In response to the outbreak of Coronavirus Disease 2019 (COVID-19), US and Canadian securities regulators have taken actions and provided guidance to facilitate the public company annual shareholder meeting process and to provide limited relief for public companies unable to meet filing deadlines due to COVID-19.
This alert summarizes these actions and provides practical considerations for public companies dealing with these uncertainties and reporting issues resulting from COVID-19.
US Securities Exchange Commission (SEC) Actions
2020 Annual Meeting Considerations. The COVID-19 outbreak and US efforts to contain the spread, including quarantines, travel restrictions, business/office closings and other social distancing efforts are creating uncertainties and challenges for the upcoming Annual Shareholder Meeting (ASM) season.
The SEC has published guidance to assist with planning for upcoming ASMs (available here). The guidance is to help facilitate the ability of companies to continue to hold their ASMs and to engage with shareholders while complying with the US federal securities laws. Key components of the new guidance include:
Change in Date, Time or Location of ASM. A company which has already filed and mailed its definitive proxy materials can notify its shareholders of a change in the date, time, or location of its ASM without mailing additional soliciting materials or amending its proxy materials if it:
- issues a press release announcing the change
- files the announcement as definitive additional soliciting material on EDGAR; and
- takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of such change.
"Virtual" or "Hybrid" ASMs. If a company plans to conduct a "virtual" or "hybrid" meeting (and is permitted to do so under its state of incorporation laws and governance documents), the SEC expects the company to notify its shareholders, intermediaries in the proxy process and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of such ASM, including how shareholders can remotely access, participate in, and vote at such ASM. In that regard:
- If a company has not yet filed and mailed its definitive proxy materials, such disclosures should be included in those materials.
- If a company has already filed and mailed its definitive proxy materials for a physical meeting and now desires to convert the ASM into a "virtual" or "hybrid" meeting, it does not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a "virtual" or "hybrid" ASM if it follows the same steps noted above for announcing a change in date, time or location of the ASM.
Shareholder Proposals. In light of the possible difficulties for shareholder proponents to attend ASMs in person and present their proposals, companies are encouraged, to the extent feasible under state law, to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2020 proxy season. Additionally, the guidance notes that to the extent a shareholder proponent or representative is not able to attend the ASM and present the proposal due to the inability to travel or other hardships related to COVID-19, the SEC Staff would consider this to be "good cause" under Rule 14a-8(h) for the shareholder proponent or representative to not have been present should a company assert Rule 14a-8(h)(3) failure to appear as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.
The SEC has also granted relief under the proxy rules for companies which need to deliver proxy statements/annual meeting materials in areas affected by COVID-19 (see Order available here). Through April 30, 2020, a company is exempt from the requirement to provide proxy statements or other soliciting materials if:
- the company's security holder has a mailing address located in an area where, as a result of COVID-19, the common carrier has suspended delivery service of the type or class customarily used by the company; and
- the company has made a good faith effort to furnish the soliciting materials to the security holder.
Limited Filing Relief. Earlier this month, the SEC also issued an Order (available here) providing conditional regulatory relief for certain publicly traded company filing obligations under the Exchange Act due to the impact of the COVID-19. Subject to certain conditions, the order provides publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020. Filings covered by the order include Forms 10-K, 10-Q, 8-K, and 20-F, and Schedule 13G (but not Schedule 13D or filings under Section 16 of the Exchange Act).
A company may qualify for the relief if it is not able to meet a filing deadline for a covered report or documents due to circumstances related to COVID-19 and satisfies the following additional conditions:
- The company files with the SEC a Form 8-K or furnishes a Form 6-K, as applicable, by the original filing deadline of the report (for filings due after March 16, 2020, which include Annual Reports on Form 20-F for calendar year foreign private issuers and Annual Reports on Form 10-K for calendar year non-accelerated domestic filers), providing a summary of why the relief is needed in their particular circumstances. Specifically, the report must include:
- a statement that the company is relying on the Order;
- a brief description of the reasons why it could not file the report on a timely basis and the estimated date by which the filing is expected to be made;
- if the reason is due to the inability of someone other than the company to furnish timely a required opinion, report or certificate, an exhibit with a signed statement of that person giving the specific reasons why such opinion, report or certificate cannot be provided to the company by the deadline for the company's SEC filing; and
- if appropriate, a risk factor explaining, if material, the impact of COVID-19 on its business.
