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Securities Regulation and Corporate Governance > Posts > SEC Extends Conditional Exemptions From Reporting and Proxy Delivery Requirements for Public Companies Affected By COVID-19 For Reports due on or before July 1, 2020 4/1/2020
SEC Extends Conditional Exemptions From Reporting and Proxy Delivery Requirements for Public Companies Affected By COVID-19 For Reports due on or before July 1, 2020 4/1/2020

​On March 25, 2020, the Securities an​d Exchange Commission (the “Commission") announced (available here) that it is providing a 45-day extension for companies to file certain disclosure reports that would otherwise have been due on or before July 1, 2020 (Order available here).  This is an extension of the conditional reporting relief covered by the Commission's relief (Original Order available here) for certain public company filing obligations under the federal securities laws, issued on March 4, 2020 (as previously discussed in our post here, and updated here), to companies impacted by the novel coronavirus disease 2019 (“COVID-19"). In addition, the Commission's Division of Corporation Finance (the “Division") issued on March 25, 2020 its current views regarding disclosure considerations and other securities law matters related to COVID-19 (available here).

Relief from Filing Requirements

The Commission provided conditional relief in the form of an exemption from any requirement to file or furnish certain materials with the Commission.  Specifically, the exemption covers filings made under the following provisions of Securities Exchange Act of 1934, as amended (the “Exchange Act"): Sections 13(a), 13(f), 13(g), 14(a), 14(c), 14(f), 15(d), Regulations 13A, 13D-G (except for those provisions mandating the filing of Schedule 13D or amendments to Schedule 13D), 14A, 14C and 15D, and Rules 13-f-1, and 14f-1.  This includes Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, among others. This also includes proxy statements that are required to be filed within 120 days after fiscal year-end by companies relying on General Instruction G(3) of Form 10-K to incorporate Part III information by reference to the proxy statement.  This does not include Section 16 filings (such as Forms 3, 4 and 5), Form SD (conflict minerals reports) or Schedule 13D or its amendments.

The exemption is subject to the satisfaction of the following conditions:

  • the company is unable to meet a filing deadline due to circumstances related to COVID-19;
  • the company furnishes to the Commission a Form 8-K or, if eligible, a Form 6-K, by the later of March 16, 2020 or the original filing deadline of the report stating:
  • that it is relying on the Order;
  • a brief description of the reasons why it could not file such report, schedule or form on a timely basis;
  • the estimated date by which the report, schedule, or form is expected to be filed;
  • a company specific risk factor explaining the impact, if material, of COVID-19 on its business; and
  • if the reason the subject report cannot be filed timely relates to the inability of any person, other than the company, to furnish any required opinion, report or certification, the Form 8-K or Form 6-K must attach as an exhibit a statement signed by such person stating the specific reasons why such person is unable to furnish the required opinion, report or certification on or before the date such report must be filed;
  • any company relying on the Order would not need to file a Form 12b-25 so long as the report, schedule, or form is filed within the time period prescribed by the Order;
  • the subject report, schedule, or form is filed with the Commission no later than 45 days after the original due date; and
  • in the subject report, schedule, or form filed by the applicable deadline under the bullet-point above, the filer must disclose that it is relying on the Order and state the reasons why it could not file such report, schedule or form on a timely basis.
Commission's Positions with respect to Certain Obligations

