Thursday, October 29, 2009

Cooperativism

May I reproduce below the salient parts of the newly adopted 60-page Republic Act No. 9520, known as the "PHILIPPINE COOPERATIVE CODE OF 2008" insofar as they may be relevant to the advocates of cooperativism, people empowerment, and community organization and development..

The right-wing capitalist view that glorifies huge profit-seeking multinational corporations and their power-conscious domestic oligarchic corporate cartels led by publicity-hungry Fortune 500 tycoons as the true saviors of the sagging global economy is not only despicably insulting to the dignity of the common workers and the small but hardworking entrepreneurs and cooperatives but is also dangerously destructive of the real tenets of genuine democracy and republicanism as a political system and as an economic philosophy.

The new law (R.A. No. 9520) has made extensive amendments to R.A. No. 6938, otherwise known as the (original) "Cooperative Code of the Philippines", thus:


X x x.

ART. 2. Declaration of Policy. - It is the declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.

"Toward this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.

"Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and reserach, audit and support services relative to cooperatives with government assistance where necessary.

X x x.

ART. 4. Cooperative Principles. - Every cooperative shall conduct its affairs in accordance with Filipino culture, good values and experience and the universally accepted principles of cooperation which include, but are not limited to, the following:

(1) Voluntary and Open Membership - Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, cultural, political or religious discrimination.

(2) Democrative Member Control - Cooperatives are democratic organizations that are controlled by their members who actively participate in setting their policies and making decisions. Men and women serving as elected representatives, directors or officers are accountable to the membership. In primary cooperatives, members have equal voting rights of one-member, one-vote. Cooperatives at other levels are organized in the same democratic manner.

(3) Member Economic Participation - Members contribute equitably to, and democratically control, the capital of their cooperatives. At least part of that capital is the common property of the cooperative. They shall receive limited compensation or limited interest, if any, on capital subscribed and paid as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative by setting up reserves, part of which should at least be indivisible; benefitting members in proportion to their partonage of the cooperative's bubsiness; and, supporting other activities approved by the membership.

(4) Autonomy and Independence - Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into aggreements with other organizations, including government, or raise capital from external sources, they shall do so on terms that ensure democratic control of their members and maintain their cooperative autonomy.

(5) Education, Training and Information - Cooperatives shall provide education and training for their members, elected and appointed representatives, managers, and employees, so that they can contribute effectively and efficiently to the development of their cooperatives.

(6) Cooperation Among Cooperatives - Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

(7) Concern for Community - Cooperatives work for the sustainable development of their communities through policies approved by their members.

X x x.

ART. 8. Cooperatives Not in Restraint of Trade. – No cooperative or method or act thereof which complies with this Code shall be deemed a conspiracy or combination in restraint of trade or an illegal monopoly, or an attempt to lessen competition or fix prices arbitrarily in violation of any laws of the Philippines.

ART. 9. Cooperative Powers and Capacities. – A cooperative registered under this Code shall have the following powers, rights and capacities:

(1) To the exclusive use of its registered name, to sue and be sued;
(2) Of succession;
(3) To amend its articles of cooperation in accordance with the provisions of this Code;
(4) To adopt bylaws not contrary to law, morals or public policy, and to amend and repeal the same in accordance with this Code;
(5) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
(6) To enter into division, merger or consolidation, as provided in this Code;
(7) To form subsidiary cooperatives and join federations or unions, as provided in this Code;
(8) To avail of loans, be entitled to credit and to accept and receive grants, donations and assistance from foreign and domestic sources, subject to the conditions of said loans, credits, grants, donations or assistance that will not undermine the autonomy of the cooperative. The Authority, upon written request, shall provide necessary assistance in the documentary requirements for the loans, credit, grants, donations and other financial support;
(9) To avail of preferential rights granted to cooperatives under Republic Act No. 7160, otherwise known as the Local Government Code, and other laws, particularly those in the grant of franchises to establish, construct, operate and maintain ferries, wharves, markets or slaughterhouses and to lease public utilities, including access to extension and on-site research services and facilities related to agriculture and fishery activities;
(10) To organize and operate schools in accordance with Republic Act No. 9155, Governance of Basic Education Act of 2001 and other pertinent laws; and
(11) To exercise such other powers granted by this Code or necessary to carry out its purpose or purposes as stated in its Articles of cooperation.

X x x.

ART. 12. Liability. – A cooperative duly registered under this Code shall have limited liability.

X x x.

ART. 14. Articles of Cooperation. – (1) All cooperatives applying for registration shall file with the Authority the articles of cooperation which shall be signed by each of the organizers and acknowledged by them if natural persons, and by the chairpersons or secretaries, if juridical persons, before a notary public.

(2) The articles of cooperation shall set forth:

(a) The name of the cooperative which shall include the word cooperative;
(b) The purpose or purposes and scope of business for which the cooperative is to be registered;
(c) The term of existence of the cooperative;
(d) The area of operation and the postal addresses of its principal office;
(e) The names, nationality, and the postal addresses of the registrants;
(f) The common bond of membership;
(g) The list of names of the directors who shall manage the cooperative; and
(h) The amount of its share capital, the names and residences of its contributors and a statement of whether the cooperative is primary, secondary or tertiary in accordance with Article 23 hereof.

(3) The articles of cooperation may also contain any other provisions not inconsistent with this Code or any related law.

