On March 25, 2020, the U.S. Securities and Exchange Commission issued an order (the “Order”) that extends the filing periods covered by its previously enacted conditional reporting relief for companies impacted by Coronavirus Disease 2019 (COVID-19). The Order provides companies impacted by COVID-19 with an additional 45 days to file certain disclosure reports and schedules that would otherwise have been due between March 1 and July 1, 2020, subject to certain conditions. In addition, the SEC’s Division of Corporation Finance expressed the staff’s current views regarding disclosure and securities law obligations (including insider trading obligations) that public companies should consider related to COVID-19.
The Order supersedes and extends the SEC’s original order issued on March 4, 2020 (the “Original Order”) discussed in our prior client alert found here. Under the Order, companies impacted by COVID-19 have an additional 45 days to file certain disclosure reports and schedules that would otherwise have been due between March 1 and July 1, 2020, subject to certain conditions. As was the case under the Original Order, companies that wish to avail themselves of this relief must:
- Be unable to meet a filing deadline due to circumstances related to COVID-19;
- File a Form 8-K or, if eligible, Form 6-K by the later of March 16 or the original filing deadline stating:
- that it is relying on the Order;
- a brief description of the reasons why it could not file such report, schedule or form on a timely basis;
- the estimated date by which the report, schedule or form is expected to be filed;
- if appropriate, a risk factor explaining, if material, the impact of COVID-19 on its business; and
- if the reason the applicable report cannot be filed timely relates to the inability of any person, other than the registrant, to furnish any required opinion, report or certification, the Form 8-K or Form 6-K attach as an exhibit a statement signed by such person stating the specific reasons why such person is unable to furnish the required opinion, report or certification on or before the date such report must be filed.
- that it is relying on the Order;
- File the applicable report, schedule or form no later than 45 days after the original due date; and
- Disclose in the applicable report, schedule or form that it is relying on the Order and state the reasons why it could not file such report, schedule or form on a timely basis.
The SEC’s Division of Corporation Finance also issued Disclosure Guidance Topic No. 9, providing the staff’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The guidance indicates that assessing the effects of COVID-19 and related risks is a facts and circumstances analysis, and disclosure about such effects and risks, and the company’s and management’s response, should be specific to a company’s situation. The staff encourages companies to provide disclosure that is tailored and provides material information about the impact of COVID-19 to investors and market participants, and to proactively update disclosure as circumstances change.
By way of illustration, the staff encouraged companies to consider questions about their present and future operations, including:
- Financial Condition and Results of Operations. 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?
- Liquidity and Capital Resources. 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?
- Balance Sheet Impacts. 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?
- Material Impairments. 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?
- Remote Working Environment. 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?
- Business Continuity Plans. 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?
- Demand for Products and Services. Do you expect COVID-19 to materially affect the demand for your products or services?
- Supply Chain Impacts. 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?
- Human Resources. Will your operations be materially impacted by any constraints or other impacts on your human capital resources and productivity?
- Travel and Border Issues. Are travel restrictions and border closures expected to have a material impact on your ability to operate and achieve your business goals?
The guidance also cautions against a company or its insiders trading in the company’s securities on the basis of material information related to COVID-19 until such information is broadly disseminated to the public. In addition, companies should consider whether to update previous disclosure if such disclosure becomes materially inaccurate.
In the SEC’s press release announcing the Order, SEC Chairman Jay Clayton noted that the SEC’s actions “provide temporary, targeted relief to issuers, investment funds and investment advisers affected by COVID-19,” while encouraging “public companies to provide current and forward-looking information to their investors.” In addition, the SEC continued to encourage affected companies or persons that require different or additional assistance in their securities law compliance efforts to contact SEC staff to address any issues on a case-by-case basis.
The SEC and other self-regulatory agencies, such as the Nasdaq Stock Market and New York Stock Exchange will continue to closely track developments and consider additional regulatory relief.
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