Client Alert: COVID-19 - SEC to provide filing relief in response to coronavirus concerns - 13 March 2020

The SEC announced that it will allow some companies an extended filing period to meet hardships that may arise from the spread of novel coronavirus while also reiterating best practices regarding transactions in company stock during periods of company crises.

The SEC announced that it will allow companies affected by the global spread of novel coronavirus (COVID-19) to delay certain filings by up to 45 days. An SEC press release announcing the availability of the conditional filing relief said the agency’s divisions and offices continue to monitor developments and could issue additional appropriate relief (Order Under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder, Release No. 34-88318, March 4, 2020).

"The health and safety of all participants in our markets is of paramount importance," said SEC Chairman Jay Clayton. "While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within required timeframes."

Time period and filing requirements. The Commission’s order stated that the time period for relief would run from March 1, 2020 through April 30, 2020, although the agency could extend the time period if developments warrant. The order suggested that the conditional relief to be granted to affected companies is an attempt to balance the hardships faced by companies affected by COVID-19 against investors’ need for timely, material disclosures from these companies.

The Commission established four conditions to invoking the available filing relief:

  • The company must state that its inability to meet the filing deadline arose because of COVID-19.
  • The company must furnish a Form 8-K or Form 6-K by the later of March 1, 2020 or the original filing deadline (the SEC’s press release initially said March 16, but the order has also been updated to reflect the March 16 date). The report must state basic information about why the company invoked the filing relief, including a brief statement of the reasons it could not meet the filing deadline, a statement of when the company plans to file the report, an appropriate risk factor, and documentation via an exhibit regarding why a report is delayed because of another’s inability to provide a required opinion, report, or certification.
  • The report must be filed no later than 45 days after the original deadline.
  • The company must state that it is relying on the Commission’s order granting conditional relief and state why it cannot timely file the report.

Proxies. A second component of the Commission’s order addresses the furnishing of proxy and information statements. The purpose of the relief to be granted is to deal with a situation in which a company is unable to deliver proxy materials because of disruptions in mail delivery due to COVID-19 in areas where its securities holders are located.

As a result, a company may invoke the Commission’s conditional relief if:

  • The company’s security holder has a mailing address in an area where mail delivery has been suspended due to COVID-19.
  • The company has made a good faith effort to furnish soliciting materials or information materials to an affected security holder in accordance with rules applicable to the delivery of soliciting and information materials.

Forms S-3 and S-8, other reports. Moreover, under an "Additional Information" statement within the SEC’s press release on the COVID-19 filing relief, affected companies will be considered current in their reporting regarding Forms S-3 and S-8 if they are current as of the first day of the relief period and file any report due during the relief period within 45 days of the filing deadline for the report. The Form S-3 relief also would apply to companies that have well-known seasoned issuer status, which partially depends on eligibility to use Form S-3. The Form S-8 relief also applies to the current public information eligibility requirements of Rule 144(c).

With respect to Exchange Act annual and quarterly reports for which relief has been granted under the Commission’s order, a company would have a due date 45 days after the filing deadline for the report and the company could rely on Exchange Act Rule 12b-25 in the event it cannot meet the extended due date.

General disclosure issues. The SEC’s press release offered some more generalized disclosure concerns for all companies. For one, companies that identify material COVID-19 risks should delay engaging in securities transactions with the public and take steps to ensure that their executives and other corporate insiders also refrain from initiating securities transactions until the company makes the material information available to investors.

The SEC’s admonition would appear to address the subject matter of congressional legislation that was prompted in part by reports that an Intel executive had allegedly sold company stock during a time when a cybersecurity vulnerability in an Intel chip had not yet been made public. Chairman Clayton has previously testified about the need for good corporate hygiene regarding corporate insiders’ stock transactions.

"How companies plan and respond to the events as they unfold can be material to an investment decision, and I urge companies to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements," said Clayton.

The press release also noted that COVID-19 disclosures should be made broadly and should not be selective in nature. Moreover, companies that provide forward-looking formation (e.g. known trends or uncertainties) could invoke the safe harbor contained in Exchange Act Section 21E.

Investment Management Division statement. The SEC’s Division of Investment Management also issued a statement on fund board meeting in-person attendance. Because of the COVID-19 crisis, the Division has extended certain relief for in-person meetings to "to cover all approvals and renewals (including material changes) of contracts, plans or arrangements under section 15(c) or rules 12b-1 or 15a-4(b)(2), as well as the selection of a fund’s independent public accountant pursuant to Section 32(a) where such accountant is not the same accountant as selected in the immediately preceding fiscal year."

The revised staff position is an extension of a February 2019 no-action letter issued by the Division to the Independent Directors Council that was more limited to "unforeseen or emergency circumstances." The revised position applies to board meetings held between the date of this update and June 15, 2020.

The Division also said it would monitor developments and could extend the new position with additional conditions, as needed. The Division further urged funds to evaluate their business continuity plans and valuation procedures.

SEC assistance; executive signatures. The SEC said it would work with companies on a case-by-case basis to address the need for additional or different forms of assistance. Specifically, the SEC said companies should contact SEC staff regarding any issues that may arise due to a company executive being unable to sign documents because they are located in a quarantine zone.

Other COVID-19 developments. The World Health Organization reported as of today that globally there are 93,090 confirmed cases of COVID-19. Most of these cases and related deaths have occurred in China, but there is a growing number of confirmed cases outside of China (12,668). COVID-19 has been detected in 76 countries, including the U.S.

Meanwhile, the House passed legislation by a vote of 415-2 to provide additional funding to combat COVID-19 (H.R. 6074). The bill would authorize emergency supplemental appropriations for FY 2020. A press release issued by House Appropriations Committee Chairwoman Nita Lowey (D-NY) said the bill contains $8.3 billion in funds for vaccine and related research, loans to affected small businesses, procurement of medicines, and overseas prevention and response. The bill also contains $950 million for state and local health authorities.

Although the Commission’s order did not mention it, the type of relief being granted (extended filing deadlines) is similar to relief the SEC has provided for companies affected by recent hurricanes. Moreover, appropriations legislation in 2018 expanded the SEC's Advocate for Small Business Capital Formation’s duties to include the needs of small businesses affected by hurricanes or other natural disasters.


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