SEC Responses to COVID-19
Kelley Drye Client Advisory
March 26, 2020
The U.S. Securities and Exchange Commission (the “SEC”) continues to provide tailored responses as it helps public companies navigate the uncertainties arising under COVID-19.  Below is a summary of some of the SEC’s COVID-19 responses as they pertain to:  (1) filing extensions and delivery relief for public companies; (2) filing extensions and delivery relief for investment companies and investment advisers; (3) virtual annual meetings; (4) COVID-19’s impact on a public company’s disclosure documents; and (5) COVID-19’s impact on the SEC’s access applications requiring notarization.
 

Filing Extensions and Delivery Relief for Public Companies

Filing Extensions for Public Companies
On March 4, 2020, the SEC provided conditional regulatory relief in the form of filing extensions and delivery relief for public companies and public investment companies that have filing deadlines in between March 1, 2020 and July 1, 2020.

For annual and quarterly reports, a company that receives an extension for filing Exchange Act quarterly reports or annual reports will have a due date of 45 days after the report’s filing deadline.  Additionally, these companies will be permitted to rely on Rule 12b-25 if they are unable to file required reports on or before the extended due date.

To qualify for the filing extension, a company must submit a Form 8-K (or, if applicable, a Form 6-K) by the later of March 16, 2020 or the original filing deadline, stating:

  1. That it is relying on the filing extension;

  2. Why it was unable to file such report, schedule or form on a timely basis (as it relates to COVID-19);

  3. An estimate of when the report, schedule or form can be filed;

  4. A risk factor explaining the impact of COVID-19 on its business; and

  5. If the report cannot be timely filed due to the inability of any person, other than the company, to furnish a required opinion, report or certification, then, a signed statement of such person stating the specific reasons why they are unable to furnish the required opinion, report or certification, on or before the date the report, must be filed.

For Form S-3 and Form S-8 eligibility, a company that relies on the SEC’s filing extension will be considered current and timely in its Exchange Act filings if it was current and timely as of the first day of the relief period and if it files any report during the relief period within 45 days of the report’s filing deadline.
 
Delivery Relief for Public Companies
Public companies have relief from delivering annual reports, proxy statements and information statements. The companies must be able to show the following:  the security holder has a mailing address located in an area where common carriers have suspended delivery of the type or class the public company customarily uses, and the public company has made a good faith effort to deliver the soliciting and information materials to the security holder.
 
 

Filing Extensions and Delivery Relief for Investment Companies and Investment Advisers

On March 13, 2020, the SEC provided conditional regulatory relief in the form of filing extensions and delivery relief for investment companies and investment advisers.
 
Filing Extensions for Investment Companies
Registered management investment companies, business development companies, and any investment adviser or principal underwriter of such companies have relief from certain agreements, plans or arrangements requiring the board of directors’ approval through an in-person meeting. The relief’s effective period is March 13, 2020 through August 15, 2020.

Conditions:  The alternative meeting must allow all board of director members to participate. The board of directors, including the majority of disinterested directors, must ratify the action taken pursuant to exemption by vote cast at the next in-person meeting.

Registered management investment companies and unit investment trusts have relief for their Form N-CEN and Form N-PORT filing deadlines. The relief’s effective period is March 13, 2020 through June 30, 2020.  The companies need to make their filings as soon as practicable but no later than 45 days after the original due date.

Conditions:  The companies must promptly email IM-EmergencyRelief@sec.gov stating that they are relying on the filing extension. The companies must post that they are relying on the filing extension on their public website. The Form N-CEN and Form N-PORT filed pursuant to the filing extension must state why the company was not able to file on a timely basis due to COVID-19.

Registered management investment companies and unit investment trusts have relief for their annual and semi-annual report transmittal deadlines. The relief’s effective period is March 13, 2020 through June 30, 2020. The companies need to make their transmittals as soon as practicable but no later than 45 days after the original due date and file the report within 10 days of transmission to its shareholders.

Conditions:  The companies must promptly email IM-EmergencyRelief@sec.gov stating that they are relying on the filing extension. The companies must post that they are relying on the filing extension on their public website.

Registered closed-end investment companies and business development companies have relief from the requirement to file Form N-23C-2 at least 30 days prior to calling or redeeming securities. The relief’s effective period is March 13, 2020 through August 15, 2020.

Conditions:  The companies must promptly email IM-EmergencyRelief@sec.gov stating that they are relying on the filing extension. The companies must ensure that filing of notice under an abbreviated timeframe is permitted under their relevant state law and their corporate documents. The filed notice must contain all information regarding the call or redemption of securities, the commencement of any offering of replacement securities and notification to the existing shareholders whose securities are being called or redeemed.
 
