Akin Gump provides details on the Division of Corporation Finance (Division) of the Securities and Exchange Commission’s (SEC) June 23, 2020 additional guidance (Topic No. 9A) regarding disclosures about operations, liquidity and capital resources that companies should consider in light of COVID-19.
On June 23, 2020, the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission (SEC) issued another statement on the importance of high-quality financial reporting in light of the impact of, and uncertainties related to, COVID-19. The statement targets stakeholders in the financial reporting system and public companies preparing for the second quarter financial reporting period and follows a similar statement issued by the OCA on April 3, 2020, during the first quarter financial reporting period.
On April 6, 2020, the Securities and Exchange Commission (SEC) approved and declared immediately effective a proposed rule change filed by the New York Stock Exchange LLC (NYSE) temporarily waiving through June 30, 2020, certain shareholder approval requirements required by Section 312.03 of the NYSE Listed Company Manual (the “NYSE Manual”), expediting the equity capital raising process for listed companies and facilitating liquidity from individual investors or small groups of investors, including existing shareholders and related parties. No temporary waiver is available for the NYSE shareholder approval requirements for issuances of securities in connection with NYSE Manual Section 303A.08 (equity compensation plans) or NYSE Manual Section 312.03(d) (change of control transactions).
COVID-19 is taking an immense toll on people and the economies on which they depend. During such disconcerting circumstances, companies are confronting urgent business needs on multiple fronts: maintaining business operations, supporting employees, conserving liquidity and adjusting both short-term and long-term corporate strategy. Such chaotic conditions, unfortunately, create heightened risk of improper financial reporting. While corporate management and others play a significant role in ensuring that a company does not resort to accounting schemes, audit committees can and should provide an important counterweight to the risk of improper accounting practices.
Equity investors and sponsors are actively reviewing the financial needs and business operations of their portfolio companies. As a result of the economic upheaval and government-mandated social restrictions imposed by the blistering spread of COVID-19 around the world, there are a number of challenging decisions that will need to be made with significant speed and limited information. Accordingly, it is important to consider the responsibilities and duties that attach to equity investors and sponsors who are deemed “controlling equityholders” under applicable law.
On April 6, 2020, the Securities and Exchange Commission (SEC) issued two Compliance and Disclosure Interpretations (C&DIs) that clarify and address regulatory relief (COVID-19 Order) for certain Exchange Act filings.
The recently announced dispute between BorgWarner Inc. and Delphi Technologies PLC relating to BorgWarner’s planned acquisition of Delphi may turn into one of the first cases of a contested mergers and acquisitions (M&A) transaction as a result of the current COVID-19 crisis. While it is important to keep in mind that the parties may resolve this dispute (indeed, both parties have stated that they each “continue to believe in the long-term strategic value” of the transaction and that they are, at least for now, “still working together towards closing the transaction in the second half of 2020”), we wanted to share some observations relating to the dispute.
Extension of COVID-19 Regulatory Relief
On March 25, 2020, the Securities and Exchange Commission (SEC) extended regulatory relief (link) for certain Exchange Act reports (including Form 10-Ks and Form 10-Qs) with an original filing deadline on or before July 1, 2020 (COVID-19 Order), superseding and extending their original March 4, 2020 order (link), which originally provided regulatory relief for certain March and April filing deadlines. The original filing deadline will be conditionally extended by 45 days for public companies that have been particularly impacted by the outbreak of the novel coronavirus (COVID-19). This temporary relief is subject to several conditions, including the filing of a Form 8-K explaining that the company is seeking relief under the COVID-19 Order and its particular reasons for doing so.