R.A. No. 6938, Cooperative Code of the Philippines

REPUBLIC ACT NO. 6938
AN ACT TO ORDAIN A COOPERATIVE CODE OF THE PHILIPPINES

CHAPTER I GENERAL CONCEPTS AND PRINCIPLES

Article 1. Title. - This Act shall be known as the "Cooperative Code of the Philippines."

Article 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 prompting 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 to cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.

Towards 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 subsidiary under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government assistance where necessary;

Article 3. General Concepts. - A cooperative is a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

Article 4. Cooperative Principles. - Every cooperative shall conduct its affairs in accordance with Filipino culture and experience and the universally accepted principles of cooperation which include the following:

(1) Open and Voluntary Membership - Membership in a cooperative shall be voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.

(2) Democratic Control - Cooperatives are democratic organizations. Their affairs shall be administered by persons elected or appointed in a manner agreed upon by the members. Members of primary cooperatives shall have equal voting rights on a one-member-one-vote principle: provided, however, that in the case of secondary and tertiary cooperatives, the provisions of Article 37 of this Code shall apply.

(3) Limited Interest in Capital - Share capital shall receive a strictly limited rate of interest.

(4) Division of Net Surplus - Net surplus arising out of the operations of a cooperative belongs to its members and shall be equitably distributed for cooperative development, common services, indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner provided in this Code and in the articles of cooperation and bylaws.

(5) Cooperative Education - All cooperatives shall make provision for the education of their members, officers and employees and of the general public based on the principles of cooperation.

(6) Cooperation Among Cooperatives - All cooperatives, in order to best the interest of their members and communities, shall actively cooperate with other cooperatives at local, national, and international levels.

Article 5. Definitions of Terms. - The following terms shall mean:

(1) Member includes a person either natural or juridical who, adhering to the principles set forth in this Code and in the articles of cooperation, has been admitted by the cooperative as member;

(2) General Assembly shall mean the full membership of the cooperative duly assembled for the purpose of exercising all the rights and performing all the obligations pertaining to cooperatives, as provided by this Code, its articles of cooperation and bylaws;

(3) Board of Directors shall mean that body entrusted with the management of the affairs of the cooperative under its articles of cooperation and bylaws;

(4) Committee shall refer to any body entrusted with specific functions and responsibilities under the bylaws or resolution of the general assembly or the board of directors:

(5) Articles of Cooperation means the articles of cooperation registered under this Code and includes a registered amendment thereof:

(6) Bylaws means the bylaws registered under this Code and includes any registered amendment thereof;

(7) Registration means the operative act granting judicial personality to a proposed cooperative and is evidenced by a certificate of registration:

(8) Cooperative Development Authority means the government agency in charge of the registration and regulation of cooperatives as such, hereinafter referred to as the Authority; and

(9) Universally Accepted Principles means that body of cooperative principles adhered to worldwide by cooperatives in other jurisdictions.

CHAPTER II ORGANIZATION AND REGISTRATION

Article 6. Organization of Cooperatives. - A cooperative may be organized and registered by at least fifteen (15) persons for any or all of the following purposes:

(1) To encourage thrift and savings mobilization among the members:

(2) To generate funds and extend credit to the members for productive and provident purposes;

(3) To encourage among members systematic production and marketing;

(4) To provide goods and services and other requirements to the members;

(5) To develop expertise and skills among its members;

(6) To acquire lands and provide housing benefits for the members;

(7) To insure against losses of the members:

(8) To promote and advance the economic, social and educational status of the members;

(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;

(10) To coordinate and facilitate the activities of cooperatives; and

(11) To undertake any all other activities for the effective and efficient implementation of the provisions of this Code.

Article 7. Objectives of Cooperative. - The primary objective of every cooperative is to provide goods and services to its members and thus enable them to attain increased income and savings, investments, productivity, and purchasing power and promote among them equitable distribution of net surplus through maximum utilization of economies of scale, cost-sharing and risk-sharing without, however, conducting the affairs of the cooperative for elementary or charitable purposes.

A cooperative shall provide maximum economic benefits to its members, teach them efficient ways of doing things in a cooperative manner, and propagate cooperative practices and new ideas in business and management and allow the lower income groups to increase their ownership in the wealth of this nation.

Article 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 of the laws of the Philippines.

Article 9. Cooperative Powers and Capacities. - A cooperative registered under this shall have the following powers and capacities:

(1) To use and be sued in its cooperative name;

(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 join federations or unions, as provided in this Code;

(8) To accept and receive grants, donations and assistance from foreign and domestic sources; and

(9) 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.

Article 10. Organizing a Primary Cooperative. - Fifteen (15) or more natural persons, who are citizens of the Philippines, having a common bond of interest and are residing or working in the intended area of operation may organize a cooperative under this Code.

Article 11. Economic Survey. - Every group of individuals or cooperatives intending to form a cooperative under this Code shall submit to the Cooperative Development Authority a general statement describing the structure, purposes and economic feasibility of the proposed cooperative indicating therein the area of operation, the size of membership and other pertinent data.

Article 12. Liability. - A cooperative shall be registered under this Code, limited liability.

Article 13. Term. - A cooperative shall exist for a period not exceeding fifty (50) years from the date of registration unless sooner dissolved or unless said period is extended. The cooperative term, as originally stated in the articles of cooperation, may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of cooperation, in accordance with this Code: provided, that no extension can be made earlier than five (5) years prior to the original or subsequent expiry date/dates unless there are justifiable reasons for an earlier extension as may be determined by the Cooperative Development Authority.

Article 14. Articles of Cooperation. - (1) All cooperative applying for registration shall file with the Cooperative Development Authority the articles of cooperation which shall be signed by each of the organizers and acknowledged by them if natural persons, and by the presidents 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 address 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 Cooperative Development Authority.

(5) No cooperative shall be registered unless the articles of cooperation is accompanied with the bonds of the accountable officers and a sworn statement 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 shall be less than Two thousand pesos (P2,000.00).

Article 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 condition 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 limitations thereof;

(l) The method of distribution of net surplus;

(m) The manner of adopting, amending, repealing, and abrogating bylaws;

(n) A conciliation of 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.

Article 16. Registration. - A cooperative formed or organized under this Code acquires juridical personality from the date the Cooperative Development Authority issues a certificate of registration under its official seal, All applications for registration shall be finally disposed of by the Cooperative Development Authority within a period of thirty (30) 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.

Article 17. Certificate of Registration. - A certificate of registration issued by the Cooperative Development 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.

Article 18. Amendment of Articles of Cooperation and Bylaws. - Unless otherwise prescribed by this Code and for legitimate purposes any provision or matter stated in the articles of cooperation may be amended by two-thirds (2/3) vote of all the members with voting rights, without prejudice to the right of the dissenting members to exercise their right to withdraw their membership under Articles 31 and 32.

The original and amended articles together shall contain all provisions required by law to be set out in the articles of cooperation. Amendments shall be indicated by underscoring or otherwise appropriately indicating the change or changes made and a copy thereof duly certified under oath by the cooperative secretary and a majority of the directors stating the fact that said amendment or amendments have been duly approved by the required vote of the members. All amendments to the articles of cooperation shall be submitted to the Cooperation Development Authority. The amendments shall take effect upon its approval by the Cooperative Development Authority or within thirty (30) days from the date of filing thereof if not acted upon by the Authority for a cause not attributable to the cooperative.

