SEC Clarifies Requirements of Virtual Annual Meetings, Issues Disclosure Guidance in Response to COVID-19 and Extends Filing Deadlines
April 6, 2020
As the effects of COVID-19 continue to be felt by companies, the Securities and Exchange Commission (the “SEC”) has been responding through various orders and guidance that provide insight to navigating company obligations in light of the continued and evolving effects of the virus. Notably, the SEC has clarified expectations surrounding annual meetings, issued guidance to aid companies in meeting reporting obligations and making adequate disclosures and extended the deadline for required filings.
Staff Guidance for Conducting Virtual Annual Meetings
Under SEC Press Release 2020-62 and “Staff Guidance for Conducting Annual Meetings in Light of COVID-19 Concerns” issued on March 13, (the “Staff Guidance”) the SEC clarified the requirements surrounding the holding of virtual annual meetings. The ability to conduct a virtual meeting is governed by state law where permitted, along with the governing documents of the issuer. To the extent that a company chooses to make use of a virtual meeting, the Staff Guidance requires adequate notice be provided to shareholders to facilitate informed shareholder voting. To ensure compliance with the adequate notice standard, companies should issue a press release, notify all relevant market participants and file an announcement on EDGAR. Foreign Private Issuers are permitted to continue to follow the practices of their home country with regard to the holding of their annual meeting.
Disclosure Guidance from the Division of Corporation Finance
Additionally, the Division of Corporation Finance (the “Division”) issued CF Disclosure Guidance: Topic No. 9, which provides the views of the Division on disclosures and other obligations with respect to COVID-19. The Division recognized that the effects of COVID-19 are unpredictable while also stating that these effects can be material to investment and voting decisions. The effects of COVID-19 on a particular company is a facts and circumstances inquiry and should be tailored to that particular company. The Division supplied a list of illustrative (though not exhaustive) questions that companies should use to consider their disclosure obligations with respect to the impact of COVID-19 on present and future operations. The questions are as follows:
- How has COVID-19 impacted your financial condition and results of operations? In light of changing trends and the overall economic outlook, how do you expect COVID-19 to impact your future operating results and near-and-long-term financial condition? Do you expect that COVID-19 will impact future operations differently than how it affected the current period?
- How has COVID-19 impacted your capital and financial resources, including your overall liquidity position and outlook? Has your cost of or access to capital and funding sources, such as revolving credit facilities or other sources changed, or is it reasonably likely to change? Have your sources or uses of cash otherwise been materially impacted? Is there a material uncertainty about your ongoing ability to meet the covenants of your credit agreements? If a material liquidity deficiency has been identified, what course of action has the company taken or proposed to take to remedy the deficiency? Consider the requirement to disclose known trends and uncertainties as it relates to your ability to service your debt or other financial obligations, access the debt markets, including commercial paper or other short-term financing arrangements, maturity mismatches between borrowing sources and the assets funded by those sources, changes in terms requested by counterparties, changes in the valuation of collateral, and counterparty or customer risk. Do you expect to disclose or incur any material COVID-19-related contingencies?
- How do you expect COVID-19 to affect assets on your balance sheet and your ability to timely account for those assets? For example, will there be significant changes in judgments in determining the fair-value of assets measured in accordance with U.S GAAP or IFRS?
- Do you anticipate any material impairments (e.g., with respect to goodwill, intangible assets, long-lived assets, right of use assets, 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 your financial statements?
- Have COVID-19-related circumstances such as remote work arrangements adversely affected your ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures? If so, what changes in your controls have occurred during the current period that materially affect or are reasonably likely to materially affect your internal control over financial reporting? What challenges do you anticipate in your ability to maintain these systems and controls?
- Have you experienced challenges in implementing your business continuity plans or do you foresee requiring material expenditures to do so? Do you face any material resource constraints in implementing these plans?
- Do you expect COVID-19 to materially affect the demand for your products or services
- Do you anticipate a material adverse impact of COVID-19 on your supply chain or the methods used to distribute your products or services? Do you expect the anticipated impact of COVID-19 to materially change the relationship between costs and revenues?
- Will your operations be materially impacted by any constraints or other impacts on your human capital resources and productivity?
- Are travel restrictions and border closures expected to have a material impact on your ability to operate and achieve your business goals?
The Updated Order
On March 25, the SEC issued “Order Under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies” (the “Updated Order”). The Updated Order modifies Release No. 34-88318, issued on March 4 (the “Order”), which granted certain companies a 45-day extension for certain filing deadlines.
The 45-Day Extension
Under the Updated Order, companies required to make filings between March 1 and July 1 have been granted a 45-day filing extension. Under the previous Order, this extension applied to those filings that had to be made between March 1 and April 30. To make proper use of this extension a registrant must still meet the criteria provided in the original Order, as outlined below.
Any registrant seeking to make use of this extension must:
- be unable to meet the original filing deadline due to circumstances related to COVID-19 (the coronavirus); and
- furnish a Form 8-K or 6-K as applicable to the SEC (for each delayed filing) by the original deadline for the relevant filing, which states the following:
- the registrant is relying on the Updated Order;
- a brief description of why the report cannot be filed within the original deadline;
- the estimated date of expected filing;
- a risk factor explaining the business impact of COVID-19 (if applicable); and
- if the inability to meet the original deadline is based on the inability of another party to furnish materials to the registrant, then that party must provide a statement, citing specific reasons why they are unable to furnish the materials on or before the original deadline, and this statement must be included as an exhibit;
- when the filing is made, the registrant must disclose that it is relying on the Updated Order and state the reasons why it could not make the filing within the original timeframe.
Furnishing of Proxy Statements, Annual Reports, Soliciting Materials and Information Statements
The Updated Order enforces the relief that was granted under the Order regarding the supplying of materials to investors. In circumstances where delivery is not possible, the SEC has granted an exemption from the requirements of the Exchange Act for the furnishing of proxy statements, annual reports, other soliciting materials, or information statements, as applicable.
The SEC noted in the Updated Order that further relief might be granted as the situation continues to evolve and more or modified relief is deemed necessary.
If you have any questions about this proposed rule changes or any other capital markets related issues, please contact your primary relationship attorney at Seward & Kissel LLP.
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