Extension of Filing Deadlines

As previously discussed in our March 17 legal update, the United States Securities and Exchange Commission (“SEC”) issued an exemptive order on March 4, 2020 that provides some relief to issuers (and other persons required to make filings with respect to such issuers) by granting them an additional forty-five (45) days to file disclosure materials that were otherwise due between March 1 and April 30, 2020.

In light of these continuing events, the SEC just issued a second order (the “Second Order”) on March 25 to extend its conditional regulatory relief for issuers to file disclosure reports that would have otherwise been due between March 1 and July 1, 2020.

For an issuer with a December 31 fiscal year end, the extended relief period now includes the filing date for such issuer's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020. For an issuer with a March 31 fiscal year end, the extended relief period now includes the filing date for such issuer's Annual Report on Form 10-K for the fiscal year ended March31, 2020.

It is important to note that the relief provided by the SEC does not extend to Schedule 13D filings, amendments to Schedule 13D filings and Section 16 filings (e.g., Form 3 and Form 4).

Requirements to Take Advantage of Extension

Issuers affected by COVID-19 who seek to rely on the SEC relief must furnish a Current Report on Form 8-K or, if eligible, a Report of Foreign Private Issuer on Form 6-K, by the original filing deadline of the report stating:

  • that it is relying on the Second 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 subject report cannot be filed timely relates to the inability of any person, other than the issuer, to furnish any required opinion, report or certification, the Form 8-K or Form 6-K shall have attached 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.

Any issuer relying on the Second Order would not need to file a Notification of Late Filing on Form 12b-25 if the report, schedule or form is filed within the time period prescribed by the Second Order. However, an issuer will be permitted to rely on Rule 12b-25 if it is unable to file the required report on or before the extended deadline.

The SEC intends to continue to monitor the current COVID situation and could, if circumstances warrant, potentially further extend the time period during which the exemptive relief applies.

Guidance on COVID-19 Related Disclosure Considerations

On March 25, 2020, the SEC also issued CF Disclosure Guidance: Topic No. 9 (the “Guidance”) to provide guidance to issuers regarding disclosure considerations and other securities law matters related to COVID-19.

The Guidance recognizes that the actual impact of COVID-19 will depend on many factors beyond an issuer's control and knowledge. However, the Guidance confirms that the impact of COVID-19 is material and encourages issuers to assess the effects that COVID-19 has had on their operations when considering the disclosures of related future developments and risks, including what management expects its future impact will be, how management is responding to evolving events, and how it is planning for COVID-19-related uncertainties.

Assessing and Disclosing the Evolving Impact of COVID-19

The Guidance provides a non-exhaustive list of questions for issuers to consider when assessing COVID-19-related effects and their disclosure obligations. These questions include:

  • Financial Condition and Results of Operation. 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?
  • Capital and Financial 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? Do you expect to disclose or incur any material COVID-19-related contingencies?
  • Balance Sheet and Assets. How do you expect COVID-19 to affect assets on your balance sheet and your ability to timely account for those assets?
  • Certain Accounting Judgments. 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?
  • Impact on Operations. 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. Do you expect COVID-19 to materially affect the demand for your products or services?
  • Supply and Distribution. 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?
  • Other Considerations. Will your operations be materially impacted by any constraints or other impacts on your human capital resources and productivity?

The Guidance encourages disclosure that is tailored and provides material information about the impact of COVID-19. It also encourages issuers to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management, and that issuers proactively revise and update disclosures as facts and circumstances change.

Reporting Earnings and Financial Results

The SEC noted in the Guidance that it recognized that the impact of COVID-19 on businesses may present a number of novel or complex accounting issues that, depending on the particular facts and circumstances, may take time to resolve. The SEC also encouraged issuers to proactively address financial reporting matters earlier than usual.

Due to these novel circumstances, the Guidance provides for a limited accommodation for certain non-GAAP financial measures that issuers may consider including in their upcoming earnings releases. This accommodation is limited to earnings releases, and does not extend to filings in which GAAP financial statements are required, including annual and quarterly reports. To the extent an issuer presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, the SEC encourages issuers to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the issuer's financial position and results of operations. 

Originally published 16 April, 2020

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.