Under the U.S. federal securities laws and regulations of the Securities and Exchange Commission, U.S. public companies and foreign private issuers are subject to substantial disclosure requirements in their periodic reports required to be filed with the SEC. These reports have strict filing deadlines and the consequences for missing a deadline could have a wide range of impacts on a company, including with respect to its continued listing on a stock exchange, its ability to conduct securities offerings and its compliance with covenants under debt indentures or credit agreements, in addition to potential damage to its reputation in the market. Companies may find themselves facing an actual or potential late SEC filing for a wide variety of reasons, including restatements of financial statements, delays with obtaining requisite disclosure or accounting information from subsidiaries (particularly newly acquired entities), insufficient internal resources to prepare and file the requisite reports, or other extraordinary and unanticipated events. Some of these reasons are arguably within the company's control, but many are not and may occur with little or no advance warning. Accordingly, the legal and finance departments of a public company should be prepared to address the potential consequences of missing an SEC filing deadline in a very short timeframe, and the following is a checklist of the important issues that should be considered before a late SEC filing situation arises.
NOTIFICATION TO SEC OF INABILITY TO FILE ON TIME
If an annual report on Form 10-K or Form 20-F or a quarterly report on Form 10-Q is not filed within the required time period, the issuer must file with the SEC within one business day of the due date for the report a Form 12b25 (designated as an "NT 10-K", "NT 20-F" or "NT 10-Q", respectively, in the EDGAR filing system) disclosing its inability to file the report timely and the reason for the delay. If a Form 10-K, Form 20-F or Form 10-Q cannot be filed timely "without unreasonable effort or expense", the report will be deemed to have been filed as of the original filing due date if the company files a Form 12b-25 in a timely manner, and then files the required report not later than the 15th calendar day (for a Form 10-K or 20-F) or fifth calendar day (for a Form 10-Q) following the original due date for the report. However, if a company fails to file the required report within the extended time period, no further extensions will be available and the SEC will consider the company to be delinquent as of the original due date of such report. For instance, if a company misses the extended deadline for a Form 10-K by a day, the SEC will consider the company to be delinquent for 16 days, not just one day. Even if the company does not expect to be able to file the required SEC report within the extended Rule 12b-25 time period, it should file the Form 12b-25 and provide the disclosures required under that form.
Note that Rule 12b-25 filing extensions are not available for Form 8-K filings.
VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934 AND SEC ENFORCEMENT
The failure to file a required SEC report on time constitutes a violation of Section 13(a) of the Exchange Act and the SEC could suspend trading in the company's securities for up to 10 trading days or institute an administrative proceeding against the late filer, among other things, seeking revocation of the company's registration under the Exchange Act. These proceedings by the SEC are uncommon and are typically aimed at companies with recurring and egregious violations.
DISCLOSURE ISSUES AND INSIDER TRADING CONCERNS
Companies listed on the NYSE or NASDAQ are required by applicable stock exchange rules to issue a press release announcing the failure to file timely a periodic report with the SEC. Late filers typically file a Form 8-K under Item 8.01 (Other Events) or a Form 6-K reporting the late filing by attaching a copy of the press release. In addition, companies that receive a notice of delisting or failure to satisfy a continued listing rule or standard of a stock exchange must report receipt of the notice on Form 8-K under Item 3.01. As discussed below, the NYSE also strongly encourages companies to provide ongoing disclosure on the status of a delinquent annual or quarterly filing to the market through additional press releases.
Companies that have previously relied on Form S-3 or Form F-3 for shelf registrations and that have become ineligible to utilize Form S-3 or Form F-3 or to take down from an existing effective shelf registration on Form S3 or Form F-3 should consider whether disclosure of this change in Form S-3 or F-3 eligibility and ability to use an existing shelf registration should be included in future periodic reports (e.g., in the Liquidity and Capital Resources section of Management's Discussion & Analysis).
Of course, material information concerning the underlying reasons for a delinquent periodic report may raise disclosure issues under Rule 10b-5, the SEC rule that prohibits a person in possession of material nonpublic information about a company (including the company itself) from purchasing or selling that company's securities. If material nonpublic information concerning the reasons for a late SEC report is in the possession of the company or its officers and directors, company share repurchases and trading by officers and directors should be halted.