In connection with the Commission relief issued in the order, the Commission staff will take the following positions with respect to certain obligations under the Securities Act and the Exchange Act:
  • for purposes of eligibility to use Form S-3 or Form F-3 (and for well-known seasoned issuer status, which is based in part on Form S-3 or Form F-3 eligibility), a company relying on the exemptive order will be considered current and timely in its Exchange Act filing requirements if it was current and timely as of the first day of the relief period (i.e., March 1, 2020) and it files any report due during the relief period within 45 days of the filing deadline for the report;
  • for purposes of the Form S-8 eligibility requirements and the current public information eligibility requirements of Rule 144(c), a company relying on the exemptive order will be considered current in its Exchange Act filing requirements if it was current as of the first day of the relief period (i.e., March 1, 2020) and it files any report due during the relief period within 45 days of the filing deadline for the report; and
  • companies that receive an extension on filing Exchange Act annual reports or quarterly reports pursuant to the order will be considered to have a due date 45 days after the filing deadline for the report.  As such, those companies will be permitted to rely on Rule 12b-25 if they are unable to file the required reports on or before the extended due date.
On March 31, 2020, the Division issued two new Compliance and Disclosure Interpretations (C&DIs) addressing the interplay between Rule 12b-25 and the Order.  In C&DI 135.12, the Division clarifies that filing a Form 12b-25 by the original due date of a report will not meet the condition of the Order, which requires that a company furnish a Form 8-K, or if applicable, a Form 6-K, to provide the statements called for by the Order by the original due date of the report.  C&DI 135.13 reiterates that a company can rely on Rule 12b-25 if it is unable to file the report by the extended due date so long as it files a Form 12b-25 on or before the extended due date for the report.

Relief from Furnishing of Proxy and Information Statements

The Commission's exemption also grants relief from any requirement of the Exchange Act and the rules thereunder to furnish (i) proxy statements, annual reports, and other soliciting materials (the “Soliciting Materials") and (ii) information statements and annual reports (the “Information Materials") (including Sections 14(a) and (c) and Regulations 14A and 14C and Rule 14f-1), subject to the following conditions:
  • the company's security holder has a mailing address located in an area where, as a result of COVID-19, the common carrier has suspended delivery service of the type or class customarily used by the company or other person making the solicitation; and
  • the company, or other person making a solicitation, has made a good faith effort to furnish the Soliciting Materials to the security holder, as required by the rules applicable to the particular method of delivering Soliciting Materials to the security holder, or, in the case of Information Materials, the company has made a good faith effort to furnish the Information Materials to the security holder in accordance with the rules applicable to Information Materials.
Relief Time Period

The relief applies for the period from and including March 1, 2020 to July 1, 2020.  The Commission will continue monitoring the current situation and may, if necessary, extend the time period during which the relief applies.

Any company or other person in need of additional assistance related to filing deadlines, delivery obligations or their public filings should contact the Office of the Chief Counsel of the Division at (202) 551-3500 or at https://www.sec.gov/forms/corp_fin_interpretive.

Public Company Disclosure Guidance

In connection with the Commission's announcement, Chairman Jay Clayton reminded companies to consider their activities in light of their disclosure obligations.  Where a company has become aware of a risk related to COVID-19 that would be material to its investors, it should refrain from engaging in securities transactions with the public and take steps to prevent its directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.

In Disclosure Guidance Topic No. 9 (available here), the Division provided the Staff's current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions.  In providing this guidance, the Division recognized that the actual impact of COVID-19 on a Company will depend on many factors beyond a company's control and knowledge.  Nevertheless, the Division noted that the effects COVID-19 has had to date on a company, how management is responding to evolving events, what management expects its future impact will be, and how it is planning for COVID-19-related uncertainties can be material to investment and voting decisions.

Assessing and Disclosing the Evolving Impact of COVID-19

The Division recognizes that assessing the evolving effects of COVID-19 and related risks is a facts and circumstances analysis.  Disclosure about these risks and effects should be specific to a company's situation.  The Disclosure Guidance sets forth a non-exhaustive list of questions companies should consider about how COVID-19 has impacted and will continue to impact the company's present and future operations.  These questions include:
  • How has COVID-19 impacted the company's financial condition and results of operations?
  • How has COVID-19 impacted the company's capital and financial resources, including its overall liquidity position and outlook?
  • How the company expects COVID-19 to affect its balance sheet assets and its ability to timely account for those assets?
  • Whether the company anticipates any material impairments (e.g., with respect to goodwill, intangible assets, long-lived assets, right of use assets and investment securities), increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on the company's financial statements?
  • Whether COVID-19-related circumstances such as remote work arrangements adversely affected the company's ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures?
  • Whether the company has experienced challenges in implementing its business continuity plans or whether it foresees requiring material expenditures or material resource constraints to do so?
  • Whether COVID-19 is expected to materially affect demand for the company's products and services?
  • Whether COVID-19 is anticipated to have a material adverse impact on the company's supply chain or the methods used to distribute its products or services?
  • Whether the company's operations will be materially impacted by any constraints or other impacts on the company's human capital resources and productivity?
  • Whether travel restrictions and border closures are expected to have a material impact on the company's ability to operate and achieve its business goals?
The Division encourages companies to provide disclosure that is tailored and provides material information about the impact of COVID-19 to investors that allows investors to evaluate the current and expected impact of COVID-19 through the eyes of management and that companies proactively revise and update disclosures as facts and circumstances change.

