AN ACT TO ORDAIN A COOPERATIVE CODE OF THE PHILIPPINES

Case Overview and Summary

Summary of the Cooperative Code of the Philippines:

Cooperative Principles and Concepts (Sections 3-5)
- Defines a cooperative as a duly registered association of persons with a common bond of interest, voluntarily joined to achieve a lawful common economic or social end.
- Outlines the universally accepted cooperative principles, including open and voluntary membership, democratic control, limited interest on capital, distribution of net surplus, cooperative education, and cooperation among cooperatives.
- Provides definitions of key terms like "member", "general assembly", "board of directors", and "universally accepted principles".

Organization and Registration (Sections 6-25)
- Allows the organization and registration of cooperatives for various purposes, such as thrift and savings mobilization, credit extension, production and marketing, provision of goods and services, skills development, housing, insurance, and community development. (Section 6)
- Outlines the requirements for organizing a primary cooperative, including having at least 15 natural persons as members and conducting an economic survey. (Sections 10-11)
- Specifies the contents of the articles of cooperation and by-laws, including the cooperative's name, purpose, term, area of operation, membership requirements, and governance structure. (Sections 14-15)
- Provides for the registration process with the Cooperative Development Authority and the issuance of a certificate of registration. (Sections 16-17)
- Allows for the amendment of articles of cooperation and by-laws with a two-thirds vote of members. (Section 18)
- Permits the division, merger, and consolidation of cooperatives under certain conditions. (Sections 20-22)
- Categorizes cooperatives based on membership (primary, secondary, tertiary) and territorial considerations. (Section 23)
- Allows for the organization of federations of cooperatives and cooperative unions at various levels. (Sections 24-25)

Membership (Sections 26-32)
- Specifies that natural persons, cooperatives, and non-profit organizations with juridical personality are eligible for cooperative membership, subject to by-laws. (Section 26)
- Allows for regular and associate members, with different rights and privileges. (Section 27)
- Prohibits government officers and employees of the Cooperative Development Authority from being elected or appointed to positions in cooperatives. (Section 28)
- Outlines the process for applying for membership and the rights and liabilities of members. (Sections 29-30)
- Provides for the termination of membership through withdrawal, death, insanity, insolvency, or dissolution, and the refund of interests. (Sections 31-32)

Administration (Sections 33-51)
- Defines the general assembly as the highest policy-making body, composed of voting members, and outlines its exclusive powers. (Sections 33-34)
- Specifies the requirements for regular and special meetings of the general assembly, including notice periods and quorum. (Sections 35-37)
- Outlines the composition, powers, and responsibilities of the board of directors, including the election and removal of directors. (Sections 38-42)
- Provides for the election or appointment of officers and the creation of committees, including their functions and responsibilities. (Sections 43-45)
- Establishes the liability of directors, officers, and committee members for willful or negligent acts, and prohibits conflicts of interest. (Sections 46-50)
- Allows for the removal of elective officers, directors, or committee members by a two-thirds vote of voting members. (Section 51)

Responsibilities, Rights, and Privileges of Cooperatives (Sections 52-63)
- Requires cooperatives to maintain an official postal address and keep certain books and records open for inspection by members and the Authority. (Sections 52-53)
- Mandates the preparation and filing of annual reports with the Cooperative Development Authority. (Section 54)
- Establishes the probative value of cooperative registers and certified copies of entries as evidence. (Sections 55-56)
- Requires accountable officers to execute adequate bonds for the faithful performance of their duties. (Section 57)
- Grants cooperatives a first lien on raw materials, production inputs, and products produced by members using cooperative loans or credit. (Section 58)
- Allows members to authorize salary or wage deductions for the payment of debts to the cooperative. (Section 59)
- Grants cooperatives a primary lien on the capital, deposits, or interests of members for any debt due. (Section 60)
- Exempts cooperatives from government taxes and fees if they do not transact business with non-members or the general public. (Section 61)
- Provides tax and other exemptions for cooperatives transacting business with both members and non-members, subject to certain conditions and limitations. (Section 62)
- Grants cooperatives various privileges, such as the use of government facilities, preferential treatment in government procurement, and representation by government lawyers. (Section 63)

Insolvency and Dissolution (Sections 64-71)
- Allows cooperatives to apply for remedies under the Insolvency Law in case of inability to fulfill obligations to creditors due to insolvency. (Section 64)
- Outlines the procedures for voluntary dissolution of cooperatives where no creditors are affected or where creditors are affected. (Sections 65-66)
- Provides for involuntary dissolution by court order on grounds of violation of laws, regulations, or by-laws, or insolvency. (Section 67)
- Allows the Cooperative Development Authority to suspend or revoke the registration of a cooperative for specified reasons, such as fraud, illegal purpose, or failure to operate on a cooperative basis. (Section 68)
- Permits the Authority to strike off a cooperative's name from the register if it fails to commence business or operate for two consecutive years. (Section 69)
- Establishes the process for cooperative liquidation and the distribution of assets after dissolution. (Sections 70-71)