Senior management and investor relations departments are likely to face ongoing questions regarding the issues underlying a delinquent periodic report, as well as the company's timing for resolving those issues. It would be worth reminding those company personnel responding to such questions of the company's obligations under Regulation FD, which prohibits selective disclosure of material nonpublic information.
NYSE AND NASDAQ LISTING REQUIREMENTS
Companies listed on the NYSE or NASDAQ face possible delisting if they are delinquent in their SEC filings
NYSE. Applicable NYSE rules require companies to file annual reports on Form 10-K or Form 20-F and quarterly reports on Form 10-Q with the SEC in a timely manner or face possible delisting. In addition, under NYSE rules foreign private issuers are required to file a Form 6-K with semi-annual financial information as of and for the first six months of the fiscal year in English within six months after the end of the second fiscal quarter.
Under the NYSE's procedures for companies that fail to file timely their SEC reports, the NYSE will notify a late filer of its delinquent status, and within five days of receiving the notice, the company must contact the NYSE to discuss the status of the SEC report and issue a press release disclosing the status of the filing. If the company does not issue a press release, the NYSE itself will do so. The NYSE will also attach an ".LF" indicator to the company's ticker symbol to identify the delinquency and include the company on the late filer list posted on the NYSE website.
During the six-month period after the missed filing due date, the NYSE will monitor the company and the status of the delinquent filing, including through ongoing contact with the company, until the delinquent report is filed. If the company fails to file the delinquent report within six months after the filing due date, the NYSE may, in its sole discretion, allow the company's securities to be traded for up to an additional six-month period, depending on the company's specific circumstances. If the NYSE determines that an additional trading period of up to six months is not appropriate, it will commence suspension and delisting procedures.
In determining whether an additional trading period of up to six months is appropriate, the NYSE will consider the likelihood that the overdue filing can be made during the additional period, as well as the company's general financial status, based on information from a variety of sources, including the company, its audit committee, its outside auditors, the staff of the SEC and any other relevant regulatory body. The NYSE strongly encourages companies to provide ongoing disclosure to the market on the status of the annual report filing through press releases, and will also take the frequency and detail of such information into account in determining whether an additional six-month trading period is appropriate.
NYSE rules also provide that the failure of a company to make timely, adequate and accurate disclosures of information, including failure to file timely quarterly reports on Form 10-Q, may also result in similar delisting procedures. Note also that trading in any security can be suspended immediately, and application can be made to the SEC to delist the security, if the NYSE deems it necessary or appropriate in the public interest or for the protection of investors.
NASDAQ. Under applicable NASDAQ rules, listed companies must comply with SEC filing requirements. NASDAQ-listed companies face delisting for missed annual Form 10-K and Form 20-F filings as well as for missed quarterly Form 10-Q filings. Under NASDAQ rules, a foreign private issuer must also file a Form 6-K containing its interim balance sheet and income statement as of the end of its second fiscal quarter in English, no later than six months following the end of its second fiscal quarter. Failure to file this Form 6-K on time could also result in delisting.
NASDAQ's policy is to send a notification of deficiency and grant a delinquent filer the opportunity to submit a plan of compliance within 60 calendar days, although the time period may be shortened at the NASDAQ staff's discretion. NASDAQ staff may defer commencing delisting procedures for up to 180 calendar days from the due date of the periodic report for the company to evidence compliance. If the company fails to regain compliance by filing the missing report prior to the expiration of the grace period or if NASDAQ does not accept the plan of compliance, then NASDAQ will issue a staff determination letter that indicates that the company is subject to delisting. The delinquent filer may then request a hearing before a NASDAQ Hearings Panel within seven calendar days of receipt of the staff determination letter. If a company requests a hearing before the NASDAQ Hearings Panel, the delisting action will be automatically stayed for 15 calendar days starting from the end of the seven calendar day period. To obtain a longer stay period, the company must make a specific request to the NASDAQ Hearings Panel for the extension and explain why such a stay would be appropriate in the company's request for a hearing. The NASDAQ Hearings Panel may permit the company to remain listed for up to 360 calendar days from the due date of the company's first late filing. A company may appeal a NASDAQ Hearings Panel decision to the NASDAQ Listing and Hearing Review Counsel. However, an appeal does not stay the NASDAQ Hearings Panel's decision to delist the company's securities.