(4) Four (4) copies each of the proposed articles of cooperation, bylaws, and the general statement required under Article 11 of this Code shall be submitted to the Authority.

(5) No cooperative, other than a cooperative union as described under Article 25 hereof, shall be registered unless the articles of cooperation is accompanied with the bonds of the accountable officers and a sworn statements of the treasurer elected by the subscribers showing that at least twenty-five per centum (25%) of the authorized share capital has been subscribed and at least twenty-five per centum (25%) of the total subscription has been paid: Provided, That in no case shall the paid-up share capital be less than Fifteen thousand pesos (P15,000.00).

The Authority shall periodically assess the required paid-up share capital and may increase it every five (5) years when necessary upon consultation with the cooperative sector and the National Economic and Development Authority (NEDA).
ART. 15. Bylaws. – (1) Each cooperative to be registered under this Code shall adopt bylaws not inconsistent with the provisions of this Code. The bylaws shall be filed at the same time as the articles of cooperation.

(2) The bylaws of each cooperative shall provide:

(a) The qualifications for admission to membership and the payment to be made or interest to be acquired as a conditions for the exercise of the right of membership;
(b) The rights and liabilities of membership;
(c) The circumstances under which membership is acquired, maintained and lost;
(d) The procedure to be followed in cases of termination of membership;
(e) The conditions under which the transfer of a share or interest of the members shall be permitted;
(f) The rules and procedures on the agenda, time, place and manner of calling, convening, conducting meetings, quorum requirements, voting systems, and other matters relative to the business affairs of the general assembly, board of directors, and committees;
(g) The general conduct of the affairs of the cooperative, including the powers and duties of the general assembly, the board of directors, committees and the officers, and their qualifications and disqualifications;
(h) The manner in which the capital, may be raised and the purposes for which it can be utilized;
(i) The mode of custody and of investment of net surplus;
(j) The accounting and auditing systems;
(k) The manner of loaning and borrowing including the limitations thereof;
(l) The method of distribution of net surplus;
(m) The manner of adopting, amending, repealing, and abrogating bylaws;
(n) A conciliation or mediation mechanism for the amicable settlement of disputes among members, directors, officers and committee members of the cooperative; and
(o) Other matters incident to the purposes and activities of the cooperative.

ART. 16. Registration. ¬– A cooperative formed and organized under this Code acquires juridical personality from the date the Authority issues a certificate of registration under its official seal. All applications for registration shall be finally disposed of by the Authority within a period of sixty (60) days from the filing thereof, otherwise the application is deemed approved, unless the cause of the delay is attributable to the applicant: Provided, That in case of a denial of the application for registration, an appeal shall lie with the Office of the President within ninety (90) days from receipt of notice of such denial: Provided, further, That failure of the Office of the President to act on the appeal within ninety (90) days from the filing thereof shall mean approval of said application.

X x x .

ART. 17. Certificate of Registration. – A certificate of registration issued by the Authority under its official seal shall be conclusive evidence that the cooperative therein mentioned is duly registered unless it is proved that the registration thereof has been cancelled.

X x x .

ART. 23. Type and Categories of Cooperatives. – (1) Types of Cooperatives – Cooperatives may fall under any of the following types:

(a) Credit Cooperative is one that promotes and undertakes savings and lending services among its members. It generates a common pool of funds in order to provide financial assistance to its members for productive and provident purposes;

(b) Consumers Cooperative is one of the primary purpose of which is to procure and distribute commodities to members and non-members;

(c) Producers Cooperative is one that undertakes joint production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materials or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members;

(d) Marketing Cooperative is one which engages in the supply of production inputs to members and markets their products;

(e) Service Cooperative is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication, professional and other services;

(f) Multipurpose Cooperative is one which combines two (2) or more of the business activities of these different types of cooperatives;

(g) Advocacy Cooperative is a primary cooperative which promotes and advocates cooperativism among its members and the public through socially-oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;

(h) Agrarian Reform Cooperative is one organized by marginal farmers majority of which are agrarian reform beneficiaries for the purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;

(i) Cooperative Bank is one organized for the primary purpose of providing a wide range of financial services to cooperatives and their members;

(j) Dairy Cooperative is one whose members are engaged in the production of fresh milk which may be processed and/or marketed as dairy products;

(k) Education Cooperative is one organized for the primary purpose of owning and operating licensed educational institutions notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001;

(l) Electric Cooperative is one organized for the primary purposed of undertaking power generations, utilizing renewable energy sources, including hybrid systems, acquisition and operation of subtransmission or distribution to its household members;

(m) Financial Service Cooperative is one organized for the primary purpose of engaging in savings and credit services and other financial services;

(n) Fishermen Cooperative is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products;

(o) Health Services Cooperative is one organized for the primary purpose of providing medical, dental and other health services;

(p) Housing Cooperative is one organized to assist or provide access to housing for the benefit of its regular members who actively participate in the savings program for housing. It is co-owned and controlled by its members;

(q) Insurance Cooperative is one engaged in the business of insuring life and poverty of cooperatives and their members;

(r) Transport Cooperative is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of this Code;

(s) Water Service Cooperative is one organized to own, operate and manage waters systems for the provision and distribution of potable water for its members and their households;

(t) Workers Cooperative is one organized by workers, including the self-employed, who are at same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principles; and

(u) Other types of cooperative as may be determined by the Authority.