Capital, Property, and Funds (Sections 72-80)
- Allows cooperatives to derive capital from members' share capital, loans and borrowings, revolving capital, and subsidies or donations. (Section 73)
- Limits the share capital holdings of a single member to 20% of the cooperative's share capital. (Section 74)
- Regulates the assignment of share capital contributions or interests, subject to certain conditions. (Section 75)
- Limits the interest on share capital to the normal rate of return on investments, as determined by the Cooperative Development Authority. (Section 76)
- Defines the term "share" and its minimum par value, and allows the by-laws to prescribe the method of issuing share certificates. (Section 77)
- Permits the imposition of fines on unpaid subscribed share capital, subject to guidelines from the Authority. (Section 78)
- Allows cooperatives to invest their capital in various instruments, such as shares or debentures of other cooperatives, bank deposits, government securities, real estate, and other authorized investments. (Section 79)
- Authorizes the raising of revolving capital by deferring the payment of patronage refunds and interest on share capital or by deducting a percentage from product sales proceeds. (Section 80)

Audit, Inquiry, and Members' Right to Examine (Sections 81-85)
- Requires cooperatives to undergo an annual audit by an independent and qualified auditor. (Section 81)
- Outlines the requirements for the audit report, including a statement of assets, liabilities, earnings, expenses, net surplus, losses, and bad debts. (Section 82)
- Protects auditors from liability for defamation in connection with their authorized duties. (Section 83)
- Grants members the right to examine cooperative records during reasonable hours and obtain copies of excerpts, subject to certain conditions. (Section 84)
- Requires cooperatives to keep and preserve records and take necessary precautions against loss, destruction, or falsification. (Section 85)

Allocation and Distribution of Net Surplus (Sections 86-87)
- Defines net surplus as the excess of payments made by members for loans, goods, and services, which shall be distributed as prescribed in the Code. (Section 86)
- Outlines the order of distribution of net surplus, including allocations for the reserve fund (at least 10%), education and training fund (not more than 10%), optional funds (not more than 10%), and the remaining amount for interest on capital and patronage refunds to members and non-members. (Section 87)

Special Provisions Relating to Agrarian Reform Cooperatives (Sections 88-95)
- Defines agrarian reform cooperatives as those where the majority of members are agrarian reform beneficiaries and marginal farmers, organized for purposes such as land tenure, production assistance, financial services, technology transfer, social security, and community development. (Section 89)
- Allows for the collective ownership of acquired landholdings by worker-beneficiaries through cooperatives. (Section 90)
- Grants agrarian reform cooperatives preferential treatment in the construction, maintenance, and management of infrastructure in agrarian reform and resettlement areas, with government funding and technical assistance. (Section 91)
- Permits the government to lease public lands to agrarian reform cooperatives for up to 25 years, renewable for another 25 years. (Section 92)
- Gives agrarian reform cooperatives the preferential right to obtain franchises and certificates of public convenience and necessity for public utilities and services in agrarian reform areas. (Section 93)
- Allows agrarian reform cooperatives the exclusive right to engage in various economic activities in agrarian reform and resettlement areas, such as supply and distribution, marketing, processing, provision of public services, and resource management, subject to conditions imposed by the Department of Agrarian Reform and the Cooperative Development Authority. (Section 94)
- Requires prior verification by the Department of Agrarian Reform for the organization and registration of agrarian reform cooperatives, based on the need, economic feasibility, and viability of the cooperative. (Section 95)

Special Provisions on Public Cooperatives (Sections 96-98)
- Defines public service cooperatives as those organized to render public services authorized under a franchise or certificate of public convenience and necessity, such as power generation and distribution, communications, transportation, public markets, and slaughterhouses. (Section 96)
- Outlines the registration requirements for public service cooperatives, including favorable endorsement from the proper government agency, provision for membership of users and producers, and satisfaction of other agency requirements. (Section 97)
- Specifies that the internal affairs of public service cooperatives shall be governed by the Cooperative Code, while matters relating to their franchise or certificate of public convenience and necessity shall be governed by the proper government agency. (Section 98)

