This market trends article discusses capital markets and securities law in the time of COVID-19, which started in late 2019 and impacted the whole world in a matter of months, and explains how the U.S. Securities and Exchange Commission (the SEC) responded to address the effects of the pandemic, particularly on public companies. The article also highlights key Form 10-K and Form 10-Q matters, including risk factors, MD&A and financial statement issues and examines various financing alternatives for companies considering their options to bolster their capital structure.
For further practical guidance on public company reporting, see Periodic and Current Reporting Resource Kit. For additional information on SEC's response to COVID-19, see COVID-19 Update: SEC and Nasdaq Response and Updated SEC C&DIs, SEC's Conditional Reporting Relief and COVID-19 Disclosure Guidance: First Analysis, SEC Reporting Companies: Considering the Impact of the Coronavirus on Public Disclosure and Other Obligations: First Analysis, and COVID-19 Ramifications for Public Companies—SEC Disclosures, SEC Filings and Shareholder Meeting Logistics: First Analysis. For an overview of practical guidance on COVID-19 covering various practice areas, including capital markets, see Coronavirus (COVID-19) Resource Kit.
We are experiencing an unprecedented event, the coronavirus, or COVID-19, pandemic, which, in addition to the terrible human toll, has also led to an economic crisis. Companies that are subject to U.S. securities reporting requirements are navigating the challenges posed by the pandemic. Addressing these developments may pose distinct issues for companies, depending on their industry, their regional focus, their supply chains, and their personnel. Nonetheless, all reporting companies must tackle their duties to report on a timely basis about their financial results, their business and operations, and their future prospects. Doing so is especially difficult when there are so many uncertainties.
The SEC and the staff of the SEC (the SECStaff) have responded to the pandemic by acting promptly and providing reporting companies and other market participants with relief in the form of extensions to certain filing deadlines, alternative approaches to meeting certain paper filing requirements, and guidance regarding the types of qualitative and quantitative disclosures that the SEC and the markets generally require regarding the effects of the pandemic. This article summarizes many of the key actions taken by the SEC to address the effectsof the pandemic as well as the guidance provided by the SEC and the SEC Staff regarding disclosures and accounting matters. In many respects, the guidance from the SEC serves to remind reporting companies and their advisers of fundamental and longstanding disclosure principles: the need for timely disclosures that provide some transparency in order to promote market integrity; the importance of providing investors with insights through wellcrafted trend and forward-looking statements regarding the potential impact of material developments; and the need to avoid potentially misleading non-GAAP and key performance indicators in SEC filings and other investor-focused communications. While the events of the last few months are deeply unsettling, it should be a source of comfort that these underlying principles have served reporting companies well in providing a path forward as they communicate with stakeholders.
SEC Pronouncements
SEC Exemptive Order for Public Companies
On March 25, 2020, the SEC issued a new exemptive order (Public Company Order) under the Securities Exchange Act of 1934, as amended (Exchange Act) to provide relief to public companies and persons required to make filings with respect to public companies. The Public Company Order covers the period from March 1, 2020 to July 1, 2020 and superseded and extended an exemptive order that the SEC previously issued on March 4, 2020.
Under the Public Company Order, any public company that is unable to timely make a filing due to COVID-19 is given extra time, provided that the company otherwise complies with the order's provisions. Any company relying on the Public Company Order must furnish to the SEC a current report on Form 8-K or, if a foreign private issuer, on Form 6-K, no later than the original filing deadline for each filing that is delayed. This interim disclosure must state that the company is relying on the Public Company Order and briefly describe the reasons why the company could not file the report, schedule or form due during the relief period (Required Document) on a timely basis. In addition, the interim disclosure must state the estimated date by which the company expects to file the Required Document and include company-specific risk factors explaining the impact, if material, of COVID-19 on the company's business. If the Required Document cannot be timely filed because of the inability of a third person to furnish a necessary opinion, report or certification, the interim disclosure must attach as an exhibit a statement signed by the third person explaining the reason for the delay. The company relying on the Public Company Order must file the Required Document with the SEC no later than 45 days after its original due date and must disclose in the Required Document that the Public Company Order is being relied on and the reasons why it could not be filed on a timely basis.
Any company complying with the provisions of the Public Company Order will be considered current and timely in its Exchange Act filing requirements for purposes of eligibility to use Form S-3 or Form F-3 (and for purposes of wellknown seasoned issuer status), if it was current and timely as of the first day of the relief period and it files the Required Document within 45 days of its original filing deadline. A company relying on the Public Company Order will also be deemed to satisfy Form S-8 and Rule 144(c) requirements if it was current as of the first day of the relief period and it files the Required Document within 45 days of its original filing deadline.
It is important to remember that companies taking advantage of the relief provided by the Public Company Order must furnish a separate Form 8-K or 6-K for each Required Document that will not be timely filed. In addition, companies should keep in mind that they can also rely on Rule 12b- 25(17 CFR 240.12b-25) if they are unable to file a Form 10-K or 10-Q, or comparable reports filed by a foreign private issuer, on or before the extended due date.
The Public Company Order also provides relief relating to the obligations under the SEC's proxy rules to furnish materials to security holders when mail delivery is not possible, as long as certain conditions are satisfied. For this exemption to apply, those security holders must have a mailing address located in an area where the common carrier has suspended delivery of service of the type or class usually used for the solicitation as a result of COVID-19 and the company or other person making the solicitation must have made a good faith effort to furnish the soliciting materials to the security holder.
For detailed practical guidance on public company reporting, see Periodic and Current Reporting Resource Kit.
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Originally published May 28, 2020.
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