This newsletter provides a snapshot of the principal US and selected global governance and securities law developments during the first quarter of 2015 that may be of interest to Latin American corporations and financial institutions.
US DEVELOPMENTS
SEC Developments NYSE Amends Late Filer Rule
Effective 2 March 2015, the New York Stock Exchange (the "NYSE") amended its rules applicable to NYSE listed companies that do not timely file their periodic reports with the US Securities and Exchange Commission ("SEC").
Previously, a listed company was deemed noncompliant with the NYSE's late filer rule and subjected to a maximum 12-month cure period only if it failed to timely file its annual report on Form 10-K, Form 20-F or Form 40-F, as applicable. Under the late filer rule as recently amended, however, the NYSE will also subject a listed company to these procedures if (i) it fails to timely file its quarterly report on Form 10-Q (for US domestic issuers) or (ii) an annual report or Form 10-Q is defective in certain material respects.
The specific changes to the NYSE's late filer rule include:
- The rule as amended has expanded to cover quarterly reports on Form 10-Q in addition to annual reports (Forms 10-K, 20-F, 40-F or N-CSR). Accordingly, any listed company that fails to file a quarterly or annual report by the date on which it is due to be filed with the SEC will be subject to the compliance procedures set forth in Section 802.01E of the NYSE Listed Company Manual.
- The rule as amended has expanded to cover annual or quarterly reports that are deemed to be defective either at the time of their filing with the SEC or subsequently. Among the reasons that a periodic report may be deemed defective are: (i) an annual report that was filed without a financial statement audit report from its independent auditor for any or all periods included in the report, (ii) a company's independent auditor subsequently withdraws its audit report from a previously filed report or (iii) a company discloses that previously filed financial statements should no longer be relied upon. If a listed company's periodic report is deemed to be defective for one of the foregoing reasons, such company will be subject to the compliance procedures set forth in Section 802.01E of the NYSE Listed Company Manual.
- Listed companies will have a maximum of 12 months to cure a delinquent or defective filing and regain compliance. In order to be deemed back in compliance, listed companies must have cured the initial delinquent or defective filing and be current with all subsequent filings within the maximum 12 month cure period.
The NYSE's notification to NYSE listed company executives can be found here:
https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_Late_Filer_Rule_20150305.pdf.
Flexibility for Debt Refinancings—New SEC No-Action Letter
On 23 January 2015, the SEC staff issued a no action letter that will allow some companies to refinance their debt using tender and exchange offers shorter than the 20 business days required in the SEC tender offer rules. The letter extends to high-yield debt tender offers and to exchange offers pre-existing guidance that allowed shorter tender offers for investment grade debt. The letter also imposes a number of new limitations on and requirements for shorter tender offers.
The no-action letter gives limited relief from the 20-business day requirement for "any and all" self-tenders for non-convertible debt, but partial tenders do not benefit. Tenders as part of restructurings and tenders with exit consents will also not benefit.
Previous no-action letters allowed 7-10 calendar day issuer self-tenders for any and all non-convertible investment grade debt securities. The new no-action letter uses five business days instead, but adds a number of new requirements and limitations.
The no-action letter allows five business day self-tenders for any and all non-convertible debt securities subject to the same restrictions as investment grade debt. However, high-yield debt issuers that want to use the shorter tender period will not be able to strip covenants with a concurrent consent solicitation.
Five-business day exchange offers are now possible for a pure refinancing where the type and features of the debt do not change.
The no-action letter is available at:
Our related client publication is available at:
SEC Charges Corporate Insiders for Failing to Update Disclosures Involving "Going Private" Transactions
US securities laws require beneficial owners of more than 5% of the stock of a public reporting company to promptly file an amendment when there is a material change in the facts previously reported by them on Schedule 13D, commonly referred to as a "beneficial ownership report." The disclosure requirements include plans or proposals that would result in certain transactions, such as a going private transaction.
On 13 March 2015, the SEC charged eight officers, directors or major shareholders for failing to update their stock ownership disclosures to reflect material changes, including steps to take the companies private. Each of the respondents, without admitting or denying the SEC's allegations, agreed to settle the proceedings by paying a financial penalty.
While an acquisition or disposition of 1% or more of the stock of an issuer is deemed to be a "material" change in the facts set forth in Schedule 13D requiring an amendment, the SEC's orders make clear its position that an amendment is also required in order to update qualitative disclosures regarding the beneficial owner's plans for its investment. In particular, the SEC has stated that generic disclosures that simply reserve the right to engage in certain corporate transactions do not suffice when there are material changes to those plans, including actions to take a company private.
The SEC's orders find that the respondents took steps to advance undisclosed plans to effect going private transactions. Some determined the form of the transaction to take the company private, obtained waivers from preferred shareholders and assisted with shareholder vote projections, while others informed company management of their intention to privatize the company and formed a consortium of shareholders to participate in the going private transaction. As described in the SEC orders, each respective respondent took a series of significant steps that, when viewed together, resulted in a material change from the disclosures that each had previously made in their Schedule 13D filings.
Public companies and other filers should make certain that they have robust policies and procedures in place to ensure that their filings comply with all applicable SEC disclosure requirements and are made within the required deadlines. Companies should also have policies requiring compliance with reporting obligations by their officers, directors and major shareholders, particularly if the company has agreed to provide assistance to insiders. Public companies should view the announcement of these enforcement actions as an opportunity to remind their officers, directors and major shareholders of their reporting obligations.
The related SEC press release is available at:
http://www.sec.gov/news/pressrelease/2015-47.html.
Securities Enforcement 2014 Year-End Review and Focus for 2015
In March 2015, in testimony before the US Congress, the Director of the SEC's Division of Enforcement outlined the SEC's enforcement priorities, which include the following:
- financial reporting, accounting and disclosure;
- investment advisers;
- market structure, exchanges and broker-dealers;
- municipal securities and public pensions;
- insider trading;
- microcap fraud/pyramid schemes;
- complex financial instruments;
- gatekeepers; and
- the Foreign Corrupt Practices Act ("FCPA").
For further information, the Director's testimony can be found here:
http://www.sec.gov/news/testimony/031915-test.html.
In January 2015, we published our Securities Enforcement 2014 Year-End Review.
Fiscal year 2014 proved to be another eventful and record-breaking year for the SEC's Division of Enforcement. Indeed, the SEC recently described the fiscal year, which ended on 30 September 2014, as a "very strong year" for enforcement, and by certain measures it certainly was. This description of the SEC's performance and approach, however, is not without controversy as various aspects of the SEC's enforcement approach have been criticised in some quarters, including by certain of the SEC's own commissioners.
Our Securities Enforcement 2014 Year-End Review is available at:
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