Companies that receive a notification of deficiency from NASDAQ are required to issue a press release announcing the receipt of NASDAQ's notification of deficiency and its basis. Failure to issue the press release within four business days of receipt of NASDAQ's notification of deficiency will result in the implementation of a trading halt.
NASDAQ will also append an additional character, "E", to the company's trading symbol to identify the filing delinquency until the company has fulfilled its filing obligations.
Companies facing delisting as a result of delinquent SEC filings are generally expected to provide to the NASDAQ Hearings Panel an estimated date by which they will become current with all their SEC filing obligations, together with a schedule of actions to be completed by the company and its auditors. The company should describe any expected adjustments or restatements relating to the financial statements contained in prior filings. The company should also provide copies of all public disclosures pertinent to the filing delinquency or the expected adjustments or restatements.
FORM S-3, FORM F-3 AND "WKSI" ELIGIBILITY
Form S-3 and Form F-3 are short-form registration statements that permit issuers to incorporate by reference to Exchange Act reports much of the information that would otherwise be required to be set forth in a long-form registration statement on Form S-1 or Form F-1. Form S-3 and Form F-3 are commonly used by seasoned issuers to put in place debt, equity or universal "shelf registrations" under which future securities offerings can be accomplished through "takedowns" from the shelf with relative speed. Among other eligibility requirements, in order to utilize Form S-3 or Form F-3, issuers must have timely filed all required reports (including annual reports on Forms 10-K and 20-F, quarterly reports on Form 10-Q and certain current reports on Form 8-K) under the Exchange Act during the twelve calendar months and any portion of a month immediately before the filing of the registration statement.
Thus, a Form S-3 or Form F-3 cannot be filed during the Rule 12b-25 grace period and if a company has missed a filing date for a Form 10-K, Form 20-F or Form 10-Q (and has not filed the report within the permitted Rule 12b25 grace period), absent a waiver from the SEC, it will not be eligible to file a Form S-3 or Form F-3 registration statement for at least twelve full calendar months from the original filing due date. In addition, issuers that qualified as Well Known Seasoned Issuers (WKSIs) would lose their WKSI status, which depends in part on meeting the Form S-3 or F-3 eligibility requirements, including the 12-month SEC filing timeliness requirement. For example, if a company missed its filing that was due on March 16 but filed all subsequent periodic reports on time, it will be eligible to use a Form S-3 or Form F-3 starting from April 1 of the following year because of the requirement to have timely filed all reports for the twelve calendar months and any portion of a month preceding the use of Form S-3 or Form F-3. Note that the original date when the filing was due rather than the date on which the filing was actually made is used for calculating the return to Form S-3 or F-3 eligibility, even if the company never files the missing report. However, it is recommended that companies file all reports even if significantly late in order to stay current with their periodic reporting obligations, as this affects their Form S-8 eligibility and the availability of Rule 144 for resales and mitigates their violation of Section 13(a) of the Exchange Act.
Recognizing the hardship that could result from Form S-3 ineligibility caused by a missed Form 8-K filing, the SEC provided in Form S-3 that failure to file timely Form 8-K reports with respect to the following disclosure items will not result in losing Form S-3 eligibility:
- Item 1.01 (entry into a material definitive agreement);
- Item 1.02 (termination of a material definitive agreement);
- Item 1.04 (mine safety – reporting of shutdowns and patterns of violations);
- Item 2.03 (creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of a registrant);
- Item 2.04 (triggering events that accelerate or increase a direct financial obligation under an off- balance sheet arrangement);
- Item 2.05 (costs associated with exit or disposal activities);
- Item 2.06 (material impairments);
- Item 4.02(a) (non-reliance on previously issued financial statements or a restated audit report or completed interim review); and
- Item 5.02(e) (adoption or commencement of material compensatory plan, contract or arrangement for principal executive officer, principal financial officer, or a named executive officer).
The failure to file timely under any other Form 8-K disclosure items will result in a loss of Form S-3 eligibility. Moreover, a company must be current in all of its Form 8-K filings, including those excepted from the timely filing requirement, at the time of a Form S-3 filing. Thus, a company must have provided the disclosure required by any of the excepted Form 8-K items on or before the date that it files a Form S-3 registration statement with the SEC.
Note that because Forms 6-K are furnished and not filed and are only required to be furnished promptly, a foreign private issuer's failure to furnish timely a Form 6-K does not affect its Form F-3 eligibility.
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