Refraining from Trading Prior to Dissemination of Material Non-public Information

The Division further points out that companies and insiders need to consider their market activities, including the issuance or purchase of securities, in light of their obligations under the federal securities laws.  The Division notes that when material non-public information has not been disclosed, companies and insiders should refrain from trading in the company's securities until such information has been broadly disseminated to the public.  Moreover, companies should keep in mind the requirements of Regulation FD and take necessary steps to avoid selective disclosure to investors and other market participants. 

Reporting Financial Results and Limited Non-GAAP Relief

The Division further recognizes that the evolving impact of COVID-19 may present a number of novel or complex accounting issues that, depending on the particular facts and circumstances, may take time to resolve.  For example, COVID-19 will likely make it more difficult for companies and their auditors to complete the work required to maintain timely filings, and the Division encourages companies to proactively address potential financial reporting issues earlier than usual.  In addition, the Division reminds companies of their obligations with respect to the presentation of non-GAAP financial measures and the Commission's recent guidance about performance metrics disclosure (which can be found here).  The Division notes that, to the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it would be appropriate to highlight the reasons why management finds the metric useful and how it helps investors assess the impact of COVID-19 on the company's financial position or results of operations.

In addition to exceptions to the non-GAAP reconciliation requirements that exist for forward-looking information under Regulation G and Regulation S-K Item 10(e) when a reconciliation is not practicable without unreasonable efforts, the Division provided some relief for reconciliation of historical non-GAAP disclosures. The Division stated that where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information or analysis to complete, the Division would not object to companies reconciling a non-GAAP financial measure to a preliminary GAAP result that either includes provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results.  The provisional amount or range should reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges.  The Division's position does not affect the requirements applicable to disclosures under Item 2.02 of Form 8-K and under Regulation S-K that a non-GAAP financial measure should not be disclosed more prominently than the most directly comparable GAAP financial measure or range of GAAP measures.  In addition, the position does not apply to filings where GAAP financial statements are required, such as filings on Form 10-K or 10-Q, companies should reconcile to GAAP results and not include provisional amounts or a range of estimated results.  In addition, to the extent that a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures in reliance on the above position, the company should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors, and not just to present a more favorable view of the company to investors.

Additional Guidance

The Division also acknowledges that many companies are facing operational and other challenges as a result of COVID-19 and that its guidance does not address all disclosure considerations relating to the impact of COVID-19.  The Division emphasizes that health and safety are the first priority and that, as is suggested by the Commission's relief and disclosure guidance, they should not be compromised to meet reporting requirements.  Finally, the Division notes that as the situation continues to evolve, it will provide additional guidance, if appropriate.  Companies and their representatives are encouraged to contact the Division with questions or if they believe there are additional areas where guidance or temporary relief may be necessary.

Questions can be asked by completing an online form and directing it to the appropriate office and requests for no-action, interpretive, or exemptive letters should continue to be made by online form.  Requests for interpretation or waiver of financial statements should be sent to DCAOLetters@sec.gov.

Finally, if you require general assistance or are not able to contact a Division staff member about a pending matter, please submit your request for assistance and contact information to CFEmergency@sec.gov.

We would like to thank Rodrigo Surcan in our New York office for his work on this article.


 

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