Delivery Relief for Investment Companies
The SEC will not provide a basis for an enforcement action if registered management investment companies do not deliver their current prospectus to investors. The relief’s effective period is March 25, 2020 through June 30, 2020. The companies need to make deliveries as soon as practicable but no later than 45 days after the original due date.

Conditions:  The companies must promptly email IM-EmergencyRelief@sec.gov stating that they are relying on the delivery extension. The companies must post that they are relying on the delivery extension on their public website. The companies must post their current prospectus on their public website.
 
Filing Extensions and Delivery Relief for Investment Advisers
Registered investment advisers and private fund advisers have relief from the filing and delivery requirements. The relief’s effective period is March 13, 2020 through June 30, 2020.  The companies will need to make their filing or delivery, as applicable, as soon as practicable but no later than 45 days after the original due date. The filing and delivery relief is specified below:
 
  • Registered investment advisers and exempt reporting advisers from requirements to file an amendment to Form ADV or file reports on Form ADV Part 1A, respectively;

  • Registered investment advisers from requirements to deliver amended brochures, brochure supplements or summary of material changes to clients where the disclosures are not able to be timely delivered; and

  • Private fund advisers from Form PF filing requirements

Conditions:  The advisers must promptly email IARDLive@sec.gov. The advisers must post that they are relying on the filing/delivery extension on their public website. If the adviser does not have a public website, it must still notify its client base.
 
 

Annual Meetings of Shareholders

On March 13, 2020, the SEC provided guidance to assist public companies, public investment companies and shareholders with their upcoming annual meetings.  Public companies that have already filed their proxy materials seeking to change the date and location of their annual meetings in connection with adjournments, postponements and switching to “virtual” shareholder meetings, can announce these changes via press release and in their SEC filings, by filing the announcement as definitive additional soliciting material, but need not mail such announcements or revised proxy materials to shareholders. These companies may also provide their shareholders with alternative means, such as telephone, to present their proposals at annual meetings.

Whether a company can hold a virtual shareholder meeting depends on the laws of its state of formation and its organizational documents. For example, the Delaware General Corporation Law permits virtual meetings, but the New York Business Corporation Law is less clear on the subject. However, on March 20, 2020, New York’s Governor Andrew Cuomo signed Executive Order No. 202.8 (the “Executive Order”) temporarily permitting New York corporations (through April 19, 2020) to hold virtual annual meetings. The Executive Order temporarily suspends Section 602(a) and Sections 605(a) and (b) of New York’s Business Corporation Law to the extent these sections require notice of shareholder meetings and shareholder meetings’ physical locations.

Glass Lewis, a prominent proxy advisory service, provided an update on March 19, 2020 regarding its policy on virtual shareholder meetings: “For companies opting to hold a virtual-only shareholder meeting due to COVID-19 between March 1, 2020 and June 30, 2020, we will generally refrain from recommending to vote against members of the governance committee on this basis, provided that the company discloses, at a minimum, its rationale for doing so, including citing COVID-19.”
 
 

COVID-19’s Impact on a Public Company’s Disclosure Documents

In filing SEC disclosures, public companies must consider COVID-19’s impact.  Here are some guidelines with respect to drafting SEC disclosures in both quarterly and annual filings:
 
  • MD&A:  SEC reporting companies must comply with Rule 303 of Regulation S-K, which requires disclosure of known trends that have had or that the company reasonably expects to have a material favorable or unfavorable impact on its net sales or revenues.
    • Action Item: Companies should make sure that their SEC disclosures are complete and correct by examining their management teams’ COVID-19 contingency plans, and should also make sure that their contingency plans are disclosed in their MD&A sections.
 
  • Risk Factors:  SEC guidance requires risk factors to be precise and “tailored” to the reporting company’s particular facts and circumstances.
    • Action Item: Companies should review the geographic locations of their operations affected by COVID-19 and COVID-19’s effect on the company’s supply chains and logistics, as well as any effects on its workforce.  Since it is very unlikely that COVID-19 will affect two companies in the same manner, companies should avoid general risk factors.
 
  • Forward-Looking Statements:  Section 27A of the Securities Act and Section 21E of the Exchange Act allow companies to include “safe harbor” language in their SEC disclosure documents to reduce their potential liability for “forward looking statements” if they identify the cautionary factors that might cause their forward-looking statements to be materially inaccurate.
    • Action Item: Companies should include COVID-19 as a cautionary factor in their forward-looking statements.
 
 

COVID-19’s Impact on the SEC’s Access Applications Requiring Notarization

For companies and individuals seeking initial access to file with the SEC on EDGAR, COVID-19 may affect their ability to meet the notarization requirements for Form ID, the electronic application that all new filers must submit to obtain electronic filing codes, and other access applications that require notarization. The SEC has asked these filers to contact Filer Support at (202) 551-8900 Option 3 (Filer Technical Support).