The SEC Addresses COVID-19 Disclosure Requirements – Securities Lawyer 101


COVID-19 Disclosure Requirements

The SEC Addresses COVID-19 Disclosure Requirements

Earlier this month, the Securities and Exchange Commission (the “SEC”) addressed COVID-19 disclosure requirements in a release reminding companies subject to the SEC’s reporting requirements of their disclosure obligations regarding their assessment of, and plans for addressing, material risks to their business and operations. Issuers are encouraged to keep investors and the markets informed about how they’re affected by the current crisis, and how they plan to deal with it. The SEC also granted extensions to deadlines for certain filings and reports  including Form 10-K, Form 20-F and Form 10-Q by issuers impacted by COVID-19.

Companies engaged in fund raising should consider the impact of COVID-19 Disclosure Requirements in their offering materials. All issuers should consider COVID-19 disclosure requirements in their SEC filings and reports, and in communications to shareholders as well. Because the extent and severity of the COVID-19 outbreak is not yet known and is rapidly evolving, public companies must monitor and consider on an ongoing basis their SEC and investor disclosures, in light of the latest developments, and their potential impact on business and operations.

Risk Factor Disclosures

For companies materially impacted by the pandemic, COVID-19 disclosure requirements include disclosure in the “Risk Factors” sections of their periodic reports or offering materials. Accordingly, companies should closely review their operations in geographic areas highly affected by the virus, and the effect on supply chains and logistical considerations involving these affected areas. General disclosures that fail to reflect specific factual considerations will not sufficiently address the impact of COVID-19 for issuers materially impacted.

COVID-19 disclosure requirements in risk factors might include but are not limited to:

  • Delays and interruption of supply chains and distribution channels for extended and unknown periods of time, due to government-imposed quarantines, closures and other orders that restrict or prevent the movement of persons or products between different jurisdictions.
  • The impact of governmental orders and laws restricting or preventing the shipment of the company’s products from or into foreign jurisdictions.
  • The impact on the company if its employees, officers and directors are quarantined, and/or ill, which could cause labor shortages.
  • The company’s facilities could be disinfected and/or subject to closure in areas affected by the COVID-19 outbreak.
  • The Company’s suppliers, shippers, distributors and customers could encounter labor shortages and be subject to quarantine in areas affected by the COVID-19 outbreak, and be subject to closures of shipping, manufacturing and other facilities, warehouses, and logistics supply chains.
  • The company’s results of operations could be adversely affected due to the negative impact of COVID-19 on the economies in jurisdictions where the company operates and sells its products.
  • The company could be subject to increased costs to comply with regulatory requirements in areas affected by the COVID-19 outbreak.
  • The impact on the company’s business and operations should domestic or international travel be prevented or limited.

How companies respond to COVID-19 can be material to an investment decision, so they should 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 these unusual circumstances. When companies disclose material information related to the COVID-19, they should avoid selective disclosures. Depending on a company’s particular circumstances, it should revise previous disclosures if such information becomes materially inaccurate.

Insider Trading

The SEC also stated that if a company has become aware of a risk related to the COVID-19 that would be material to its investors, it should refrain from engaging in securities transactions with the public. Issuers should take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from engaging in such transactions until appropriate public disclosures are made.

Forward Looking Statements

Companies providing forward-looking information, including known trends or uncertainties regarding the COVID-19, should avail themselves of the safe harbor in Section 21E of the Exchange Act and address  COVID-19 disclosure requirements.

SEC Order Granting Extensions of the Due Date of SEC Filings and Reports

The SEC also announced that it had issued an order (the “SEC Order”) granting companies and others subject to SEC reporting obligations an additional 45 days to submit certain reports and other filings including Form 10-K, Form 20-F and Form 10-Q that would otherwise have been due between March 1 and April 30, 2020, if they are unable to meet a filing deadline because of COVID-19.

The SEC Order also provides relief from the obligations to provide proxy and information statements, annual reports, and other soliciting material to security holders under Exchange Act Sections 14(a) and (c) and Regulations 14A and 14C and Exchange Act Rule 14f1 if certain conditions are satisfied:

  • The company’s security holder has a mailing address located in an area where, as a result of COVID-19, the common carrier has suspended delivery service of the type or class customarily used by the company or other person making the solicitation; and
  • The company or other person making a solicitation has made a good faith effort to furnish the soliciting materials to the security holder, as required by the rules applicable to the particular method of delivering soliciting materials to the security holder, or, in the case of information statements and related materials, the company has made a good faith effort to furnish the information materials to the security holder in accordance with the rules applicable to information materials.

The press release accompanying the SEC Order states that, in connection with the Order, the SEC staff will take the following positions with respect to certain due dates and filing obligations under the Securities Act of 1933 and the Exchange Act:

Form S-3

For purposes of an issuer’s eligibility to use a  Form S-3 registration statement, a company relying on the SEC Order will be deemed current and timely in its Exchange Act filing requirements if (i) it was current and timely as of the first day of the SEC’s relief period, and (ii) the company files any report due during the relief period within 45 days of the filing deadline for the particular report.

Form S-8 and Rule 144(c) of the Securities Act

For purposes of eligibility to use Form S-8 and the current public information requirements of Rule 144(c), a company relying on the SEC Order will be considered to be current in its Exchange Act filing requirements if: (i) it was current as of the first day of the relief period, and (ii) the company files any report due during the relief period within 45 days of the filing deadline for the report.

Rule 12b-25 Extension

If a company satisfies the conditions to extend the filing date for a Form 10-K or Form 20-F annual report or a Form 10-Q quarterly report pursuant to the SEC Order, the SEC staff will consider the filing date for the report to be 45 days after the original filing deadline for the report. As a such, these companies may rely on Rule 12b-25 if they cannot file the required report on or before the extended due date provided by the SEC Order.

Hamilton & Associates Law Group, P.A. is issuing new guidance to help its clients identify and understand issues arising from COVID-19 Disclosure Requirements, address COVID-19’s potential effects on their businesses, and identify resources available to small private and public companies that have been harmed by COVID-19. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
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