- The company files with the SEC the report no later than 45 days after the original due date and discloses in the report that it is relying on the Order and the reasons why it cannot make the filing on a timely basis.
Companies relying on the Order do not need to file a Form 12b-25 with respect to their inability to make a covered filing on a timely basis.
Toronto Stock Exchange and Canadian Securities Regulators' Actions
In response to recent developments related to COVID-19, the Toronto Stock Exchange (TSX) and Canadian securities regulators have adopted emergency measures, which are expected to continue to evolve over the coming week(s).
Toronto Stock Exchange. The TSX advises applicants and listed issuers to submit all documents to Listed Issuer Services staff electronically until further notice, and to submit electronically any fees associated with their submissions (see announcement here). Applicants and listed issuers may address their questions to their TSX Listed Issuer Services Manager.
Canadian Securities Regulators. The Canadian Securities Administrators (CSA) will provide temporary relief from some regulatory filings required to be made on or before June 1, 2020. The blanket relief will provide a 45-day extension for periodic filings normally required to be made by issuers, investment funds, registrants, certain regulated entities and designated rating organizations on or before June 1, 2020. This will include financial statements, management’s discussion and analysis, management reports of fund performance, annual information forms, technical reports, and certain other filings. Issuers choosing to rely on this exemption and that are complying with the conditions of the relief will not need to file applications for management cease trade orders as they will not be noted in default.
In instances where an exemption is not available, issuers may wish to consider contacting their principal regulator to discuss any potential effect of the current COVID-19 outbreak on their ability to comply with their obligations under securities legislation. Issuers may in certain circumstances consider applying for a management cease-trade order. This restricts certain officers and directors from trading and may be issued by a regulator instead of a failure-to-file cease-trade order.
Some issuers may be considering holding virtual securityholder meetings as a result of social distancing measures. The CSA has confirmed that it will publish guidance on making changes to annual general meetings as soon as possible.
With respect to trading, the CSA Staff are in continuous dialogue with the Investment Industry Regulatory Organization of Canada (IIROC), which has direct oversight responsibilities for trading surveillance.
The CSA will continue to monitor market developments and may issue further guidance in due course.
Additionally, the Ontario Securities Commission (OSC) has announced that on-site compliance reviews of registrants are postponed until further notice. Normal-course registration and compliance activities will continue as planned, and the OSC will be flexible on deadlines for information. The OSC will not be holding in-person hearings until at least April 30, 2020.
The Alberta Securities Commission (ASC) has announced that its offices currently remain open, with a core team fulfilling critical business functions onsite during regular business hours. The ASC encourages all organizations and individuals sharing documents to provide them electronically via email.
What Should Your Company Do Now?
Given the fast changing circumstances resulting from COVID-19, the continuing efforts to limit its spread and the current volatility and impact to business operations, public companies should continue to monitor their operations, filing obligations and engagement with shareholders. It is important to remain flexible and undertake contingency planning with respect to public disclosures, filings deadlines and the conduct of annual shareholder meetings and other shareholder communications.
If your company has its annual shareholder meeting scheduled and has already released the materials but needs to change the date, time or location of the meeting, you should promptly take the actions noted above after making a decision to change one or more of these so that the market is alerted to the change in a timely manner. Also, consider whether your company needs to adjust its annual meeting format (as permitted by your jurisdiction of incorporation and governing documents) after analyzing the typical attendance historically at your meeting and local restrictions, including limitations on size of gatherings, limitations on travel and other social distancing practices. Part of the analysis should include an analysis of your current shareholder base (e.g., large retail shareholder base vs. generally only officers/director in attendance).
If your company has other upcoming filing deadlines, consider potential issues in meeting the filing deadlines, including any requisite third party information, reports, opinions or certifications. If you anticipate any potential issues in filing timely, promptly consult your advisers to determine if any relief may be available and develop contingency plans. The SEC, the TSX and the CSA each continue to monitor the impact of COVID-19 on investors, public companies and the capital markets. Further regulatory action or guidance in relation to the COVID-19 outbreak may be issued by the SEC, the TSX or the CSA as the situation continues to evolve. You should continue to monitor this evolving area and reach out to the Baker McKenzie attorney with whom you work for further guidance.
Additional contributing author, Jennifer Brevelle, Senior Knowledge Lawyer, US Capital Markets.