SEC Provides Conditional Relief for Filing Deadlines as a Result of Coronavirus
In response to the coronavirus (“COVID-19”) pandemic, the U.S. Securities and Exchange Commission (the “SEC”) has taken action to alleviate the regulatory burden imposed on companies affected by COVID-19. Among the steps the SEC has taken in response to COVID-19 is a conditional extension to filing deadlines for certain disclosure reports that would otherwise have been due on or before July 1, 2020. These include reports on Forms 8-K, 10-Q and 10-K under the Securities Exchange Act of 1934 (the “Exchange Act”). A 45-day extension of the original due date is available to companies whose ability to meet their filing deadline has been hampered by the virus if those companies file a current report on Form 8-K disclosing the fact that they are seeking the relief, the reasons why they are unable to meet the deadline due to COVID-19, and, if applicable, a risk factor explaining a material impact COVID-19 has on their business. To be eligible, a company must file this Form 8-K by the original filing deadline for the periodic report. Companies that receive an extension will have a due date for filing the periodic report of 45 days after the original filing deadline for the report.
The SEC has also clarified that the use of this regulatory relief will not affect the company’s current reporting status for the purposes of determining their eligibility to use registration statements on Form S-3 and Form S-8 as well as the Rule 144 safe harbor. Security holders of companies that are otherwise current in their Exchange Act reporting can therefore continue to rely on Rule 144 for the sale of their securities. Additionally, companies that have filed or are planning to file registration statements on Form S-3 or Form S-8 will remain eligible to use those registration statements notwithstanding the filing extension, if they have otherwise been current in their Exchange Act reporting obligations.
In addition to regulatory relief, the SEC has provided guidance on the actions companies and their affiliates should (and should not) be taking during the COVID-19 outbreak. The SEC has advised that where a company has become aware of a material risk related to COVID-19, it should refrain from engaging in securities transactions and take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been sufficiently informed about the risk. This guidance arises from Rule 10b-5 under the Exchange Act, which provides that it is unlawful to employ a fraudulent device or contrivance in connection with a securities transaction, and related prohibitions on insider trading based on material non-public information. To avoid a potential Rule 10b-5 violation, companies should disclose material risks arising from COVID-19 that have or may adversely affect their business, and allow the public ample time to process this information once it is disclosed. One strategy companies can use to mitigate the risk of non-compliance with Rule 10b-5 is to implement and enforce an insider trading policy, which imposes timing restrictions on when company insiders can engage in securities transactions based on the filing of Exchange Act reports, and implement an event specific blackout period if insiders have material non-public information, including information related to the effects of COVID-19 on their business.
If you have any questions about the securities laws or other legal implications of COVID-19 for you or your business, please contact the Nason Yeager team. We are here to help in navigating through these difficult and unprecedented times.