Article 19. Contracts Executed Prior to Registration and Effects Thereof. - Contracts executed between private persons and cooperatives prior to the registration of the cooperative shall remain valid and binding between the parties and upon registration of the cooperative. A formal written contract shall be adopted and made in the cooperative's name or on its behalf prior to its registration.

Article 20. Division of Cooperatives. - Any registered cooperative may, by a resolution approved by a vote of two-thirds (2/3) of the members eligible to vote at a general assembly meetings, resolve to divide itself into two (2) or more cooperatives. The procedure for such division shall be prescribed in the regulations of the Cooperative Development Authority. The new cooperatives shall become legally established upon registration with the Authority: provided, that all the requirements set forth in this Code have been complied with by the new cooperatives: provided, further, that no division of a cooperative in fraud of creditors shall be valid.

Article 21. Merger and Consolidation of Cooperatives. - (1) Two (2) or more cooperatives may merge into a single cooperative which shall be one of the constituent cooperatives or may consolidate into a new single cooperative which shall be the consolidated cooperative.

(2) No merger or consolidation shall be valid unless approved by two-thirds (2/3) of all the members eligible to vote of each of the constituent cooperatives at separate general assembly meetings. The dissenting members shall have the right to exercise their right to withdraw their membership pursuant to Articles 31 to 32.

(3) The Cooperative Development Authority shall issue the guidelines governing the procedure of merger or consolidation of cooperatives.n any case, the merger or consolidation shall be effective upon the issuance of the certificate of merger to consolidation by the Cooperative Development Authority.

Article 22. Effects of Merger and Consolidation. - The merger or consolidation of cooperatives shall have the following effects:

(1) The constituent cooperatives shall become a single cooperative which, in case of merger shall be the surviving cooperative, and in case of consolidation, shall be the consolidated cooperative;

(2) The separate existence of the constituent cooperatives shall cease, except that of the surviving or the consolidated cooperative;

(3) The surviving or the consolidated cooperative shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a cooperative organized under this Code;

(4) The surviving or the consolidated cooperative shall possess all the assets, rights, immunities and franchise of each of the constituent cooperatives; and

(5) The surviving or the consolidated cooperative shall be responsible for all the liabilities and obligations of each of the constituent cooperatives in the same manner as if such surviving or consolidated cooperative had itself incurred such liabilities or obligations. Any claim, action or proceeding pending by or against any such constituent cooperatives may be prosecuted by or against the surviving or consolidated cooperative, as the case may be. Neither the rights of creditors nor any lien upon the property of any of such constituent cooperatives shall be impaired by such merger or consolidation.

Article 23. Types and Categories of Cooperatives. - (1) Types of Cooperatives - Cooperative may fall under any of the following types:

(a) Credit Cooperative is one which promotes thrift among its members and creates funds in order to grant loans for productive and provident purposes;

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

(c) Producers cooperative is one that undertakes joint production whether agricultural or industrial;

(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 and other services; and

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

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

(a) In terms of membership, cooperatives 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 secondaries upward to one (1) or more apex organizations.

Those cooperatives the members of which are cooperatives shall be known as federations or unions, as the case may be; 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.

Article 24. Federation of Cooperatives. - (1) A federation of cooperatives whose members are primary and/or secondary cooperatives with single line or multipurpose business activities may be registered under this Code for any or all of the following purposes:

(a) Primary Purpose - To carry on any cooperative enterprise authorized under Article 6;

(b) Secondary Purpose - (i) To carry on, encourage, and assist educational and advisory work relating to its member cooperatives;

(ii) To render services designed to encourage simplicity, efficiency, and economy in the conduct of the business of its member cooperatives and to facilitate the implementation of their bookkeeping, accounting, and other systems and procedures;

(iii) To print, publish, and circulate any newspaper or other publication in the interest of its member cooperatives and enterprises;

(iv) To coordinate and facilitate the activities of its member cooperatives;

(v) To enter into joint ventures with national or international cooperatives of other countries in the manufacture and sale products and/or services in the Philippines and abroad; and

(vi) To perform such other functions as may be necessary to attain its objectives.

A federation of cooperatives may be registered by carrying out the formalities for registration of a cooperative.

(2) Registered cooperatives may organize a federation at the provincial, city, regional, and national levels according to the type of business carried on.

Article 25. Cooperative Unions. - Registered cooperatives and federations at the appropriate levels may organize or joint cooperative unions to represent the interest and welfare of all types of cooperatives at the provincial, city, regional, and national levels. Cooperative unions may have the following purposes:

(a) To represent its member organizations;

(b) To acquire, analyze, and disseminate economic, statistical, and other information relating to its members and to all types of cooperatives within its area of operation;

(c) To sponsor studies in the economic, legal, financial, social and other phases of cooperation, and publish the results thereof;

(d) To promote the knowledge of cooperative principles and practices;

(e) To develop the cooperative movement in their respective jurisdictions;

(f) To advise the appropriate authorities on all questions relating to cooperatives;

(g) To raise funds through membership fees, dues and contributions, donations, and subsidies from local and foreign sources whether private or government; and

(h) To do and perform such other activities as may be necessary to attain the foregoing objectives.

Cooperative unions may assist the national and local governments in the latter's development activities in their respective jurisdictions.

CHAPTER III MEMBERSHIP

Article 26. Who May be Members of Cooperatives. - Any natural person, who is a citizen of the Philippines, a cooperative, or nonprofit organization with juridical personality shall be eligible for membership in a cooperative if the applicant meets the qualifications prescribed in the bylaws: provided, that only natural persons may be admitted as members of a primary cooperative.

Article 27. 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 is 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.

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 Cooperative Development Authority.

Article 28. Government Officers and Employees. - (1) Any officer or employee of the Cooperative Development Authority shall be disqualified to be elected or appointed to any position in a cooperative: (2) Elective officials of the Government, except barangay officials, shall be ineligible to become officers and directors of cooperatives; and (3) Any government employee may, in the discharge of his duties as member in the cooperative, be allowed by the head 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.

Article 29. Application. - An applicant for membership shall be deemed a member after approval of his membership by the board of directors and shall exercise the rights of members after having made such payments to the cooperative in respect to membership or acquired interest in the cooperative as may be prescribed in the bylaws.n case membership is refused or denied by the board of directors, an appeal may be made to the general assembly and the latter's decision shall be final.

Article 30. 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.

Article 31. Termination of Membership. - (1) A member of a cooperative may, for any reason, withdraw his membership from the cooperative by giving a sixty (60) day notice to the board of directors. The withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: provided, that such refund 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, insanity, insolvency or dissolution of a member shall be considered an automatic termination of membership.

(3) A member 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 the services of the cooperative for an unreasonable period of time as may be fixed 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 or 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 the member and shall be appealable, within thirty (30) days after the decision is promulgated, to the general assembly whose decision therein, whether in a general or special session, shall be final. Pending a decision by the general assembly, the membership remains in force.

Article 32. Refund of Interests. - All sums computed in accordance with the bylaws to be due from a cooperative to a former member shall be paid to him either by the cooperative or by the approved transferee, as the case may be, in accordance with this Code.

CHAPTER IV ADMINISTRATION

Article 33. Composition of the General Assembly. - The general assembly shall be composed of such members who are entitled to vote under the articles of cooperation and bylaws of the cooperative.

Article 34. 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 delegated:

(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;

(3) To approve developmental plans of the cooperative: and

(4) Such other matters requiring a two-thirds (2/3) vote of all the members of the general assembly, as provided in this Code.

Article 35. 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 date within ninety (90) days after the close of each fiscal year: provided, that written notice of regular meetings shall be sent to all members of record at their official addresses at least two (2) weeks prior to the meeting, unless a different period is required in the bylaws.