(2) Categories of Cooperative – Cooperatives shall be categorized according to membership and territorial considerations as follows:

(a) In terms of membership, cooperative shall be categorized into:

(i) Primary – The members of which are natural persons;

(ii) Secondary – The members of which are primaries; and

(iii) Tertiary – The members of which are secondary cooperatives; and

(b) In terms of territory, cooperatives shall be categorized according to areas of operations which may or may not coincide with the political subdivisions of the country.

X x x.

ART. 26. Kinds of Membership. – A cooperative may have two (2) kinds of members, to wit: (1) regular members and (2) associate members.

A regular member is one who has complied with all the membership requirements and entitled to all the rights and privileges of membership. An associate member is one who has no right to vote nor be voted upon and shall be entitled only to such rights and privileges as the bylaws may provide: Provided, That an associate who meets the minimum requirements of regular membership, continues to patronize the cooperative for two (2) years, and signifies his/her intention to remain a member shall be considered a regular member.

A cooperative organized by minors shall be considered a laboratory cooperative and must be affiliated with a registered cooperative. A laboratory cooperative shall be governed by special guidelines to be promulgated by the Authority.
ART. 27. Government Officers and Employees. – (1) Any officer or employee of the Authority shall be disqualified to be elected or appointed to any position in a cooperative: Provided, That the disqualification does not extend to a cooperative organized by the officers or employees of the Authority.

(2) All elective officials of the Government shall be ineligible to become officers and directors of cooperatives: Provided, That the disqualification does not extend to a party list representative being an officer of a cooperative he or she represents; and

(3) Any government employee or official may, in the discharge of is duties as a member in the cooperative, be allowed by the end of office concerned to use official time for attendance at the general assembly, board and committee meetings of cooperatives as well as cooperative seminars, conferences, workshops, technical meetings, and training courses locally or abroad: Provided, That the operations of the office concerned are not adversely affected.

X x x.

ART. 29. Liability of Members. – A member shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.

ART. 30. Termination of Membership. – (1) A member of a cooperative may, for any valid reason, withdraw his membership from the cooperative by giving a sixty (60) day notice to the board of directors. Subject to the bylaws of the cooperative, the withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: Provided, That such fund shall not be made if upon such payment the value of the assets of the cooperative would be less than the aggregate amount of its debts and liabilities exclusive of his share capital contribution.

(2) The death or insanity of a member in a primary cooperative, and the insolvency or dissolution of a member in a secondary or tertiary cooperative may be considered valid grounds for termination of membership: Provided, That in case of death or insanity of an agrarian reform beneficiary-member of a cooperative, the next-of-kin may assume the duties and responsibilities of the original member

(3) Membership in the cooperative may be terminated by a vote of the majority of all the members of the board of directors for any of the following causes:

(a) When a member has not patronized any of the services of the cooperative for an unreasonable period of time as may be previously determined by the board of directors;

(b) When a member has continuously failed to comply with his obligations;
(c) When a member has acted in violation of the bylaws and the rules of the cooperative; and
(d) For any act or omission injurious or prejudicial to the interest or the welfare of the cooperative.

A member whose membership the board of directors may wish to terminate shall be informed of such intended action in writing and shall be given an opportunity to be heard before the said board makes its decision. The decision of the board shall be in writing and shall be communicated in person or by registered mail to said member and shall be appealable within thirty (30) days from receipt thereof to the general assembly whose decision shall be final. The general assembly may create an appeal and grievance committee whose members shall serve for a period of one (1) year and shall decide appeals on membership termination. The committee is given thirty (30) days from receipt thereof to decide on the appeal. Failure to decide within the prescribed period, the appeal is deemed approved in favor of the member. Pending a decision by the general assembly, the membership remains in force.

X x x.

ART. 33. Powers of the General Assembly. – The general assembly shall be the highest policy-making body of the cooperative and shall exercise such powers as are stated in this Code, in the articles of cooperation and in the bylaws of the cooperative. The general assembly shall have the following exclusive powers which cannot be delegate:

(1) To determine and approve amendments to the articles of cooperation and bylaws;

(2) To elect or appoint the members of the board of directors, and to remove them for cause. However, in the case of the electric cooperatives registered under this Code, election of the members of the board shall be held in accordance with its bylaws or election guideline of such electric cooperative; and

(3) To approve developmental plans of the cooperative.

Subject to such other provisions of this Code and only for purposes of prompt and intelligent decision-making, the general assembly may be a three-fourths (3/4) vote of all its members with voting rights, present and constituting a quorum, delegate some of its powers to a smaller body of the cooperative. These powers shall be enumerated under the bylaws of the cooperative.

ART. 34. Meetings. – (1) A regular meeting shall be held annually by the general assembly on a date fixed in the bylaws, or if not so fixed, on any dated within ninety (90) days after the close of each fiscal year: Provided, That notice of regular meetings shall be sent in writing, by posting or publication, or through other electronic means to all members of record.

(2) Whenever necessary, a special meeting of the general assembly may be called at any time by a majority vote of the board of directors or as provided for in the bylaws: Provided, That a notice in writing shall be sent one (1) week prior to the meeting to all members who are entitled to vote. However, a special meeting shall be called by the board of directors after compliance with the required notice within from at least ten per centum (10%) of the total members who re entitled to vote to transact specific business covered by the call.