Special Provisions Relating to Cooperative Banks (Sections 99-109)
- Allows cooperatives to organize cooperative banks, which shall be registered under the Cooperative Code and subject to authorization from the Central Bank. (Section 99)
- Defines cooperative banks, including cooperative rural banks, and outlines their functions, such as providing financial and credit services to cooperatives, mobilizing savings, acting as a balancing medium for surplus funds, discounting bills and promissory notes, issuing negotiable instruments and debentures, and borrowing money. (Section 100)
- Requires cooperative banks to obtain approval from the Central Bank for their establishment and operation, in addition to registration with the Cooperative Development Authority. (Section 101)
- Limits the membership of cooperative banks to cooperatives and federations of cooperatives. (Section 102)
- Allows for the composition and voting rights of the board of directors to be defined in the articles of cooperation and by-laws. (Section 103)
- Permits cooperatives to obtain loans from cooperative banks, subject to reporting to the Central Bank. (Section 104)
- Places cooperative banks under the supervision of the Central Bank, which shall formulate guidelines for their operations and banking transactions, recognizing their cooperative nature. (Section 105)
- Specifies the minimum authorized share capital requirements for national and local cooperative banks, with minimum par values for shares. (Section 106)
- Applies the provisions of the Cooperative Code on the allocation and distribution of net surplus to cooperative banks. (Section 107)
- Grants cooperative banks privileges such as rediscounting notes with the Central Bank and other government banks, and acting as depositories of government funds, subject to approval by the Central Bank and compliance with applicable banking laws. (Section 108)
- Allows the Central Bank to designate a receiver or conservator for distressed or bankrupt cooperative banks. (Section 109)

Special Provisions Relating to Credit Cooperatives (Sections 110-114)
- Defines credit cooperatives as financial organizations owned and operated by members with the objectives of encouraging savings, creating a pool of savings for loans to members, and providing related services. (Section 111)
- Requires credit cooperatives to be organized and registered in accordance with the general provisions of the Cooperative Code. (Section 112)
- Allows credit cooperatives to organize chapters, subsidiaries, leagues, and federations for providing essential services such as inter-lending, mutual benefits, deposit guarantees, bonding, education and training, technical assistance, research and development, and representation. (Section 113)
- Prohibits the use of the term "credit cooperative" by entities not duly registered under this Chapter. (Section 114)

Special Provisions Relating to Cooperative Insurance Societies (Sections 115-118)
- Allows existing cooperatives to organize cooperative insurance entities to cover the insurance requirements of their members, including properties and assets. (Section 115)
- Specifies that cooperative insurance societies shall provide various types of insurance coverage, such as life insurance, loan protection, retirement plans, fire insurance, motor vehicle coverage, bonding, crop and livestock protection, and equipment insurance. (Section 116)
- Subjects cooperative insurance entities to the provisions of the Insurance Code and other related laws and regulations, with the possibility of modified requirements on capitalization, investments, and reserves upon consultation with the Cooperative Development Authority and the cooperative sector. (Section 117)
- Requires the Insurance Commission, in consultation with the Cooperative Development Authority and the cooperative sector, to formulate implementing rules and regulations for cooperative insurance societies. (Section 118)

Miscellaneous Provisions (Sections 119-121)
- Applies the Labor Code, Social Security Act, Medical Care Act, and other labor and social legislation to cooperatives. (Section 119)
- Requires the Cooperative Development Authority to establish a register of cooperatives, including their basic information, registration, and dissolution details. (Section 120)
- Mandates the amicable settlement of disputes among members, officers, directors, and committee members through conciliation or mediation mechanisms in the by-laws, or through courts if conciliation fails. (Section 121)

Final Provisions (Sections 122-130)
- Provides a three-year transition period for electric cooperatives to qualify under the Cooperative Code, with assistance from the Cooperative Development Authority and the National Electrification Administration. (Section 122)
- Allows the Cooperative Development Authority to issue regulations to implement provisions of the Code that expressly call for regulations, subject to certain requirements, including public announcement, public hearings, justification memorandum, and approval by the Office of the President. (Section 123)
- Establishes penal provisions for various offenses, such as the unauthorized use of the word "cooperative", interference in cooperative affairs by public officials, violations by directors, officers, and committee members, and other violations of the Code. (Section 124)
- Requires the National Printing Office to publish the Code in the Official Gazette and distribute copies to government agencies, cooperatives, and their federations and unions. (Section 125)
- Mandates a liberal interpretation of the Code in favor of cooperatives and their members in case of doubt. (Section 126)
- Repeals Presidential Decree No. 175 and other inconsistent laws, except for Presidential Decree No. 269 on electric cooperatives that qualify under the Code. (Section 127)
- Provides transitional provisions for cooperatives registered under previous laws to qualify and register with the Cooperative Development Authority within specified time periods. (Section 128)
- Includes a separability clause in case any part of the Code is declared unconstitutional. (Section 129)
- Sets the effectivity date of the Code 15 days after publication in a newspaper of general circulation. (Section 130)