(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 in the cases specified in the bylaws: provided, that at least one (1) week written notice shall be sent to all members. However, a special meeting shall be called by the board of directors after compliance with the required notice within one (1) month after receipt of a request in writing from at least ten per centum (10%) of the total members 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 Cooperative Development Authority, upon petition of ten per centum (10%) of all the members of the cooperative, and for good cause shown, may issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice required by this Code or by the bylaws.

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

(4) The Authority may call a special meeting of the cooperative:

(a) For the purpose of reporting to the members the result of any audit, examination, or other investigation of the cooperative affairs ordered or made by him; or

(b) When the cooperative fails to hold an annual general assembly during the period required for the purpose of enabling the members to secure any information regarding the affairs of the cooperative and benefits that they are entitled to receive pursuant to this Code.

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

Article 36. Quorum. - Unless otherwise provided in the bylaws, a quorum shall consist of twenty-five per centum (25%) of all the members entitled to vote.

Article 37. Voting System. - (1) Each member of a primary cooperative shall have only one (1) vote. A secondary or tertiary cooperative shall have voting rights as delegate of members-cooperatives, but such cooperative shall have only five (5) votes. The votes cast by the delegates shall be deemed as votes cast by the members thereof.

(2) No voting agreement or other device to evade the one-member-one-vote provision except as provided under subsection (1) hereof shall be valid.

(3) No member of a primary cooperative shall be permitted to vote by proxy unless provided for specifically in the bylaws of the cooperative. 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.

Article 38. Composition of the Board of Directors. - The conduct and management of the affairs of a cooperative shall be vested in a board of directors which shall be composed of not less than five (5) nor more than fifteen (15) members elected by the general assembly for a term fixed in the bylaws but not exceeding a term of two (2) years and shall hold office until their successors are duly elected and qualified, or until duly removed. However, no director shall serve for more than three (3) consecutive terms.

Article 39. Powers of the Board of Directors. - The board of directors shall direct and supervise the business, manage the property of the cooperative and may, by resolution, exercise all such powers of the cooperative as are not reserved for the general assembly under this Code and the bylaws.

Article 40. 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 the bylaws shall be eligible for election as director.

(2) The cooperative may, by resolution of its board of directors, admit as director, 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 need not be a member of the cooperative and shall have no powers, rights nor responsibilities except to provide technical assistance as required by the cooperative.

Article 41. Meeting of the Board, Quorum. - (1) Regular meetings of the board of directors or every cooperative shall be held monthly, unless the bylaws provide otherwise.

(2) Special meetings of the board of directors may be held at any time upon the call of the President or as provided in the bylaws.

(3) A majority of the members of the board shall constitute a quorum for the conduct of business, unless the bylaws provide otherwise.

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

Article 42. 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 be elected only for the unexpired term of his predecessor in office.

Article 43. Officers of the Cooperative. - The board of directors shall elect from among themselves only the chairman and vice-chairman, and elect or appoint other officers of the cooperative from outside of the board in accordance with their bylaws. All officers shall serve during good behavior and shall not be removed except for cause after due hearing. Loss of confidence by acts or omission causing loss of confidence in the honesty and integrity of such officer. No two (2) or more persons with relationships up to the third civil degree of consanguinity or affinity shall serve as elective or appointive officers in the same board.

Article 44. Committees of Cooperatives. - (1) The bylaws may create an executive committee to be appointed by the board of directors with such powers and duties as may be delegated to it in the bylaws or by a majority vote of all the members of the board of directors.

(2) The bylaws shall provide for the creation of an audit committee and such other committees as may be necessary for the proper conduct of the affairs of the cooperative.

Unless otherwise provided in the bylaws, the board, in case of vacancy in said committees, may cause an election to fill the vacancy or appoint a person to fill the same subject to the provision that the person elected or appointed shall serve only for the unexpired portion of the term.

Article 45. Functions and Responsibilities of Directors, Officers and Committee Members. - The functions and responsibilities of the directors and committee members shall be as prescribed in detail in the bylaws of a cooperative.

Article 46. Liability of Directors, Officers and Committee Members. - Directors, officers and committee members, who 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 for double the profits which otherwise would have accrued to the cooperative.

Article 47. Compensation. - (1) In the absence of any provision in the bylaws fixing their compensation, the directors shall not receive any compensation except for reasonable per diems: provided, that any compensation other than per diems may be granted to directors by a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called for the purpose: provided, further, that no additional compensation other than per diems shall be paid during the first year of existence of any cooperative.

(2) The compensation of officer of the cooperative as well as the members of the committees created pursuant to this Code or its bylaws may be fixed in the bylaws.

(3) Unless already fixed in the bylaws, the compensation of all other employees shall be determined by the board of directors.

Article 48. Dealings of Directors, Officers or Committee Members. - A contract of the cooperative with one (1) or more of its directors, officers, committee members is voidable, at the option of such cooperative, unless all the following conditions are present:

(1) That the presence of such director in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;

(2) That the vote of such director was not necessary for the approval of the contract;

(3) That the contract is fair and reasonable under the circumstances; and

(4) That in the case of an officer or committee member, the contract with the officer or committee member has been previously authorized by the general assembly or by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director, such contract may be ratified by a two-thirds (2/3) vote of all the members with voting rights in a meeting called for the purpose: provided, that full disclosure of the adverse interest of the directors involved is made at such meeting, and that the contract is fair and reasonable under the circumstances.

Article 49. 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 two-thirds (2/3) vote of all the members with voting rights. This provision shall be applicable, notwithstanding the fact that the directors used his own funds in the venture.

Article 50. Illegal Use of Confidential Information. - (1) A director or officer, or an associate of a director or officer, who, in connection with a transaction relating to shares of a cooperative or a debt obligation of a cooperative and for his benefits or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to affect materially the value of the share or the debt obligation, shall be held:

(a) Liable to compensate any person for a direct loss suffered by that person as a result of the transaction, unless the information was known or reasonably should have been known to the person at the time of the transaction; and

(b) Accountable to the cooperative for any direct benefit or advantage received or yet to be receive 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).

Article 51. Removal - An elective officer, director, or committee member may be removed by a vote of two-thirds (2/3) of the voting members present and constituting a quorum, in a regular or special general assembly meeting called for the purpose. The person involved shall be given an opportunity to be heard at said assembly.

CHAPTER V RESPONSIBILITIES, RIGHTS AND PRIVILEGES OF COOPERATIVES

Article 52. Address. - Every cooperative shall have an official postal address to which all notices and communications shall be sent. Such address and every change thereof shall be registered with the Cooperative Development Authority.

Article 53. Books to be Kept Open. - (1) Every cooperative shall have the following open to its members and representatives of the Authority for inspection during reasonable office hours at its official address:

(a) A copy of this code and all other laws pertaining to cooperatives;

(b) A copy of the regulations of the Cooperative Development Authority;

(c) A copy of the articles of cooperation and bylaws of the cooperative;

(d) A register of members;

(e) The books of the minutes of the meetings of the general assembly, board of directors and committees:

(f) Share books, where applicable;

(g) Financial statements; and

(h) Such other documents as may be prescribed by laws or the bylaws.

(2) The chairman of the audit committee of a cooperative shall be responsible for books and records of account of the cooperative in accordance with generally accepted accounting practices. He shall also be responsible for the production of the same at the time of audit or inspection.

(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.

