments to registration. Split large investments into tranches and register the shares for each tranche only after it lands, rather than registering the whole block up front.
4. Link rights to payment. Within what the by-laws allow, connect voting, dividend and signing rights to paid-up status so an unpaid subscriber does not acquire control first.
5. Basic diligence. Understand the investor's source of funds and ability to pay, and for cross-border money confirm the remittance route and central bank registration in advance so funds do not stall in transit.

If the company is currently stuck in the "SEC amended, money missing" state and needs the shareholder documents, default process, SEC correction and stock and transfer book sorted in one pass, Yixing can help.

Shareholder documents, SEC correction and the stock and transfer book after a subscription default, done cleanly in one go? → Yixing company setup and equity change services

Yixing (SEC Registration No. CS202009551, BI Accreditation No. CA-202624381-1, DOLE accredited) can organise the subscription file, prepare board and shareholder resolutions, handle SEC and central bank filings, and refer you to licensed counsel for claims and releases. Consult a licensed attorney for your specific case; this article is not legal advice.