On December 8, 2011, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) announced a significant change in its policy relating to the review of registration statements of foreign issuers.1 Effective immediately, the new policy restricts the categories of foreign issuers eligible for the Staff's non-public review process for initial registration statements. As a result, most non-U.S. companies proposing to register with the SEC (unless they are already listed, or will concurrently be listing, in their home country) will have to file their initial registration statement, as well as all subsequent amendments, publicly through the SEC's EDGAR system, like U.S. companies.

Under its historical policy for non-public review, the Staff would accept the submission on a draft basis of the registration statement of any foreign government or foreign private issuer2 in connection with that issuer's initial registration with the SEC.3 The Staff would then engage in a review and comment process with a view to resolving any disclosure issues prior to the issuer's public filing of the registration statement. Under the new policy, this non-public process will no longer be available unless the issuer falls into one of the following categories:

  • a foreign government registering its debt securities;
  • a foreign private issuer that is listed or is concurrently listing its securities on a non-U.S. securities exchange;
  • a foreign private issuer that is being privatized by a foreign government; or
  • a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction.

In addition, the non-public review process is no longer available to shell companies, blank check companies and issuers with no or substantially no business operations, which would include special purpose acquisition companies (SPACs).

Moreover, the Staff notes that, under certain circumstances, it may request a foreign issuer to publicly file its registration statement even though it would generally be eligible under the new policy for a non-public review. As examples of such circumstances, the Staff mentions a competing bid in an acquisition transaction or in the event of publicity about a proposed offering or listing.

Significantly, the new policy will also affect foreign issuers that have already commenced a non-public review process in reliance on the former policy. While the Staff will continue to review on a non-public basis an issuer's submission received prior to the policy change, that issuer will have to file the next draft of its registration statement publicly through EDGAR, unless it falls into one of the categories of issuers that remain eligible for non-public review.

The new policy appears to have been prompted by a review by the Staff of the profile of the foreign issuers that have taken advantage of the non-public review process. The process was established in recognition of the unique circumstances often faced by foreign private issuers and foreign governments when accessing the U.S. markets. In particular, the Staff recognized the concerns of a foreign company whose securities trade publicly in a foreign market, when that company will be making new and different disclosure with the SEC. The non-public review and comment process is intended to afford such companies an opportunity to address and resolve sensitive disclosure issues prior to public filing. In its announcement, the Staff notes that the profile of foreign private issuers registering their securities with the SEC has changed over time, from a majority of companies with an existing or proposed listing on a foreign securities exchange, to a majority of companies that are not listed, and do not propose to list, outside the United States.

A foreign issuer contemplating its initial SEC registration should consider whether, under the new policy, it is still eligible for the non-public review process. If it is not eligible and would therefore have to file its registration statement publicly, the issuer should review with its advisors all of the implications of a public process, including whether the issuer and the draft registration statement are ready for public scrutiny. If the issuer is aware of specific disclosure, accounting or other issues, it should also consider addressing those issues through an informal pre-filing discussion with the Staff.

A foreign issuer that falls into one of the categories of issuers that are still permitted to take advantage of the non-public review process should keep in mind that the availability of the process is subject to change. As discussed above, the Staff has noted that certain circumstances in individual cases may cause it to request an issuer to file its registration statement publicly. In addition, the Staff has declared that it will continue to assess the non-public review process and may make further changes in the future. Moreover, any issuer that intends to submit its draft registration statement for non-public review should be aware that, until the registration statement has been publicly filed through EDGAR, the issuer will not be permitted under Section 5(c) of the Securities Act to make offers in the United States of the securities being registered.

Footnotes

1 Non-Public Submissions from Foreign Private Issuers, dated December 8, 2011 (available at http://www.sec.gov/divisions/corpfin/internatl/nonpublicsubmissions.htm ).

2 Under SEC rules, a "foreign private issuer" is any issuer organized under the laws of a non-U.S. jurisdiction unless (a) more than 50% of its outstanding voting securities are directly or indirectly owned of record by U.S. residents and (b) any of the following applies: (i) the majority of its executive officers or directors are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States, or (iii) its business is administered principally in the United States.

3 Neither the old policy nor the new policy applies to additional registration statements after an issuer's initial registration with the SEC, all of which must be publicly filed through EDGAR.

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