(4) Subject to the pertinent provisions of the National Internal Revenue Code and other laws, a cooperative may dispose by way of burning or other method of complete destruction any document, record or book pertaining to its financial and nonfinancial operations which are already more than five (5) years old except those relating to transactions which are the subject of civil, criminal, and administrative proceedings. An inventory of the audited documents, records and books to be disposed of shall be drawn up and certified to by the cooperative secretary and the chairman of the audit committee of the cooperative and presented to the board of directors which may thereupon approve the disposition of said records.

Article 54. Annual Reports. - (1) Every cooperative shall drawn up an annual report of its affairs as of the end of every fiscal year, and publish the same furnishing copies to all its members of record. A copy thereof shall be filed with the Cooperative Development Authority within sixty (60) days from the end of every fiscal year. The form and contents of the annual report shall be prescribed by the rules of the Authority. Failure to file the required annual report shall be a ground for 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 any cooperative fails to make, publish and file the report required herein, or fails to include therein any matter required by this Code, the Cooperative Development Authority shall, within fifteen (15) days from the expiration of the prescribed period, send such cooperative a registered notice, directed to its official postal address stating the delinquency and its consequences.f the cooperative fails to make, publish or file a copy of the report within thirty (30) days from receipt of such notice, any member of the cooperative or the Government may petition the court for mandamus to compel the cooperative and its officers to make, publish, and file such report, as the case may be, and require the cooperative or the officers at fault to pay all the expenses of the proceeding, including counsel fees when the filing is made by a member.

Article 55. Register of Members as Prima Facie Evidence. - Any register or list of members or shares kept by any registered cooperative shall be prima facie evidence of the following particulars entered therein:

(1) The date on which the name of any person was entered in such register or list as member; and

(2) The date on which any such person ceased to be a member;

Article 56. Probative Value of Certified Copies of Entries. - (1) A copy of any entry in any book, register of list regularly kept in the course of business in the possession of a cooperative shall, if duly certified in accordance with the rules of evidence, be admissible as evidence of the existence of the entry and prima facie evidence of the matters and transactions therein recorded.

(2) No person or a cooperative in possession of the books of such cooperative shall, in any legal proceedings to which the cooperative is not a party, be compelled to produce any of the books of the cooperative, the contents of which can be proved and the matters, transactions and accounts therein recorded, unless by order of a competent court.

Article 57. Bonding of Accountable Officers. - Every director, officer, and employee handling funds, securities or property on behalf of any cooperative shall execute and deliver adequate bonds for the faithful performance of his duties and obligations. The board of directors shall determine the adequacy of such bonds.

Article 58. Preference of Claims. - (1) Notwithstanding the provisions of existing laws, rules and regulations to the contrary, but subject to the prior claim of the Cooperative Development Authority, any debt due a cooperative from a member shall be 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 exist 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.

Article 59. Instrument for Salary or Wage Deduction. - (1) The member of a cooperative may, notwithstanding the provisions of existing laws to the contrary, execute an instrument in favor of the cooperative authorizing his employer to deduct from the salary or wages payable to him by the employer and pay to the cooperative such amount as may be specified in satisfaction of any debt or other demand due from the member to the cooperative.

(2) Upon the execution of such instrument and as may be required by the cooperative contained in a written request, the employer shall make the deduction in accordance with the agreement and remit forthwith the amount so deducted to the cooperative. The employer shall make the deduction for as long as such debt or other demand or any part of it remains unpaid by the employee.

(3) The term "employer" as used in this article shall include all private firms and the national and local governments and government-owned or controlled corporations who have under their employ a member of a cooperative and have agreed to carry out the terms of the instrument mentioned in paragraphs (1) and (2) of this article.

(4) The provision of this article shall also apply to all such agreements of the nature referred to in paragraph (1) as were in force on the date of the approval of this Code.

Article 60. Primary Lien. - Notwithstanding the provisions of any law to the contrary, a cooperative shall have a primary lien upon the capital, deposits or interest of a member for any debt due to the cooperative from such a member.

Article 61. Tax Treatment of Cooperatives. - Duly registered cooperatives under this Code which do not transact any business with nonmembers or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.

Article 62. Tax and Other Exemptions. - Cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any 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 as certified by the Department of Trade and Industry. All tax-free importations shall not 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 tax and/or duties thereon.

(2) Cooperatives with accumulated reserves and undivided 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:

(b) Sales Tax - On sales to nonmembers: provided, however, that all cooperatives, regardless of classification, are exempt from the payment of income and sale taxes for a period of ten (10) years.

For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from the effectivity date of said executive order. Cooperatives created after the approval of this Code shall be granted the same exemptions, the period of which shall be reckoned from the date of registration with the Authority: provided, 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 nonmembers shall be subject to the applicable percentage taxes except 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) Any judge in his capacity as notary public, ex-officio, shall render service, free of charge, to any person or group of persons requiring either the administration of oath or the acknowledgment of articles of cooperation of a cooperative applicant for registration and instruments of loan from cooperative not exceeding Fifty thousand pesos (P50,000.00).

(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 Fifty thousand pesos (P50,000.00) 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 sheriff's fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such action is brought by the Cooperative Development 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.

Article 63. Privileges of cooperatives. - Cooperatives registered under this Code shall, notwithstanding the provisions of any law to the contrary, be also accorded the following privileges:

(1) Cooperative shall enjoy the privileges 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 used 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 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 market vendor cooperatives, shall have preferential rights in management of public markets and/or lease of public market facilities, stall or spaces;

(8) Credit cooperatives 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 Philippine National Bank, the Land Bank of the Philippines, and other financial institutions except the Central Bank of the Philippines;

(9) Cooperatives transacting business with the Government of the Philippines or any of its political subdivision or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from prequalification bidding requirements; and

(10) Cooperatives 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.

CHAPTER VI INSOLVENCY OF COOPERATIVES

Article 64. Proceedings 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 the Insolvency Law (Act No. 1956, as amended).

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

CHAPTER VII DISSOLUTION OF COOPERATIVES

Article 65. 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 two-thirds (2/3) of all the members with voting rights at a meeting to be held upon call of the directors: provided, that 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 notice of such meeting is sent to each stockholder or member 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 by a majority of the board of directors and countersigned by the secretary of the cooperative. The Cooperative Development Authority shall thereupon issue the certificate of dissolution.

Article 66. 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 Cooperative Development Authority. The petition shall be signed by a majority of its board of directors or other officers managing its affairs, shall be verified by its president or secretary or one of its directors and shall set forth all claims and demands against it and that its dissolution was resolved upon all the members with voting rights, at a meeting called for that purpose.

If the petition is sufficient in form and substance, the Cooperative Development Authority shall, by an order reciting the purpose of the Authority, fix a date on or before which date 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 newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in the municipality or city.

Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Cooperative Development Authority shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection in sufficient, and the material allegations of the petition are true, it shall issue an order dissolving the cooperative and directing such disposition of its assets as justice requires. The order of dissolution shall set forth therein:

(1) The assets and liabilities of the cooperative;

(2) The claim of any creditors;

(3) The number of members; and

(4) The nature and extent of the interests of the members of the cooperative.

Article 67. 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.

Article 68. 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 regulations by fraud;

(2) Existing for an illegal purposes;

(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.

Article 69. Dissolution by Failure to Organize and Operate. - If a cooperative has not commenced business and operation within two (2) years after the date shown on its certificate of registration or has not carried on business for two (2) consecutive years, the Authority shall send formal inquiry to the said cooperative as to the status of its operation. Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall warrant the Authority to strike off its name from the register and, for all intents and purposes, the cooperative shall be deemed dissolved.