If the board fails to call a regular or a special meeting within the given period, the Authority, upon petition of ten per centum (10%) of all the members of the cooperative who are entitled to vote, and for good cause shown, shall issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice as required in this Code or in the bylaws;

(3) In the case of a newly approved cooperative, a special general assembly shall be called, as far as practicable, within ninety (90) days from such approval;

(4) The Authority may call a special meeting of the cooperative for the purpose of reporting to the members the result of any examination or other investigation of the cooperative affairs; and

(5) Notice of any meeting may be waived, expressly or impliedly, by any member.

ART. 35. Quorum. – A quorum shall consist of at least twenty-five per centum (25%) of all the members entitled to vote. In the case of cooperative banks, the quorum shall be as provided in Article 99 of this Code. In the case of electric cooperatives registered under this Code, a quorum, unless otherwise provided in the bylaws, shall consist of five per centum (5%) of all the members entitled to vote.

ART. 36. Voting System. – Each member of a primary cooperative shall have only one

(1) vote. In the case of members of secondary or tertiary cooperatives, they shall have one (1) basic vote and as many incentive votes as provided for in the bylaws but not exceed five (5) votes. The votes cast by the delegates shall be deemed as votes cast by the members thereof.

However, the bylaws of a cooperative other than a primary may provide for voting by proxy. Voting by proxy means allowing a delegate of a cooperative to represent or vote in behalf of another delegate of the same cooperative.

ART. 37. Composition and Term of the Board of Directors. – Unless otherwise provided in the bylaws, the direction and management of the affairs of a cooperative shall be vested in a board of directors which shall be composed of not less that five (5) nor more than fifteen (15) members elected by the general assembly for a term of two (2) years and shall hold office until their successors are duly elected an qualified, or until duly removed for caused.

ART. 38. Powers of the Board of Directors. – The board of directors shall be responsible for the strategic planning, direction-setting and policy-formulation activities of the cooperatives.

ART. 39. Directors. – (1) Any member of a cooperative who under the bylaws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or bylaws shall be eligible for election as director.

(2) The cooperative may, by resolution of its board of directors, admit as directors, or committee member one appointed by any financing institution from which the cooperative received financial assistance solely to provide technical knowledge not available within its membership. Such director or committee member not be a member of the cooperative and shall have no powers, rights, nor responsibilities except to provided technical assistance as required by the cooperative.

(3) The members of the board of directors shall not hold any other position directly
involved in the day to day operation and management of the cooperative.

(4) Any person engaged in a business similar to that of the cooperative or who in any way has a conflict of interest with it, is disqualified from election as a director of said cooperative.

ART. 40. Meeting of the Board and Quorum Requirement. – (1) In the case of primary cooperatives, regular meetings of the board of directors shall be held at least once a month.

(2) Special meetings of the board of directors may be held at any time upon the call of the chairperson or a majority of the members of the board: Provided, That written notices of the meeting specifying the agenda of the special meeting shall be given to all members of the board at least one (1) week before the said meeting.

(3) A majority of the members of the Board shall constitute a quorum or the conduct of business, unless the bylaws proved otherwise.

(4) Directors cannot attend or vote by proxy at board meetings.

ART. 41. Vacancy in the Board of Directors. – Any vacancy in the board of directors, other than by expiration of term, may be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum; otherwise, the vacancy must be filled by the general assembly in a regular or special meeting called for the purpose. A director so elected to fill a vacancy shall serve only the unexpired term of his predecessor in office.

X x x,

ART. 45. Liability of Directors, Officers and Committee Members. – Directors, officers and committee members, who are willfully and knowingly vote for or assent to patently unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs of the cooperative or acquire any personal or pecuniary interest in conflict with their duty as such directors, officers or committee members shall be liable jointly and severally for all damages or profits resulting therefrom to the cooperative, members, and other persons.

When a director, officer or committee member attempts to acquire or acquires, in violation of his duty, any interest or equity adverse to the cooperative in respect to any matter which has been reposed in him in confidence, he shall, as a trustee for the cooperative, be liable for damages and shall be accountable for double the profits which otherwise would have accrued to the cooperative.

X x x.

ART. 48. Disloyalty of a Director. – A director who, by virtue of his office, acquires for himself an opportunity which should belong to the cooperative shall be liable for damages and must account for double the profits that otherwise would have accrued to the cooperative by refunding the same, unless his act has been ratified by a three-fourths (3/4) vote of all the members with voting rights, present and constituting a quorum. This provision shall be applicable, notwithstanding the fact that the director used his own funds in the venture.

ART. 49. Illegal Use of Confidential Information. – (1) A director or officer, or an associate of a director or officer, who, for his benefit or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to adversely affect the operation and viability of the cooperative, shall be held:

(a) Liable to compensate the cooperative for the direct losses suffered by the cooperative as a result of the illegal use of information; and

(b) Accountable to the cooperative for any direct benefit or advantage received or yet to be received by him or his associate, as a result of the transaction.

(2) The cooperative shall take the necessary steps to enforce the liabilities described in subsection (a)

ART. 50. Removal. – All complaints for the removal of any elected officer shall be filed with the board of directors. Such officer shall be given the opportunity to be heard. Majority of the board of directors may place the officer concerned under preventive suspension pending the resolution of the investigation. Upon finding of a prima facie evidence of guilt, the board shall present its recommendation for removal to the general assembly.

An elective officer may be removed by three fourths (3/4) votes of the regular members present and constituting a quorum, in a regular or special general assembly meeting called for the purpose. The officer concerned shall be given an opportunity to be heard at said assembly.

