Removing a Board Member for Non-Payment of Dues

Removing a Board Member for Non-Payment of Dues in the Philippines: A Comprehensive Overview

Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. For any specific concerns or unique circumstances, consulting a qualified attorney in the Philippines is strongly recommended.

I. Introduction

In many organizations—be they private corporations, non-stock corporations, homeowners’ associations (HOAs), condominium corporations, or professional organizations—board members are often required to maintain their “good standing” by complying with certain obligations. Among these obligations is the timely payment of dues, fees, or other assessments that the organization imposes.

When a board member (or trustee, in the case of non-stock corporations) fails to meet this financial obligation, the question arises as to whether the member can be removed from the board for non-payment of dues. This article provides an overview of the legal framework and practical considerations in the Philippine setting regarding the removal of a board member for non-payment of dues.

II. Relevant Philippine Laws and Regulations

  1. Revised Corporation Code (R.A. 11232)

    • The Revised Corporation Code governs both stock and non-stock corporations in the Philippines.
    • It outlines the general powers of the Board of Directors (for stock corporations) or Board of Trustees (for non-stock corporations).
    • It provides for the qualifications, election, and removal of directors or trustees.
    • While it does not explicitly mention “non-payment of dues” as a ground for removal, it does allow for removal of directors or trustees by the vote of certain shareholders or members, subject to specific procedures.

  2. Organization By-Laws

    • Each corporation, association, or organization typically adopts its own by-laws, which may provide rules or conditions for membership and board positions.
    • Many by-laws include provisions that a board member must be a member in good standing—i.e., fully paid up on dues and not in violation of organizational rules.
    • The by-laws often outline specific procedures for termination of membership and the resulting vacancy in a board seat.

  3. Homeowners’ Association Law (Republic Act No. 9904)

    • RA 9904, also known as the Magna Carta for Homeowners and Homeowners’ Associations, governs homeowners’ associations in the Philippines.
    • Under this law, a member of the Board of Directors/Trustees must be a member of the homeowners’ association in good standing.
    • If a member ceases to be in good standing—non-payment of dues being a common reason—they may forfeit their right to sit on the board, subject to the HOA’s internal rules and procedures.

  4. Condominium Act (R.A. 4726)

    • The Condominium Act itself does not provide a detailed procedure for removing a director or trustee.
    • Condominium corporations often have their own Master Deed, Articles of Incorporation, and By-Laws which typically clarify the qualifications to serve as a board member, including payment of dues.

III. Grounds for Removal

  1. Non-Payment of Dues as a Breach of Membership Requirements

    • In many organizations, being a “member in good standing” is a key requirement for serving on the board. Failure to pay dues or assessments for a prescribed period may lead to suspension or loss of membership rights.
    • If membership is lost or suspended due to non-payment, the individual may automatically lose the qualification to remain on the board.

  2. Non-Payment as a Violation of Fiduciary Duty

    • Although not explicitly stated in the Revised Corporation Code, some organizations characterize the non-payment of dues as a neglect of duty or breach of ethical obligations.
    • If the by-laws consider consistent non-payment as violating the director’s fiduciary responsibilities, this may be used as a ground for removal (though it usually still must follow the formal process in the by-laws or the law).

  3. Cause vs. No-Cause Removal

    • Under the Revised Corporation Code, a director or trustee may be removed with or without cause by a majority of outstanding capital stock (for stock corporations) or by a majority vote of the members (for non-stock corporations), provided the removal is not done in a manner that deprives the director of due process.
    • In some cases, if the by-laws specifically identify “non-payment of dues” as a cause for removal, this can strengthen the legal basis for removal.

IV. Procedures for Removal

  1. Check the Governing Documents

    • The starting point is always the Articles of Incorporation and the By-Laws. These documents usually specify:
      • The definition of a “member in good standing.”
      • Consequences of non-payment of dues (e.g., suspension of membership, voting rights, or board seat).
      • Procedures to remove a director, including notice requirements, voting thresholds, and due process measures.

  2. Notice and Hearing (Due Process)

    • Even if the by-laws provide that a lapse in payment automatically disqualifies a board member, it is good practice (and often legally required) to provide notice of delinquency and an opportunity to cure (i.e., pay the overdue amounts).
    • The board or the relevant committee may schedule a hearing or meeting where the delinquent member can explain or settle their dues. This ensures the member’s right to due process is respected.