Article 70. Cooperative Liquidation. - Every cooperative, whose charter expires by its own limitation or whose cooperative existence is terminated by voluntary dissolution or its terminated by appropriate judicial proceedings shall nevertheless be continued as a body cooperative for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, said cooperative is authorized and empowered to convey all of its property to trustees for the benefit of members, creditors, and other person in interest. From and after any such conveyance by the cooperative of its property in trust for the benefit of its members, creditors and others in interest, all interest which the cooperative had in the property terminates the legal interest vests in the trustees and the beneficial interest vests in the members, creditors or other persons in interest.

Upon the winding up of the cooperative affairs, any asset distributable to any creditor or shareholder or member who is unknown or cannot be found shall be given to the federation, union or association to which the cooperative is affiliated or to the movement. Except by decrease of share capital and as otherwise allowed by this Code, no cooperative shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.

Article 71. Rules and Regulations on Liquidation. - The Authority shall issue the appropriate implementing guidelines for the liquidation of cooperatives.

CHAPTER VIII CAPITAL, PROPERTY, AND FUNDS

Article 72. Capital. - The capitalization of cooperatives and the accounting therefore shall be governed by the provisions of this Code and the regulations issued thereunder.

Article 73. Capital Sources. - Cooperatives registered under this Code may derive their capital any or all of the following sources:

(1) Members' share capital;

(2) Loans and borrowings including deposits;

(3) Revolving capital which consists of the deferred payment of patronage refunds, or interest on share capital; and

(4) Subsidies, donations, legacies, grants, aids and such other assistance from any local or foreign institution whether public or private.

Article 74. Limitation on Share Capital Holdings. - No matter of a cooperative other than a cooperative shall own or hold more than twenty per centum (20%) of the share capital of the cooperative.

Where a member of a cooperative dies, his heir shall be entitled to the shares of the decedent; provided, that the total share holding of the heirs does not exceed twenty per centum (20%) of the share capital of the cooperative: provided, further, that the heir quality and is admitted as member of the cooperative: provided, finally, that where the heir fails to qualify as such member or where his total share holdings exceeds twenty per centum (20%) of the share capital, the share or shares in excess will revert to the cooperative upon payment to the heir of the value of such shares.

Article 75. Assignment of Share Capital Contribution or Interest. - Subject to the provisions of this Code, no member shall transfer his shares or interest in the cooperative or any part thereof unless:

(1) He has held such share capital contribution or interest for not less than one (1) year;

(2) The assignment is made to the cooperative or to a member of the cooperative or to a person who falls within the field of membership of the cooperative; and

(3) The board of directors has approved such assignment.

Article 76. Interest on Share Capital. - Interest on share capital shall not exceed the normal rat of return on investments as determined by the Cooperative Development Authority and such interest shall be noncumulative.

Article 77. Shares. - The term "share" refers to a unit of capital the par value of which may be fixed at any figure but not less than One peso (P1.00). The share capital of a cooperative is the money paid or required to be paid for to conduct its operations. The method of issuing the share certificates may be prescribed in the bylaws of the cooperative.

Article 78. Fines. - The bylaws of a cooperative may prescribed a fine on unpaid subscribed share capital subject to the guidelines which the Cooperative Development Authority may issue.

Article 79. Investment of Capital. - (1) A cooperative may invest its capital in any of the following:

(a) In share or debentures or securities of any other cooperatives;

(b) In any reputable bank in the locality, or any cooperative;

(c) In securities issued or guaranteed by the Government;

(d) In real estate primarily for the use of the cooperative or its members; or

(e) In any other manner authorized in the bylaws.

Article 80. Revolving Capital. - The general assembly of any cooperative may authorized the board of directors to raise a revolving capital to strengthen its capital structure by deferring the payment of patronage refunds and interest on share capital or by the authorized deduction of a percentage from the proceeds of products sold or per unit of product handled. The board of directors shall issue revolving capital certificates with serial number, name, amount, and rate of interest to be paid and shall distinctly set forth that the time of retirement by such certificates and the amounts to be returned are at the discretion of the board of directors.

CHAPTER IX AUDIT, INQUIRY AND MEMBERS' RIGHT TO EXAMINE

Article 81. Annual Audit. - Cooperatives under this Code shall be subject to an annual audit by an auditor who satisfies all the following qualifications:

(1) He is independent of the cooperative being audited and of any subsidiary of the cooperative; and

(2) He is a member of any recognized professional accounting or cooperative auditors' association with similar qualifications.

Article 82. Audit Report. - The auditor shall submit to the audit committee a report of the audit which shall contain a statement of the assets and liabilities of the cooperative, including earnings and expenses, amount of net surplus as well as losses and bad debts, if any.

The audit committee shall forthwith furnish the board of directors a copy of the audit report. Thereafter, the board of directors shall present the complete audit report to the general assembly in its next meeting.

Article 83. Nonliability for Defamation. - An auditor is not liable to any person in an action for defamation based on any act done, or any statement made by him in good faith in connection with any matter he is authorized or required to do pursuant to this Code.

Article 84. Right to Examine. - A member shall have the right to examine the records required to be kept by the cooperative under Article 51 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 reproduction.

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 106 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 of 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.

Article 85. Safety of Records. - Every cooperative shall, at its principal office, keep and carefully preserve the records required by this Code to be prepared and maintained.t shall take all necessary precaution to prevent its loss, destruction or falsification.

CHAPTER X ALLOCATION AND DISTRIBUTION OF NET SURPLUS

Article 86. Net Surplus. - Notwithstanding the provisions of existing laws, the net surplus of cooperatives shall be determined in accordance with its bylaws. Every cooperative shall determine its surplus at the close of every fiscal year and at such other time as may be prescribed by the bylaws.

The net surplus shall not be construed as profit but as excess of payments made by the members for the loans borrowed, or the goods and services bought by them from the cooperative and which shall be deemed to have been returned to them if the same is distributed as prescribed herein.

Article 87. Order of Distribution. - (a) The net surplus of every cooperative shall be distributed as follows:

(1) An amount for the reserve fund, which shall be at least ten per centum (10%) of net surplus:

(2) The reserve fund shall be used for the stability of the cooperative and to meet net losses in its operations.

The general assembly may decrease the amount allocated to the reserve fund when reserve fund already exceeds the share capital.

Any sum recovered on items previously charged to the reserve fund shall be credited to such fund.

(b) The reserve fund shall not be utilized for investment, other than those allowed in this Code. Such sum of the reserve fund in excess of the share capital may be used at anytime for any project that would expand the operations of the cooperative upon the resolution of the general assembly.

(c) Upon the dissolution of the cooperative, the reserve fund shall not be distributed among the members. The general assembly may resolve:

(i) To establish a usufructuary trust fund for the benefit of any federation or union to which the cooperative is affiliated; and

(ii) To donate, contribute, or otherwise dispose of the amount for the benefit of the community where the cooperative operates.f the members cannot decide upon the disposal of the reserve fund, the same shall go to the federation or union to which the cooperative is affiliated.

(2) An amount for the education and training fund, which shall be not more than ten per centum (10%) of net surplus. The bylaws may provide that certain fees or fines or a portion thereof be credited to such fund:

(a) Half of the amounts transferred to the education and training fund annually under this subsection may be spent by the cooperative for education and training and other purposes; while the other half shall be credited to the cooperative education and training fund of the respective apex organization of which the cooperative is a member. An apex organization may be a federation or union.

(b) Upon the dissolution of the cooperative, the unexpended balance of the education and training fund appertaining to the cooperative shall be credited to the cooperative education and training fund of the abovementioned apex organization.