X x x,

ART. 52. Books to be Kept Open. – (1) Every cooperative shall have the following documents ready and accessible to its members and representatives of the Authority for inspection during reasonable office hours at its official address: x x x.

X x x.

(3) Each cooperative shall maintain records of accounts such that the true and correct condition and the results of the operation of the cooperative may be ascertained therefrom at any time. The financial statements, audited according to generally accepted auditing standards, principles and practices, shall be published annually and shall be kept posted in a conspicuous place in the principal office of the cooperative.

X x x.

ART. 53. Reports. – (1) Every cooperative shall draw up regular reports of its program of activities, including those in pursuance of their socio-civic undertakings, showing their progress and achievements at the end of every fiscal year. The reports shall be made accessible to its members, and copies thereof shall be furnished to all its members or record. These reports shall be filed with the Authority within one hundred twenty (120) days from the end of the calendar year.

The form and contents of the reports shall be as prescribed by the rules of the Authority. Failure to file the required reports shall subject the accountable officer/s to fines and penalties as may be prescribed by the Authority, and shall be a ground for the revocation of authority of the cooperative to operate as such. The fiscal year of every cooperative shall be the calendar year except as may be otherwise provided in the bylaws.

(2) If a cooperative fails to make, publish and file the reports required herein, or fails to include therein any matter required by the Code, the Authority shall, within fifteen (15) days from the expiration of the prescribed period, send such cooperative a written notice, stating its non-compliance and the commensurate fines and penalties that will be imposed until such time that the cooperative has complied with the requirements.

X x x.

ART. 57. Preference of Claims. – (1) Notwithstanding the provisions of existing laws, rules and regulations to the contrary, but subject to the prior claim of the Authority, any debt due to the cooperative from the member shall constitute a first lien upon any raw materials, production, inputs, and products produced; or any land, building, facilities, equipment, goods or services acquired and held, by such member through the proceeds of the loan or credit granted by the cooperative to him for as long as the same is not fully paid.

(2) No property or interest on property which is subject to a lien under paragraph

(1) shall be sold nor conveyed to third parties without the prior permission of the cooperative. The lien upon the property or interest shall continue to exit even after the sale or conveyance thereof until such lien has been duly extinguished.

(3) Notwithstanding the provisions of any law to the contrary, any sale or conveyance made in contravention of paragraph (2) hereof shall be void.

X x x .

ART. 60. Tax Treatment of Cooperative. - Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.

ART.61. Tax and Other Exemptions. Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including not limited to final taxes on members’ deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions:

(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally a certified by the department of trade and industry (DTI). All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and / or duties.

(2) Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate:

(a) Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: Provided, further, That cooperatives regardless of classification, are exempt income tax from the date of registration with the Authority;

(b) Value-Added Tax – On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority; are exempt from the payment of value-added tax; subject to Section 109, sub-sections L, M and N of Republic Act No. 9337, the National Internal Revenue Code, as amended: Provided, That the exempt transaction under Section 109 (L) shall include sales made by cooperatives duly registered with the Authority organized and operated by its member to undertake the production and processing of raw materials or of goods produced by its members into finished or process products for sale by the cooperative to its members and non-members: Provided, further, That any processed product or its derivative arising from the raw materials produced by its members, sold in then name and for the account of the cooperative: Provided , finally, That at least twenty-five per centum (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds;

(c) All other taxes unless otherwise provided herein; and

(d) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible.

(3) All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority.

(4) In areas where there are no available notaries public, the judge, exercising his ex officio capacity as notary public, shall render service, free of charge, to any person or group of persons requiring the administration of oath or the acknowledgment of articles of cooperation and instruments of loan from cooperatives not exceeding Five Hundred Thousand Pesos (P500,000.00).

(5) Any register of deeds shall accept for registration, free of charge, any instrument relative to a loan made under this Code which does not exceed Two Hundred Fifty Thousand Pesos (P250,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to a bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations.

(6) Cooperatives shall be exempt from the payment of all court and sheriff’s fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such actions is brought by the Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative.

(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or for seeking to set aside any third party claim: Provided, That a certification of the Authority showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as a sufficient bond.

(8) Any security issued by cooperatives shall be exempt from the provisions of the Securities Act provided such security shall not be speculative.

ART. 62. Privileges of Cooperatives. – Cooperatives registered under this Code, notwithstanding the provisions of any law to the contrary, be also accorded the following privileges:

(1) Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or containers, documents or any valuable papers in the safes of the municipal or city treasurers and other government offices free of charge, and the custodian of such articles shall issue a receipt acknowledging the articles received duly witnessed by another person;

(2) Cooperatives organized among government employees, notwithstanding any law or regulation to the contrary, shall enjoy the free use of any available space in their agency, whether owned or rented by the Government;

(3) Cooperatives rendering special types of services and facilities such as cold storage, ice plant, electricity, transportation, and similar services and facilities shall secure a franchise therefore, and such cooperatives shall open their membership to all persons qualified in their areas of operation;

(4) In areas where appropriate cooperatives exist, the preferential right to supply government institutions and agencies rice, corn and other grains, fish and other marine products, meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their members shall be granted to the cooperatives concerned;

(5) Preferential treatment in the allocation of fertilizers, including seeds and other agricultural inputs and implements, and in rice distribution shall be granted to cooperatives by the appropriate government agencies;

