SEC Provides Conditional Regulatory Relief for Public Companies Impacted by Coronavirus (COVID-19)
The Securities and Exchange Commission recently announced that it is providing conditional regulatory relief to public companies impacted by the recent outbreak of coronavirus disease 2019 (COVID-19).
Filing Extensions for Certain Exchange Act Reports
The SEC issued an order providing that, upon the satisfaction of certain conditions, public companies that are unable to meet reporting deadlines for certain Securities Exchange Act reports (e.g., Forms 10-K and 20-F) due to the impact COVID-19 will have an additional 45 days to file such reports that would otherwise have been due within the period from and including March 1, 2020 to April 30, 2020. Companies may qualify for relief under the SEC’s order by filing a Form 8-K or Form 6-K, as applicable, by the later of March 16 or the original filing deadline of the report stating:
- that the company is relying on the SEC’s order;
- a brief description of the reasons the company could not file such report, schedule or form on a timely basis;
- the estimated date the report, schedule or form is expected to be filed;
- if appropriate, a risk factor explaining, if material, the impact of COVID-19 on the company’s business; and
- if the report is delayed due 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 shall have attached as an exhibit a statement signed by such person stating the specific reasons for the delay.
Furthermore, the company must file with the SEC any report, schedule or form required to be filed no later than 45 days after the original due date. Companies meeting these conditions will not be considered to have late filings for purposes of eligibility for registration statements and SEC rules that require timely filings.
Delay of Annual Meeting and Virtual Meetings
Change in Annual Meeting Time, Date or Location
The SEC also provided guidance to assist companies affected by COVID-19 with meeting their obligations under the federal proxy rules and annual meetings required under state law. The SEC has taken the position that a company that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of its annual meeting without mailing additional soliciting materials or amending such proxy materials if it takes the following actions:
- issues a press release announcing such change;
- files the announcement as definitive additional soliciting material on EDGAR; and
- takes all reasonable steps necessary to inform other intermediaries in the proxy process and other relevant market participants of such change.
This is expected to save companies time and money. In addition, the SEC noted that companies that have not yet mailed and filed their definitive proxy materials should consider including disclosures addressing the possibility that the date, time or location of their annual meeting may change due to COVID-19. Companies should make sure that any actions they take regarding delaying meetings comply with applicable state or local law and their charter documents.
Virtual Shareholder Meetings
Public companies that intend to conduct "virtual" or "hybrid" annual meetings must provide notice of such intent through the proxy process. This notice must be delivered in a timely manner and must clearly describe each company’s plan for the virtual meeting, including how shareholders can remotely access, participate in, and vote in such meeting. For companies that have not yet filed and delivered their definitive proxy materials, disclosure regarding a virtual meeting should be in the definitive proxy statement and other soliciting materials. However, under the SEC’s guidance, companies that have already filed and mailed their definitive proxy materials will not need to mail additional soliciting materials (including new proxy cards) solely for switching to a virtual meeting if they follow the same actions listed above as required for announcing a change in the meeting date, time, or location of the annual meeting. As noted above, companies should check state and local law and their charter documents when considering any changes regarding virtual meetings.
Furthermore, due to the impact of COVID-19 on shareholder proponents’ ability to attend annual meetings and present their proposals in person, the SEC guidance encourages (but does not require) companies, to the extent feasible under state law or in their organizational documents, to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2020 proxy season.
In addition, the SEC would consider a shareholder proponent or representative’s inability to attend an annual meeting and present a proposal due to travel issues or other hardships relating to COVID-19 as "good cause" under Rule 14a-8(h), should the company assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.
Impact of COVID-19 on Disclosure in SEC Filings
As the fallout from COVID-19 continues to expand, companies must prepare to report on the business impact of, and risks posed by, COVID-19. While it is too early to know the full extent of COVID-19’s impact on business operations, there are several areas companies should be prepared to address in their public filings. For example, companies should anticipate the extent to which COVID-19 will strain their cash holdings or cause them to access any reserves. In addition, companies may need to review their existing credit facilities and debt instruments to ensure they have access to cash and the credit and debt markets and won’t be in default. Companies should also consider the impacts on their customers, employees and other constituents, any of which may be material to investors. Furthermore, any risks or known trends or uncertainties posed to a reporting company by COVID-19 should be covered in the company’s public filings, including in the company’s Exchange Act filings or registration statements in sections such as risk factors, liquidity and capital resources, business descriptions and elsewhere in management’s discussion and analysis of financial condition and results of operations.
The SEC has also reminded companies that 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 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. Further, when companies do disclose material information related to the impacts of COVID-19, the SEC has reminded them to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate. The SEC also reminded companies of the ability to take advantage of the safe harbor for any forward-looking statements if they provide disclosures about known trends or uncertainties regarding COVID-19.
We expect the SEC to continue to provide relief and guidance during this challenging time. In the meantime, the SEC has also announced that it is extending public comment periods on pending rulemaking initiatives and we expect they will move slowly in finalizing any new rules until the COVID-19 pandemic is in remission.
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If you would like further information regarding the above referenced SEC order or guidance or regarding disclosures about the impact of COVID-19, please contact the lawyer at Sullivan & Worcester with whom you regularly consult, or any of the lawyers listed above.