(3) An optional fund, a land and building, community development, and any other necessary fund the total of which may not exceed ten per centum (10%).

(4) The remaining net surplus shall be made available to the members in the form of interest not to exceed the normal rate of return on investments and patronage refunds.

The sum allocated for patronage refunds shall be made available at the same rate to all patrons of the cooperative in proportion to their individual patronage: provided, that:

(a) In the case of a member patron with paid up share capital contribution, his proportionate amount of patronage refund shall be paid to him unless he agrees to credit the amount to his account as additional share capital contribution;

(b) In the case of a member patron with unpaid share capital contribution, his proportionate amount of patronage refund shall be credited to his account unless his share capital contribution has been fully paid;

(c) In the case of a nonmember patron, his proportionate amount of patronage refund shall be set aside in a general fund for such patrons and shall be allocated to individual nonmember patrons only upon request and presentation of evidence of the amount of his patronage. The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership. When a sum equal to this amount has accumulated at any time within a period specified in the bylaws, such patron shall be deemed and become a member of the cooperative if he so agrees or requests and complies with the provisions of the bylaws for admission to membership; and

(d) If within any period of time specified in the bylaws, any subscriber who has not fully paid his subscribed share capital or any nonmember patron who has accumulated the sum necessary for membership but who does not request nor agree to become a member or fails to comply with the provisions of the bylaws for admission to membership, the amount so accumulated or credited to their account together with any part of the general fund for nonmember patrons shall be credited to the reserve fund or to the education and training fund of the cooperative, at the option of the cooperative.

CHAPTER XI SPECIAL PROVISIONS RELATING TO AGRARIAN REFORM COOPERATIVES

Article 88. Coverage. - The provisions of this Chapter shall primarily govern agrarian reform cooperatives: provided, that the provision of other chapters of this Code shall apply suppletorily except insofar as this Chapter otherwise provides.

Article 89. Definition and Purposes. - An agrarian reform cooperative within the meaning of this Code is one where the majority of the members are agrarian reform beneficiaries and marginal farmers and organized for any or all of the following purposes:

(1) To develop an appropriate system of land tenure, land development, and land consolidation or land management in areas covered by agrarian reform;

(2) To coordinate and facilitate the dissemination of scientific methods of production, and private assistance in the storage, transport, and marketing of farm products for agrarian reform beneficiaries and their immediate family, hereinafter referred to as "beneficiaries";

(3) To provide financial facilities to beneficiaries for provident or productive purposes at reasonable costs;

(4) To arrange and facilitate the expeditious transfer of appropriate and suitable technology to beneficiaries and marginal farmers at the lowest possible cost;

(5) To provide social security benefits, health, medical and social insurance benefits and other social and economic benefits that promote the general welfare of the agrarian reform beneficiaries and marginal farmers;

(6) To provide non-formal education, vocational/technical training, and livelihood programs to beneficiaries and marginal farmers;

(7) To act as channels for external assistance and services to the beneficiaries and marginal farmers;

(8) To undertake a comprehensive and integrated development program in agrarian reform and resettlement areas with special concern for the development of agro-based, marine-based and cottage-based industries;

(9) To represent the beneficiaries on any or all matters that effect their interest; andsia

(10) To undertake such other economic or social activities as may be necessary or incidental in the pursuit of the foregoing purposes.

Article 90. Cooperative Estates. - Landholdings like plantations, estates or haciendas acquired by the State for the benefit of the workers in accordance with the Comprehensive Agrarian Reform Program shall be owned collectively by the workers-beneficiaries who shall form a cooperative at their option.

Article 91. Infrastructure. - In agrarian reform and resettlement areas, the Government shall grant to agrarian reform cooperatives preferential treatment, if necessary, the authority to construct, maintain, and manage with government funding roads, bridges, canals, wharves, ports, reservoirs, irrigation systems, waterworks systems, and other infrastructures. For this purpose, government technical assistance, facilities and equipment shall be made available to such agrarian reform cooperatives for their use.

Article 92. Lease of Public Lands. - The Government may lease public lands to any agrarian reform cooperative for a period not exceeding twenty-five (25) years, subject to renewal for another twenty-five (25) years only: provided, that the application for renewal shall be made one (1) year before the expiration of the lease: provided, further, that such lease shall be for the exclusive use and benefit of the beneficiaries and marginal farmers subject to the provisions of the Comprehensive Agrarian Reform Program.

Article 93. Preferential Right. - In agrarian reform areas, an agrarian reform cooperative shall have the preferential right in the grant of franchise and certificate of public convenience and necessity for the operation of public utilities and services: provided, that it meets the requirements and conditions imposed by the appropriate government agency granting the franchise or certificate of public convenience and necessity.

Electric service agencies shall, upon request of agrarian reform cooperatives, immediately provide electric services to agrarian reform areas.f the electric service agencies concerned fails for any reason to provide the services requested within a period of one (1) year from receipt thereof, the agrarian reform cooperative concerned may provide the electric services in the agrarian reform area directly through its own resources and shall continue to do so until such time that the electric service agency concerned purchases all the investments made by the agrarian reform cooperative in the electrification of the agrarian reform areas.

Article 94. Privileges. - Subject to such reasonable terms and conditions as the Department of Agrarian Reform and the Authority may impose, agrarian reform cooperatives may be given the exclusive right to do any or all of the following economic activities in agrarian reform and resettlement areas:

(1) Supply and distribution of consumer, agricultural, aquacultural, and industrial goods, production inputs, and raw materials and supplies, machinery, equipment, facilities and other services and requirements of the beneficiaries and marginal farmers in the agrarian reform areas at reasonable prices;

(2) Marketing of the products and services of the beneficiaries on the local and foreign markets;

(3) Processing of the members' products into finished consumer or industrial goods for domestic consumption or for export;

(4) Provision of essential public services at cost such as power, irrigation, potable water, passenger and/or cargo transportation by land, sea, or air, communication services, and public health and medical care services:

(5) Management, conservation, and commercial development, of marine, forestry, mineral, water and other natural resources subject to compliance with the laws and regulations on environmental and ecological controls;

(6) Provision of financial, technological, and other services and facilities required by the beneficiaries in their daily lives and livelihood.

The Government shall provide the necessary financial and technical assistance to agrarian reform cooperatives to enable them to discharge effectively their purposes under this article. The Department of Agrarian Reform, the Cooperative Development Authority and the Central Bank of the Philippines shall draw up a joint program for the organization and financing of the agrarian reform cooperatives subject to this Chapter. The joint program shall be geared towards the beneficiaries gradual assumption of full ownership and management control of the agrarian reform cooperatives within ten (10) years from the date of registration of said cooperatives.

Article 95. Organization and Registration. - Agrarian reform cooperatives may be organized and registered under this Code only upon prior written verification by the Department of Agrarian Reform to the effect that the same is needed and desired by the beneficiaries; results of a study that has been conducted fairly indicate the economic feasibility of organizing the same and that it will be economically viable in its operations; and that the same may now be organized and registered in accordance with the requirements of this Code.