(6) Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connection with the shipment of goods and products of cooperatives;

(7) Cooperatives and their federations, such as farm and fishery producers and suppliers, market vendors and such other cooperatives, which have for their primary purpose the production and/or the marketing of products from agriculture, fisheries and small entrepreneurial industries and federations thereof, shall have preferential rights in the management of public markets and/or lease of public market facilities, stalls or spaces: Provided, That these rights shall only be utilized exclusively by cooperatives: Provided, further, That no cooperative forming a joint venture, partnership or any other similar arrangement with a non-cooperative entity can utilize these rights;

(8) Cooperatives engaged in credit services and/or federations shall be entitled to loans credit lines, rediscounting of their loan notes, and other eligible papers with the Development Bank of the Philippines, the Land Bank of the Philippines and other financial institutions except the Bangko Sentral ng Pilipinas (BSP);

The Philippine Deposit Insurance Corporation (PDIC) and other government agencies, government-owned and controlled corporations and government financial institutions shall provide technical assistance to registered national federations and unions of cooperatives which have significant engagement in savings and credit operations in order for these federations and unions to establish and/or strengthen their own autonomous cooperative deposit insurance systems;

(9) A public transport service cooperative may be entitled to financing support for the acquisition and/or maintenance of land and sea transport equipment, facilities and parts through the program of the government financial institutions. It shall have the preferential right to the management and operation of public terminals and ports whether land or sea transport where the cooperative operates and on securing a franchise for active or potential routes for the public transport;

(10) Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from prequalification bidding requirements notwithstanding the provisions of Republic Act No.9184, otherwise known as, the Government Procurement Act;

(11) Cooperative shall enjoy the privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic of the Philippines;

(12) Cooperatives organized by faculty members and employees of educational institutions shall have the preferential right in the management of the canteen and other services related to the operation of the educational institution where they are employed: Provided, That such services are operated within the premises of the said educational institution; and

(13) The appropriate housing agencies and government financial institutions shall create a special window for financing housing projects undertaken by cooperatives, with interest rates and terms equal to, or better than those given for socialized housing projects. This financing shall be in the form of blanket loans or long-term wholesale loans to qualified cooperatives, without need for individual processing.

The Authority, in consultation with the appropriate government agencies and concerned cooperative sector, shall issue rules and regulations on all matters concerning housing cooperatives."

ART. 63. Proceeding Upon Insolvency.- In case a cooperative is unable to fulfill its obligations to creditors due to insolvency, such cooperative may apply for such remedies as it may deem fit under the provisions of Act No. 1956, as amended, otherwise known as the Insolvency Law.

Nothing in this Article, however, precludes creditors from seeking protection from said insolvency law."

ART. 64. Voluntary Dissolution Where no Creditors are Affected. – If the dissolution of a cooperative does not prejudice the rights of any creditor having a claim against it, the dissolution may be affected by a majority vote of the board of directors, and by a resolution duly adopted by the affirmative vote of at least three-fourths (3/4) of all the members with voting rights, present and constituting a quorum at a meeting to be held upon call of the directors: Provided, That the notice of time, place and object of the meeting shall be published for three (3) consecutive weeks in a newspaper published in the place where the principal office of said cooperative is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines: Provided, further, That the notice of such meeting is sent to each member of record either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified to by a majority of the board of directors and countersigned by the board secretary. The Authority shall thereupon issue the certificate of dissolution.

ART. 65. Voluntary Dissolution Where Creditors Are Affected. – Where the dissolution of a cooperative may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Authority. The petition shall be signed by a majority of its board or directors or other officers managing its affairs, verified by its chairperson or board secretary or one of its directors and shall set forth all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least three-fourths (3/4) of all the members with voting rights, present and constituting a quorum at a meeting called for that purpose.
"If the petition is sufficient in form and substance, the Authority shall issue an order reciting the purpose of the petition and shall fix a date which shall not be less than thirty (30) nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the cooperative is situated or in the absence of such local newspaper, in a newspaper of general circulation in the Philippines, and a copy shall likewise be posted for three (3) consecutive weeks in three (3) public places in the municipality or city where the cooperative’s office is located.

Upon expiry of the five (5) day notice to file objections, the Authority shall proceed to hear the petition and try any issue raised in the objection filed; and if the objection is sufficient and the material allegations of the petition are proven, it shall issue an order to dissolve the cooperative and direct the disposition of its assets in accordance with existing rules and regulations. The order of dissolution shall set forth therein:

(1) The assets and liabilities of the cooperative;
(2) The claim of any creditor;
(3) The number of members; and
(4) The nature and extend of the interests of the members of the cooperative.

ART. 66. Involuntary Dissolution. – A cooperative may be dissolved by order of a competent court after due hearing on the grounds of:

(1) Violation of any law, regulation or provisions of its bylaws; or
(2) Insolvency.

ART. 67. Dissolution by Order of the Authority. – The Authority may suspend or revoke, after due notice and hearing, the certificate of registration of a cooperative on any of the following grounds:

(1) Having obtained its registration by fraud;
(2) Existing for an illegal purpose;
(3) Willful violation, despite notice by the Authority, of the provisions of this Code or its bylaws;
(4) Willful failure to operate on a cooperative basis; and
(5) Failure to meet the required minimum number of members in the cooperative.

