Like many other US and global regulators, the SEC has undertaken a number of initiatives in recent days in an attempt to alleviate regulatory burdens and accommodate companies and other market participants as they navigate disruptions resulting from the COVID-19 crisis.  These initiatives are potentially helpful in as much as they alleviate filing burdens and provide useful guidance on corporate disclosure addressing the impact of the COVID-19 crisis on registrants and their business and prospects.

Guidance from the SEC Division of Corporation Finance: COVID-19 Disclosure Obligations

On March 25, 2020, the SEC Division of Corporation Finance announced its views regarding disclosure and other obligations with respect to the coronavirus disease (or  “COVID-19”).  In so doing, it enumerated key considerations for disclosing the impact that COVID-19 may have on a registrant’s business and operations https://www.sec.gov/corpfin/coronavirus-covid-19#_ftn7. Items which the SEC staff deemed particularly significant and highlighted in this guidance include the following:

• Financial Condition and Operations:  Registrants should consider the impacts of COVID-19 on their financial condition and results of operations, future operating results, and near- and long-term financial condition and future operations.
• Liquidity and Access to Capital:  Registrants should consider the impacts of COVID-19 on capital resources, liquidity position and outlook, access to capital and credit facilities, as well as the potential impact to any existing capital or credit facilities. Registrants should also consider any requirements to disclose uncertainties related to the ability to service debt or other financial obligations, access to debt markets and the need for new financing arrangements.
• Balance Sheet and Accounting:  Registrants should consider the impact of COVID-19 on their balance sheet, accurate and timely accounting of assets, any potential changes to judgments in determining the fair value of assets measured with either US GAAP or IFRS, and any changes in their accounting judgments that will or are reasonably like to impact financial statements.
• Material Impairments:  Registrants should consider whether they will incur any material impairments, or other expenses, including allowances for credit losses or restructuring charges.
• Teleworking:  Registrants should consider whether COVID-19-related alternative working arrangements, such as teleworking, have impacted their operations or financial reporting controls, and, if so, what changes in controls have occurred during the period that will impact registrants’ control over financial reporting and any related impact on worker productivity.
• Demand and Delivery of Products or Services: Registrants should consider whether COVID-19 has materially adversely impacted their supply chain to deliver or obtain products or services, the demand for these products or services, or the relationship between costs and revenues.
• Travel Restrictions: Registrants should consider any material impact of travel restrictions or border closures on their ability to operate and achieve business goals. 

The SEC guidance calls for disclosure to investors and other market participants which is tailored and provides sufficient information about the material impact of COVID-19 on the registrant so that investors can evaluate the current and expected future impact of COVID-19 through the eyes of company management.  The guidance notes that any such disclosure should be proactively revised and updated as this fluid situation evolves. Further, the SEC recommends that any language concerning forward-looking information should be tailored to ensure registrants maintain safe harbor eligibility for “forward-looking information” under Section 27A of the Securities Act, and Section 21E of the Exchange Act.

Material Non-Public Information.  The SEC guidance warns that if COVID-19 has materially affected the company or is expected to materially affect the company, the company and corporate insiders who are aware of that information should not trade in any securities of the company until that information is publicly disclosed.

Earnings Guidance.  The SEC staff also addresses circumstances where a registrant has a scheduled earnings release, but a GAAP financial measure is not available due to the impact of COVID-19 on that measure. In these situations, the SEC would not object to registrants reconciling non-GAAP financial measures to preliminary GAAP results. However, in any filings where GAAP financial statements are required, registrants should reconcile to GAAP results and should not include provisional amounts or a range of estimated results.

Registrants will need to review these disclosure considerations carefully, clearly communicate to any relevant parties the bar on trading while aware of material non-public information and work closely with their auditors and any other third parties necessary to furnish any necessary financial information, given the SEC’s guidance. The SEC guidance also reminds companies and their advisors that the Division of Corporation Finance has established a dedicated email address and team to respond to urgent inquiries during this period at cfemergency@sec.gov as well as an online form for submitting requests for guidance, available at:  https://www.sec.gov/forms/corp_fin_interpretive.