CHAPTER XII SPECIAL PROVISIONS ON PUBLIC SERVICE COOPERATIVES

Article 96. Definition and Coverage. - A public service cooperative, within the meaning of this Code, is one organized to render public services as authorized under a franchise or certificate of public convenience and necessity duly issued by the appropriate government agency. Such services may include the following:

(1) Power generation, transmission and/or distribution;

(2) Ice plants and cold storage services. Electric cooperatives created under Presidential Decree No. 269 shall be governed by this Chapter if they qualify as cooperatives under the provisions of this Code;

(3) Communications service including telephone, telegraph, and telecommunications;

(4) Land, sea, and air transportation cooperatives for passenger and/or cargo. Transport cooperatives organized under the provisions of Executive Order No. 89, Series of 1983, shall be governed by this Chapter;

(5) Public markets, slaughterhouses and other similar service; and

(6) Such other types of public service as may be engaged in by any cooperative. Such cooperative shall be primarily governed by this Chapter and the general provisions of this Code insofar as they may be applicable unless they are inconsistent herewith.

Article 97. Registration Requirements. - No public service cooperative shall be registered unless it satisfies the following requirements:

(1) It has the favorable endorsement of the proper government agency authorized to issue the franchise or certificates of public convenience and necessity:

(2) Its articles of cooperation and bylaws provide for the membership of the users and/or producers of the service of such cooperatives; and

(3) It satisfies such other requirements as may be imposed by the other pertinent government agencies concerned.n case there are two (2) or more applicants for the same public service franchise or certificate of public convenience and necessity, all things being equal, preference shall be given to a public cooperative.

Article 98. Regulation of Public Service Cooperatives. - (1) The internal affairs of the public service cooperatives such as the rights and privileges of members, the rules and procedures for meetings of the general assembly, board of directors and committees; for the election and qualifications of officers, directors, and committee members; allocation and distribution of surpluses; and all other matters relating to their internal affairs shall be governed by this Code.

(2) All matters relating to the franchise or certificate of public convenience and necessity of public service cooperatives such as capitalization and investment requirements, equipment and facilities, frequencies, rate-fixing and such other matters affecting their public service operations shall be governed by the proper government agency concerned.

(3) The Cooperative Development Authority and the proper government agency concerned shall jointly issue the necessary rules and regulations to implement this Chapter.

CHAPTER XIII SPECIAL PROVISIONS RELATING TO COOPERATIVE BANKS

Article 99. Governing Law. - (1) The provisions of this Chapter shall primarily govern cooperative banks registered under this Code and the other provisions of this Code shall apply to them only insofar as they are not inconsistent with the provisions contained in this Chapter.

(2) Cooperatives duly established the registered under the provisions of this Code may organize among themselves a cooperative bank which shall likewise be considered a cooperative registrable under the provisions of this Code subject to the requirements of and requisite authorization from the Central Bank.

Article 100. Definition, Classification and Functions. - A cooperative bank is one organized by, the majority shares of which is owned and controlled by, cooperatives primarily to provide financial and credit services to cooperatives. The term "cooperative bank" shall include cooperative rural banks.

A cooperative bank may perform the following functions:

(1) To carry on banking and credit services for the cooperatives;

(2) To receive financial aid or loans from the Government and the Central Bank of the Philippines for and in behalf of the cooperative banks and primary cooperatives and their federations engaged in business and to supervise the lending and collection of loans;

(3) To mobilize savings of its members for the benefit of the cooperative movement;

(4) To act as a balancing medium for the surplus funds of cooperatives and their federations;

(5) To discount bills and promissory notes issued and drawn by cooperatives;

(6) To issue negotiable instruments to facilitate the activities of cooperatives;

(7) To issue debentures subject to the approval of and under conditions and guarantees to be prescribed by the Government:

(8) To borrow money from banks and other financial institutions within the limit to be prescribed by the Central Bank; and

(9) To carry out all other functions as may be prescribed by the Authority: provided, that the performance of any banking function shall be subject to prior approval by the Central Bank of the Philippines.

Article 101 Registration Requirements. - No entry shall be registered by the Cooperative Development Authority as a cooperative bank unless the articles of cooperation and bylaws thereof as well as its establishment and operation as a cooperative bank have been approved by the Central Bank of the Philippines and it satisfies all requirements for registration as a cooperative.

Article 102. Membership. - Membership of a cooperative bank shall include only cooperatives and federations of cooperatives.

Article 103. Board of Directors. - The number, composition, and voting rights of the board of directors shall be defined in the articles of cooperation and bylaws of the cooperative bank, notwithstanding provisions of this Code to the contrary.

Article 104. Loans. - Cooperatives may obtain loans from a cooperative bank. Loans granted by a cooperative bank shall be reported to the Central Bank of the Philippines.

Article 105. Supervision. - The cooperative banks registered under this Code shall be under the supervision of the Central Bank. The Central Bank upon consultation with the agency and the cooperative movement shall formulate guidelines regarding the operation and banking transactions of cooperative banks. These guidelines shall give due recognition to the unique cooperative nature and character of cooperative banks. To this end, cooperative banks may be exempted from Central Bank rules and regulations, applicable to other types of banks, which would impede the cooperative rural bank from performing legitimate financial and banking to its members.

Article 106. Capitalization. - (1) A national cooperative bank shall have a minimum authorized share capital of Two hundred million pesos (P200,000,000.00) in relation to Article 14(5). The authorized share capital shall be divided into such number of shares with a minimum par value of One thousand pesos (P1,000.00) per share. For the purpose primarily of determining the permanency of equity, the types of share a cooperative bank may issue, including the terms thereof and the rights appurtenant thereto, shall be subject to such rules and regulations as the Central Bank may prescribed;

(2) A local cooperative bank shall have a minimum authorized share capital of Twenty million pesos (P20,000,000.00) divided into such number of shares with a minimum par value of One hundred pesos (P100.00) per share.

Article 107. Distribution of Net Surplus. - The provisions of this Code on the allocation and distribution of net surplus shall apply.

Article 108. Privileges. - Cooperative banks shall have the following privileges subject to the approval of the Central Bank and compliance with applicable banking laws, rules and regulations:

(1) The cooperative banks registered under this Code shall be given the same privilege granted to the rural banks, private development banks, commercial banks, and all other banks to rediscount notes with the Central Bank, the Land Bank of the Philippines, and other government banks without affecting in any way the provisions of this Code; and

(2) To act as depository of government funds. For this purpose, all government departments, agencies and units of the national and local governments, including government-owned and controlled corporation are hereby authorized to deposit their funds in any cooperative bank.

Article 109. Assistance to Cooperative Bank. - Whenever a cooperative bank organized under this Code is distressed or may need assistance in the rehabilitation of its financial condition or to avoid bankruptcy, the Monetary Board of the Central Bank of the Philippines shall designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver or conservator of the said bank pursuant to the provisions of Section 29 of Republic Act No. 265, as amended.

CHAPTER XIV SPECIAL PROVISIONS RELATING TO CREDIT COOPERATIVE

Article 110. Coverage. - This Chapter shall apply only to credit cooperatives and the rest of the provisions of this Code shall apply to them insofar as the same are not inconsistent with the provisions of this Chapter.

Article 111. Definition and Objectives. - A credit cooperative is a financial organization owned and operated by its members with the following objectives:

(1) To encourage savings among its members;

(2) To create a pool of such savings for which loans for productive or provident purposes may be granted to its members; and

(3) To provide related services to enable its members to maximize the benefit from such loans.

Article 112. Organization and Registration. - Credit cooperatives shall be organized and registered in accordance with the general provisions of this Code.

Article 113. Organizational Linkage. - Credit cooperatives may organize chapter or subsidiaries, or join leagues and federations for the purpose of providing commonly needed essential services including but not limited to the following:

(1) Interlending of surplus fund;

(2) Mutual guarantee;

(3) Deposit guarantee;

(4) Bonding;

(5) Education and training;

(6) Professional and technical assistance;

(7) Research and development;

(8) Representation; and

(9) Other services needed to improve their performance.

