Liability of the CEO of a company in the Philippines

1) Can a CEO of a private company be personally liable for the acts/omission and / or obligations of the company?

Yes, a CEO of a private company can be held personally liable under specific exceptions. 

As a rule, a corporation has a separate legal personality from its officers; hence, officers (including the CEO) cannot be held liable for the acts, omissions, and obligations of the company. 

However, under Section 30 of the Revised Corporation Code (RCC) of the Philippines, a CEO may be held personally liable if he or she willfully and knowingly votes for, or assents, to patently unlawful acts of the corporation, or is guilty of gross negligence or bad faith in directing its affairs.

2) In which cases may a CEO incur civil liability in connection with performance or a failure to perform his duties?

A CEO may incur civil liability if they act with bad faith or gross negligence in directing the corporation's affairs, or if they willfully and knowingly assent to patently unlawful acts.

Liability also attaches if the CEO acquires a personal or pecuniary interest in conflict with their duty as a director or officer (violating the duty of loyalty).

Additionally, a CEO may be liable if he/she voluntarily agrees to be solidarily liable with the corporation via a contract (e.g., signing as a surety/guarantor).

3) What violations may trigger administrative liability of a CEO as a company official?

Administrative liability is triggered by violations of the RCC or regulations issued by the Securities and Exchange Commission (SEC). 

Specific grounds include the willful concealment of a disqualification to hold office or the failure to comply with statutory reporting duties, such as maintaining and allowing the inspection of corporate records. 

The SEC may impose sanctions, including fines and permanent disqualification, for such offenses.

4) Under what circumstances may a CEO face criminal liability?

A CEO may face criminal liability when he or she personally commits a crime as criminal intent and liability are personal in nature. 

In addition, a CEO may be held criminally liable when a statute expressly imposes liability on corporate or responsible officers for violations committed by the corporation. For example, the RCC provides that liability for offenses enumerated under Sections 159–169 (such as fraud or certification of incomplete reports) may attach to responsible officers. This liability is separate from any other administrative, civil, or criminal liability under the RCC and other laws.

Another example is the Philippine Clean Water Act of 2004. The law expressly states that, in cases of gross violation, “if the offender is a juridical person, the president, manager, and the pollution control officer or the official in charge of the operation shall suffer the penalty herein provided.”

5) Can a CEO be held liable for the actions of subordinates, in particular, if he delegates a part of his authorities?

Yes, a CEO can be held liable for the actions of subordinates if he/she authorized, directed, or knowingly tolerated the subordinate’s unlawful acts, or was grossly negligent in his/her supervision. 

Furthermore, the CEO cannot escape liability for regulatory violations (such as environmental or labor laws) merely by delegating duties, especially if the law imposes a non-delegable duty on the head of the organization to ensure compliance.

6) Does the business judgment rule apply to a CEO?

Yes, the business judgment rule applies to a CEO. 

Under this principle, courts will not interfere with the judgment of the Board or officers in business matters, provided they act in good faith and within their authority.

A CEO is not liable for mere errors in judgment or business losses; liability only attaches if there is proof of bad faith, gross negligence, or a conflict of interest.

7) Can a CEO be held liable for his actions or omission after termination of their office?

Yes, a CEO can be held liable for actions or omissions even after the termination of his/her office. 

Resignation, removal, or expiration of term does not extinguish liability for acts committed during the CEO’s tenure. If the CEO committed fraud, gross negligence, or specific statutory offenses while in office, he or she remains personally liable for those acts, subject only to the applicable statute of limitations for filing the action.

8) Can a CEO’s liability be limited by an employment contract, articles of association or internal corporate documents?

Yes, a CEO’s liability may be limited by an employment contract, the articles of association, or other internal corporate documents. Such limitations generally apply only to acts covered by the business judgment rule, where the CEO is presumed to have acted in good faith and in the corporation’s best interest. 

However, any contractual provision or by-law attempting to exempt the CEO from liability for willful misconduct, bad faith, or gross negligence is void as it is contrary to Philippine public policy.

9) Is a CEO liable for failure to comply with the tax, accounting and other reporting requirements?

Yes, a CEO may be held liable for failure to comply with the tax, accounting, and other reporting requirements. 

The National Internal Revenue Code of the Philippines expressly provides that in case of associations, partnerships, or corporations, the penalty under the law shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge, and employees responsible for the violation. 

Similarly, the RCC imposes penalties on officers who fail or caused failure to submit required reports (e.g., General Information Sheet, Audited Financial Statements) or who certify incomplete or inaccurate reports to the SEC.

10) What practical steps can a CEO take to mitigate the risks of his criminal, administrative and civil liability?

A CEO can mitigate the risks of criminal, administrative, and civil liability by implementing and enforcing a robust corporate governance and compliance system. It is essential that the CEO:

1. exercises due diligence in his corporate decisions;
2. ensures the maintenance of orderly and thorough written records, including the meeting minutes and the stock-and-transfer book;
3. refrains from engaging in activities that may be taken as a conflict of interest.

Additionally, seeking regular guidance and consultation from legal, tax, and financial experts helps ensure that the CEO acts in accordance with current laws, thereby establishing a defense of “good faith” if necessary.

Author: Krisanto Karlo Nicolas and Melissa Roe Mendoza