Regulation S-T Relief for Filers in Light of COVID-19

Rule 302(b) Relief - Filing Certifications

On March 25, 2020, the SEC Division of Corporation Finance, Division of Investment Management, and the Division of Trading and Markets, announced conditional relief for filers subject to Rule 302(b) of Regulation S-T designed to facilitate obtaining the needed signatures for public SEC filings, which process -- typically an afterthought -- has become substantially more difficult during the current crisis (https://www.sec.gov/corpfin/announcement/staff-statement-regarding-rule-302b-regulation-s-t-light-covid-19-concerns). 

Until now, the SEC has required that registrants obtain and retain manual ink signatures for most disclosure documents and other reports which they file with the SEC electronically, even though a typed or “conformed” signature appears on the electronically filed version of the document.  In the announcement, the SEC acknowledges the validity of electronically signed documents.  However, Rule 302(b) of Regulation S-T provides that each signatory to documents electronically filed with the SEC “manually sign the signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing”.  This document must be executed before or at the time the electronic filing is made.  Filers must also retain the executed or authenticated document for a period of five years and furnish copies to the SEC upon request. Although uncommon, the SEC has previously engaged in enforcement actions against filers who failed to abide by this record-keeping requirement.

In the announcement, the SEC staff nevertheless indicates that it would not recommend enforcement actions against filers if: (1) a signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b); (2) such document indicates the date and time when the signature was executed; and (3) the filer establishes and maintains policies and procedures governing this process. The SEC cites, by way of example, that if a mandatory signatory is working remotely, a signatory could execute a hard copy of the signature page remotely and hold that page for delivery to the filer upon returning to work.

The announcement separately states that a signatory may provide to the filer an electronic record, such as a photograph or pdf version, of such document when it is signed. This alternative is cast as a separate standalone method for relief, and it could be preferable for signatories who may not want to be responsible for maintaining manually executed documents in their home, in particular as the three-pronged standard outlined above requires delivery of any such documents by the signatory to the filer at a later date, without any discussion of the potential loss of those documents.

Irrespective of the method for relief elected, the SEC staff reiterates the expectation that all persons and entities subject to Regulation S-T comply with the requirements of Rule 302(b) to the fullest extent practicable based on their particular facts and circumstances. 

While this guidance pertains to a technical and administrative matter, in combination with other dispensations, it provides relief to parties struggling to comply with reporting and disclosure obligations under the current circumstances.

Rule 10 Relief - Form ID Notarization Requirement

On March 26, 2020, the SEC adopted a temporary  rule that provides relief from the notarization requirement on Form ID from through July 1, 2020, subject to certain conditions (https://www.sec.gov/rules/interim/2020/33-10768.pdf). 

In order to use the SEC’s EDGAR system to make filings, an applicant must first complete a Form ID application, which must be notarized pursuant to Rule 10 of Regulation S-T.  Through July 1, 2020, the SEC will create EDGAR accounts and issue EDGAR access codes on a manually signed document without the requisite notarization, provided the filer (1) indicates on the face of the document that it could not obtain the required notarization due to COVID-19 and (2) submits the notarized manually signed document within 90 days of the issuance of the codes.

This temporary rule should provide some relief for new filers, in particular for public companies and new directors as proxy season begins.

Extension of Regulatory Relief for Filing Deadlines for Publicly Traded Companies

On March 4, 2020, in one of the SEC’s earliest measure providing relief due to the COVID-19 crisis, the SEC issued an order granting registrants subject to the reporting requirements of Section 13(a) or 14(d) of the  Exchange Act (with certain exceptions) an additional 45 days to furnish such filings due between March 1 and April 30, 2020, provided that the registrant file a Current Report on Form 8-K (or Form 6-K) announcing, among other things, reliance on the order, no later than March 16, 2020 or the date when the timely filing would have been due.

On March 25, 2020, the SEC modified this order, extending the exemption to cover filings due on or before July 1, 2020.  However, the extension period remains 45 days from the original filing due date. As modified, the order now mandates that the Form 8-K (or Form 6-K) announcing reliance on the conditional exemption include a company-specific risk factor or factors explaining any material impact of COVID-19 on its business, https://www.sec.gov/rules/exorders/2020/34-88465.pdf. 

This modification should assist filers who previously believed they would not need to rely on the conditional relief but, in view of evolving conditions, now need to do so.

If you have questions about any of these measures or in complying your SEC reporting and compliance obligations as the COVID-19 crisis unfolds, please feel free to contact Walter Van Dorn, Toni Weinstein, Derek Swanson and Grant Levine or your usual contacts at Dentons.