Existing support organizations such as federations of credit cooperatives, credit cooperatives at the provincial, regional and national levels may continue and such under this Code.

Article 114. Prohibition. - The term "credit cooperative" shall be used exclusively by those who are duly registered under this Chapter, and no person or group of persons, or organizations shall use the said term unless duly registered herein.

CHAPTER XV SPECIAL PROVISIONS RELATING TO COOPERATIVE INSURANCE SOCIETIES

Article 115. Cooperative Insurance Societies. - Existing cooperatives may organize themselves into a cooperative insurance entity for the purpose of covering the insurance requirements of the cooperative members including their properties and assets.

Article 116. Types of Insurance Provided. - Under the cooperative insurance program established and formed by virtue of the provisions of this Code, the cooperative insurance societies shall provide its constituting members different types of insurance coverage consisting of, but not limited to, life insurance with special group coverage, loan protection, retirement plans, endowment with health and accident coverage, fire insurance, motor vehicle coverage, bonding, crop and livestock protection and equipment insurance.

Article 117. Applicability of Insurance Laws. - The provisions of the Insurance Code and all other laws and regulations relative to the organization and operation of an insurance company shall apply to cooperative insurance entities organized under this Code. The requirements on capitalization, investments and reserves of insurance firms may be liberally modified upon consultation with the Cooperative Development Authority and the cooperative sector. But in no case may the requirements be reduced to less than half of those provided for under the Insurance Code and other related laws.

Article 118. Implementing Rules. - The Insurance Commission, upon consultation with the Cooperative Development Authority and the cooperation sector, shall formulate the rules and regulations implementing these provisions.

CHAPTER XVI MISCELLANEOUS PROVISIONS

Article 119. Compliance with Other Laws. - (1) The Labor Code and all other labor laws shall apply to all cooperatives.

(2) The Social Security Act, the Medical Care Act, and all other social legislation shall apply to all the cooperatives.

(3) All other laws and executive orders applicable to cooperatives duly registered under this Code.

Article 120. Registered of Cooperatives. - The Cooperative Development Authority shall establish a register which shall contain a chronological of the name of every cooperative registered or dissolved under this Code together with the basic information required for registration or dissolution and any other information considered useful. The Cooperative Development Authority shall publish every year a list of cooperatives in existence, under dissolution and whose registration is cancelled during the year together with such information on each of them as may be prescribed in the regulations.

Article 121. Settlement of Disputes. - Disputes among members, officers, directors, and committee members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in accordance with the conciliation or mediation mechanisms embodied in the bylaws of the cooperative, and in applicable laws.

Should such a conciliation/mediation proceeding fail, the matter shall be settled in a court of competent jurisdiction.

CHAPTER XVII FINAL PROVISIONS

Article 122. Electric Cooperatives. - Electric cooperatives shall be covered by this Code. However, there shall be a transition period of three (3) years within which the Cooperative Development Authority and the National Electrification Administration shall help and assist electric cooperatives to qualify under this Code. The Cooperative Development Authority and the National Electrification Administration shall jointly promulgate rules and regulations to the end that the provisions of this law are harmonized with the provisions of Presidential Decree No. 269.

Article 123. Regulations. - (1) The Cooperative Development Authority may issue 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.

(2) Where a provision of this Code does not expressly call for nor authorized the issuance of a regulations, no regulation shall be issued thereon. Any regulation issued in violation of this paragraph shall be null and void ab initio.

(3) No regulation shall be issued nor become effective under this Code unless the following requirements are satisfied:

(a) Public announcement on the intention to issue regulations describing the subject to be dealt on with a copy of the proposed regulations attached, inviting the public to make known their views thereon and submit their positions with respect thereof. The announcement shall be published in a daily newspaper of national general circulation at least once a week for four (4) consecutive weeks prior to the intended date of commencement of the public hearing thereon, specifying the date, time and place of the public hearing;

(b) Public hearings may be conducted separately in Luzon, Visayas and Mindanao by the Authority and the proceedings thereof shall be duly recorded. Minutes of a public hearing shall be made available to the public at cost. The Public hearing may be held in several sessions; provided, that no session shall be conducted unless the minutes of all other previous sessions have been published beforehand;

(c) The proceed regulations shall be supported by a memorandum of justification for every provision thereof which shall include citation of the legal bases therefore, the reasons for such provision, and the expected results therefrom; and

(d) The regulations shall be recommended by the Authority and approved by the Office of the President, and the same shall take effect thirty (30) days after publication in the Official Gazette.

Article 124. 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, domestic or foreign, unless duly registered as a cooperative under this Code.n case of violation hereof, 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 for one (1) year and a fine not exceeding One thousand pesos (P1,000.00), or both at the discretion of the court;

(2) 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 clearance 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.

In case of violation of any provisions of this subsection, the individual or individuals, and in the case of organizations, its officers and directors shall, upon conviction by a court, each suffer a penalty of not less than 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;

(3) A director, officer of committee member who violated the provisions of Article 47 (liability of directors, officers and committee members), Article 50 (disloyalty of a director) and Article 51 (illegal use of confidential information), shall upon conviction suffer a fine of not less than Five thousand pesos (P5,000.00) nor more than Five hundred thousand pesos (P5,000.00) or imprisonment of not less than five (5) years but not more than ten (10) years or both at the court's discretion;

(4) 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.

Article 125. Printing and Distribution. - (1) The National Printing Office shall publish this Code in the Official Gazette in full within sixty (60) days from the date of approval thereof. Copies of this Code shall be given to every department, agency and instrumentality of the National Government, including regional, provincial offices and local governments including government-owned and controlled corporations.

(2) All duly registered cooperatives and their federations, unions and associations, and cooperative corporations shall be given one (1) copy each at cost. Thereafter, every newly registered cooperative or cooperative corporations shall be issued at cost a copy of this Code and the regulations promulgated thereon together with its certificate of registration.

Article 126. Interpretation and Construction. - In case of doubt as to the meaning of any provision of this Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the cooperatives and their members.

Article 127. Repeals. - Except as expressly provided by this Code, Presidential Decree No. 175 and all other laws, or parts thereof, inconsistent with any provisions of this Code shall be deemed repealed: provided, however, that nothing in this Code shall be interpreted to mean the amendment of repeal of any provision of Presidential Decree No. 269: provided, further, that the electric cooperatives which qualify as such under this Code shall fall under the coverage thereof.

Article 128. Transitory Provisions. - All cooperatives registered under Presidential Decree Nos. 175 and 775 and Executive Order No. 898, and all other laws shall be deemed registered with the Cooperative Development Authority: provided, however, that they shall submit to the nearest Cooperative Development Authority office their certificate of registration, copies of the articles of cooperation and bylaws and their latest duly audited financial statements within one (1) year from the effectivity of this Act, otherwise their registration shall be cancelled: provided, further, that cooperatives created under Presidential Decree No. 269, as amended by Presidential Decree No. 1645, shall be given three (3) years within which to qualify and register with the Authority: provided, finally, that after these cooperatives shall have qualified and registered, the provisions of Sections 3 and 5 of Presidential Decree No. 1645 shall no longer be applicable to said cooperatives.

Article 129. Separability. - Should any part of this Code be declared unconstitutional, the rest of the provisions shall not be affected thereby.

Article 130. Effectivity. - This Code shall take effect fifteen (15) days from its publication in a newspaper of general circulation.

Approved, March 10, 1990.