ART. 68. Dissolution by Failure to Organize and Operate.- If a cooperative has not commenced business and its operation within two (2) years after the issuance of its certificate of registration or has not carried on its business for two (2) consecutive years, the Authority shall send a formal notice to the said cooperative to show cause as to its failure to operate. Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall warrant the Authority to delete its name from the roster of registered cooperatives and shall be deemed dissolved.

ART. 69. Liquidation of a Cooperative. – Every cooperative whose charter expires by its own limitation or whose existence is terminated by voluntary dissolution or through an appropriate judicial proceeding shall nevertheless continue to exist for three (3) years after the time it is dissolved; not to continue the business for which it was established but for the purpose of prosecuting and defending suits by or against it; settlement and closure of its affairs; disposition, conveyance and distribution of its properties and assets.

At any time during the said three (3) years, the cooperative is authorized and empowered to convey all of its properties to trustees for the benefit of its members, creditors and other persons in interest. From and after any such conveyance, all interests which the cooperative had in the properties are terminated.

Upon the winding up of the cooperative affairs, any asset distributable to any creditor, shareholder or member who is unknown or cannot be found shall be given to the federation or union to which the cooperative is affiliated with.

A cooperative shall only distribute its assets or properties upon lawful dissolution and after payment of all its debts and liabilities, except in the case of decrease of share capital of the cooperative and as otherwise allowed by this Code.

ART. 70. Rules and Regulations on Liquidation. – The Authority shall issue the appropriate implementing guidelines for the liquidation of cooperatives."

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ART. 73. Limitation on Share Capital Holdings.- No member of primary cooperative other than cooperative itself shall own or hold more than ten per centum (10%) of the share capital of the cooperative.

Where a member of cooperative dies, his heir shall be entitled to the shares of the decedent: Provided, That the total share holding of the heir does not exceed ten per centum (10%) of the share capital of the cooperative; Provided, further, That the heir qualify and is admitted as members of the cooperative: Provided finally , That where the heir fails to qualify as a member or where his total share holding exceeds ten per centum (10%) of the share capital , the share or shares excess will revert to the cooperative upon payment to the heir of the value of such shares.

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ART.77. Fines. - The bylaws of a cooperative may prescribe a fine on unpaid subscribed share capital. Provided, that such fine is fair and reasonable under the circumstances.

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ART. 83. Right to Examine. – A member shall have the right to examine the records required to be kept by the cooperative under Article 52 of this Code during reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records without charge except the cost of production.

Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and copy excerpts from its records shall be liable to such member for damages and shall be guilty of an offense which shall be punishable under Article 140 of this Code: Provided, That if such refusal is pursuant to a resolution or order of the board of directors, the liability under this article shall be imposed upon the directors who voted for such refusal: Provided, further, That it shall be a defense to any action under this article that the member demanding to examine and copy excerpts from the cooperative records has improperly used any information secured through any prior examination of the records of such cooperative or was not acting in good faith or for a legitimate purpose in making his demand.

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ART. 135. Compliance With Other Laws. – The Labor Code and all other labor laws, the Social Security Act, the Medical Care Act, and all other social legislations, and all other laws and executive orders shall apply to cooperatives duly registered under this Code.

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ART. 137. Settlement of Disputes, Conciliation, and Mediation Proceedings. – Disputes among members, officers, directors, and committee members, and intra-cooperative, inter-cooperative, intra-federation or inter-federation disputes shall, as far as practicable, be settled amicably in accordance with the conciliation or mediation mechanisms embodied in the bylaws of cooperatives and in such other applicable laws.

The conciliation and mediation committee of the cooperative shall facilitate the amicable settlement of intra-cooperative disputes and disputes among members, officers, directors, and committee members.

Should such conciliation or mediation proceeding fail, the matter shall be settled through voluntary arbitration: Provided, however, That before any party can validly file a complaint with the Authority for voluntary arbitration, it must first secure a certification from its conciliation and mediation committee and from its conciliation and mediation committee and from the cooperative union or federation to which it belongs that despite all efforts to settle the issues, the same have failed.

The jurisdiction of the voluntary arbitrators shall be exclusive and original and their decisions shall be appealable to the Office of the President. The Authority shall issue and adopt the proper rules of procedure governing arbitration as the primary and exclusive mode for dispute resolution in accordance with the Alternative Dispute Resolution Act of 2004.

For this purpose, the Authority shall constitute a list of qualified voluntary arbitrators."

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ART. 139. Implementing Rules and Regulations. – The Authority shall issue rules and regulations to implement those provisions of this Code which expressly call for the issuance thereof. This paragraph shall not apply to those cases wherein a specific provision of this Code expressly designates particular government agencies which shall issue the regulations called for by any provision of this Code.

ART. 140. Penal Provisions. – The following acts or omissions affecting cooperatives are hereby prohibited:

(1) The use of the word ‘cooperative’ by any person or of persons or organizations, unless duly registered as a cooperative under this Code except as provided for under Article 130 hereof. In case of violation, the individual or individuals concerned, or in the case of an organization, its officers and directors shall, upon conviction, each suffer the penalty of imprisonment of not less than two (2) years nor more than five (5) years and a fine not exceeding Twenty thousand pesos (P20,000.00) or both at the discretion of the court;

The Authority may motu proprio, initiate complaints for violations of this provision.