  3. Voting Process

    • The Revised Corporation Code stipulates that removal of a director or trustee typically requires the approval of 2/3 of the outstanding shares or 2/3 of the members with voting rights (depending on whether it is a stock or a non-stock corporation), unless the by-laws set a different threshold in compliance with law.
    • In homeowners’ associations, the association’s by-laws or house rules generally specify the quorum and voting majority needed for removal.

  4. Filing of Vacancy

    • Once a director or trustee is officially removed, the remaining board members or the general membership (depending on what the by-laws provide) must fill the vacancy.
    • Some by-laws mandate a special election to fill the vacated seat, while others allow the remaining directors or trustees to appoint a replacement, subject to the relevant provisions of the Revised Corporation Code.

  5. Documentation and Implementation

    • Any action taken to remove a director or trustee must be properly documented in minutes of the board meeting or membership meeting.
    • If required by the Securities and Exchange Commission (SEC), the organization may need to file a General Information Sheet (GIS) updating the list of directors or trustees.

V. Possible Legal Challenges and Considerations

  1. Allegations of Wrongful Removal

    • A removed board member might challenge the decision if they believe it was done without observing due process or in violation of the by-laws.
    • Improper removal can lead to corporate disputes, administrative sanctions, or even civil cases for damages.

  2. Temporary vs. Permanent Removal

    • Some by-laws may allow for temporary suspension of membership rights (and consequently board rights) if dues remain unpaid for a certain period. Reinstatement is possible upon payment of outstanding dues.
    • Other organizations consider such a breach a permanent disqualification, depending on the gravity and duration of non-payment.

  3. SEC Oversight

    • For stock and non-stock corporations, the SEC exercises regulatory oversight. It can step in when there is a claim of misuse of corporate powers or violation of the Corporation Code.
    • Organizations must ensure compliance with all filing and procedural requirements to avoid SEC penalties.

  4. Tax and Financial Implications

    • For the individual board member, non-payment of dues may have implications in terms of personal financial standing within the organization (e.g., forfeiture of certain privileges, inability to run for board seats again in the future).
    • For the organization, repeated non-payment of dues by members might reflect broader governance or financial stability concerns that need addressing.

VI. Best Practices for Organizations

  1. Clear By-Laws and Policies

    • Draft or amend the by-laws to explicitly state the obligation to pay dues, the consequences of non-payment, and the procedure for removing a delinquent board member. Clarity helps prevent disputes.

  2. Proper Communication

    • Provide regular billing statements, reminders, and final notices to members regarding dues. Proactive communication can help avoid misunderstandings and potential legal disputes.

  3. Grace Period and Reinstatement Opportunities

    • Consider incorporating a reasonable grace period or an installment/payment plan for delinquent members before triggering removal.
    • Ensure a fair avenue for reinstatement if the member pays overdue amounts and meets other requirements.

  4. Due Process

    • Always give the board member written notice of the delinquency and the opportunity to rectify the situation before initiating removal.
    • Document all communications, and if necessary, hold a formal hearing or membership meeting to ensure transparency and fairness.

  5. Consult a Lawyer

    • Each organization’s situation may be different, and laws/regulations can change. Engaging corporate counsel or a lawyer experienced in association law can help navigate potential pitfalls.

VII. Conclusion

Removing a board member for non-payment of dues in the Philippines hinges on two fundamental elements: (1) the organization’s governing documents and (2) compliance with the Revised Corporation Code and any other applicable laws. While non-payment of dues can be a valid ground for disqualification or removal, it is crucial that organizations observe due process, conduct transparent proceedings, and strictly follow the procedures set forth in their by-laws.

Organizations can minimize disputes by clearly outlining membership obligations and removal procedures in their governing documents, communicating dues obligations effectively, and offering a fair opportunity to remedy delinquency before taking the extreme measure of removal. Where complications arise, seeking professional legal advice is the most prudent course of action.

This article aims to provide a broad understanding of the legal and procedural aspects of removing a board member for non-payment of dues under Philippine law. For specific scenarios and up-to-date legal guidance, always consult an attorney or law firm knowledgeable in Philippine corporate and association law.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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