(2) Any person who willfully attempts in any manner to evade or defeat tax in violation of the provisions of Articles 60 and 61 of this Code shall in addition thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000.00) but not more than One hundred thousand pesos (P100,000.00) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal obtained under this Article shall not be a bar to the filing of a civil suit for the collection of taxes;

(3) Direct or indirect violation or circumvention of the provisions of Articles 60 and 61 of this Code committee by any public official or employee of any bureau, office or agency of the government that deprives, diminishes or in any manner hinders or restricts any duly registered cooperative from the full enjoyment of the exemption from the payment of the taxes, fees and charges enumerated therein, shall upon conviction, suffer a penalty of not less that one (1) year but not more than five (5) years imprisonment or a fine in the amount of not less than Five thousand pesos (P5,000.00) or both at the discretion of the court and shall further be disqualified to hold any other office;

(4) Direct or indirect interference or intervention by any public official or employee into the internal affairs of a cooperative of which he is not a member, such as, but not limited to, the following:

(a) Influencing the election or appointment of officers, directors, committee members and employees through public or private endorsement or campaign for or against any person or group of persons;
(b) Requiring prior clearances for any policy or decision within the cooperative;
(c) Requesting or demanding for the creation of positions or organizational units, or recommending any person for appointment, transfer, or removal from his position; or
(d) Any other acts inimical or adverse to the autonomy and independence of cooperatives.

(5) A director, officer or committee member who violated the provisions of Article 45 on the Liability of Directors, Officers and Committee Members, Article 48 on the Disloyalty of a Director, and Article 49 on the Illegal Use of Confidential Information shall upon conviction suffer a fine of not less than Five hundred thousand pesos (P500,000.00) nor more than Five hundred thousand pesos (P500,000.00) or imprisonment of not less than five (5) years but not more than ten (10) years or both at the court’s discretion;

(6) The following are considered offenses punishable by a penalty of imprisonment of not less than one (1) year nor more than five (5) years or a fine of not more than Fifty thousand pesos (P50,000.00) or both at the discretion of the court:

(a) Omission or refusal to furnish any information, report or other document that is required under this Code;
(b) Providing information, reports or other documents to the Authority that are required under this Code which the person knows to be false or misleading;
(c) Omission or refusal to keep a book or register under this Code or to make the required entry therein;
(d) Making an entry required under this Code in a book or register, which the person knows to be false or misleading;
(e) Hindering an authorized person from making an inspection, audit, examination or investigation required under this Code;
(f) Failure to comply with an order or written instructions issued or given by the Authority;
(g) Violation of the provisions regarding transactions with a restricted party; and
(h) Abetting, counseling, allowing, authorizing or commanding another person to commit an offense punishable by this Code: Provided, That in case the violator is a cooperative or juridical person, the penalty shall be imposed on its directors and officers.

(7) Any violation of any provision of this Code for which no penalty is imposed shall be punished by imprisonment of not less than six (6) months nor more than one (1) year and a fine of not less than One thousand pesos (P1,000.00), or both at the discretion of the court.

In case of violation of any provision of this Code, the individual or individuals, and in the case of organizations or government agencies, its officers, and directors shall, upon conviction by a Court, each suffer a penalty of not less than two (2) years but not more than five (5) years imprisonment or a fine in the amount of not less than Twenty thousand pesos (P20,000.00), or both at the discretion of the court. In the case of a public official or employee, the offender shall upon conviction, suffer the accessory penalty of temporary absolute disqualification.

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ART. 142. Interpretation and Construction. – In case of doubt as to the meaning of any provision of his Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the cooperatives and their members.

ART. 143. Repealing Clause. – Except as expressly provided by this Code, Presidential Decree No. 175 and all other laws, or parts thereof, inconsistent with any provision of this Code shall be deemed repealed: Provided, That the provisions of Sections 3, 5, and 7 of Presidential Decree No. 1645, Executive Order No. 623, series of 2007. Revenue Regulation No. 20-2001, and all laws, decrees, executive orders, implementing rules and regulations, BIR circulars, memorandum orders, letters of instruction, local government ordinances, or parts thereof inconsistent with any of the provisions of this Act are hereby repealed, amended or modified accordingly.

ART.144. Transitory Provisions.- (1) All cooperatives registered and confirmed with the Authority under Republic Act No. 6938 and Republic Act No. 6939, are hereby deemed registered under this code, and a new certificate of registration shall be issued by the authority: Provided, That such cooperative shall submit to the nearest office of the authority a copy of their certificate of registration or certificate of confirmation, the articles of cooperation, their bylaws, and their latest audited financial statement within one (1) year from the effectivity of this code, otherwise the shall be deemed cancelled motu proprio.

(2) Following the issuance of the new certificate of registration, the registered cooperatives shall secured their certificate of tax exemption from the nearest office of the Bureau of Internal Revenue (BIR): Provided, That such exemptions shall be valid of five (5) years from the date of issue: Provided, further, That all unpaid assessments of previously registered cooperative shall be the subject of compromise settlement on terms favorable to such cooperative; and: Provided, finally, That the BIR and the authority shall be jointly issue the necessary regulations on this exemption and compromise within ninety (90) days from the effectivity from this Code.

(3) Registration of electric cooperatives with the Authority shall not be considered as a transferred of ownership of its assets and liabilities nor shall it constitute a change in the nature, structure, and status of the cooperative. Said registration shall not result in the revocation of the condoned loans under Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act: Provided, That electric cooperatives with existing loans shall not be subject to the control and supervisions of its creditors and shall only be limited to the fulfillment of each civil obligations.

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