The SEC has declared immediately effective (yet another) proposed change to the rules of an exchange—this one from the NYSE. The NYSE has adopted new Section 312.03T of the NYSE Listed Company Manual, which will provide a temporary exception, through June 30, 2020, from the application of the shareholder approval requirements for specified issuances of 20% or more of the outstanding shares (Section 312.03) and, in certain narrow circumstances, by a limited exception for issuances to related parties or other capital-raising issuances that could be considered equity compensation (Sections 312.03 and 303A.08). Although not entirely congruent, the exception appears to be modeled closely on the comparable Nasdaq exception that was approved just over a week ago. (See this PubCo post.) In light of the unprecedented disruption in the economy as a result of COVID-19, many listed companies “are experiencing urgent liquidity needs during this period of crisis due to lost revenues and maturing debt obligations.” The temporary exception is designed to respond to this unprecedented emergency and to help companies access necessary capital quickly.
New FAQ 46 from the SBA provides a “safe harbor” for borrowers of less than $2 million under the Paycheck Protection Program provisions of the CARES Act. Under the safe harbor, for borrowers of amounts below the $2 million threshold, the SBA will deem their certifications regarding the “necessity” of the loans to have been made in good faith. What’s more, while loans over the $2 million threshold will be subject to SBA review (as has been widely publicized), if the SBA determines that the borrower “lacked an adequate basis” for the required “necessity” certification, but the borrower then repays the loan, the SBA “will not pursue administrative enforcement or referrals to other agencies” with respect to the “necessity” certification.
In his keynote address to Securities Enforcement Forum West 2020, SEC Enforcement Co-Director Steven Peikin discussed some of the efforts of the Division of Enforcement to detect misconduct arising out of the COVID-19 pandemic and related market disruption, including the formation of a steering committee to proactively identify and monitor areas of potential misconduct. Of particular interest here are the focus on insider trading and financial and disclosure-related fraud.
As discussed in this PubCo post, in April, the Treasury Department issued a series of FAQs related to loans made under the Paycheck Protection Program provisions of the CARES Act, one of which was addressed to borrowers that are large companies and, particularly, public companies. The FAQ provides that, to be eligible for a PPP loan, a borrower must certify, in good faith, that the loan is necessary to support continuing operations. According to the FAQ, that may be difficult in some cases, contending that “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith….” The FAQ provided a safe harbor, under which the SBA would deem the borrower to have made the required certification in good faith if the funds were repaid in full by May 14 (as extended in question 43). As reported here, Treasury Secretary Steven Mnuchin has warned that companies receiving loans over $2 million would be audited and could have potential criminal liability if their certifications were untrue. Now, a House oversight subcommittee has demanded that certain public companies return the funds.
When I first saw this temporary relief from the NYSE, I dismissed it as relief designed to help an overwhelmed Broadridge. The relief temporarily allowed discretionary voting on routine matters even if the proxy materials were transmitted to beneficial owners only 10 days in advance of shareholders’ meetings instead of the required 15 days. I had no idea there might be a tragedy underlying it.
The SEC has declared immediately effective new Nasdaq Rule 5636T, which will provide a temporary exception, through June 30, 2020, from the shareholder approval requirements for certain issuances of 20% or more of the outstanding shares (Rule 5635(d)) and for a narrow subset of capital-raising issuances that could be considered equity compensation (Rule 5635(c)). Given that stay-at-home orders in effect in many communities have wreaked havoc on the revenue streams of many businesses, companies may have urgent needs to raise capital. Nasdaq believes that this temporary exception “will permit companies to raise capital quickly to continue running their businesses and address the immediate health crisis caused by the COVID-19 pandemic, including its impact on their employees, customers, and communities.”
At a meeting today of the SEC’s Investor Advisory Committee, the committee discussed disclosure considerations arising in the context of COVID-19. In addition to relentlessly complimenting the SEC for its efforts during the pandemic, the committee members offered a number of valuable insights, particularly related to human capital disclosure (which one committee member characterized as “as important a mission as the SEC has ever faced”) and other stakeholder disclosures, as well as accounting, controls and liability issues. Many of the committee also seemed to be pleased with nature of the disclosure that companies were providing, even offering in-quarter information in some cases. There was also a brief discussion of virtual shareholder meetings.
Several leaders of the World Economic Forum have published Stakeholder Principles in the COVID Era, characterizing the “business community’s contribution” as “to be leaders of responsiveness and stewards of resilience.” Nice cadence—I like it. But what does it mean in practice?
Apparently, there are still a number of filings submitted on paper, and the filers are experiencing logistical difficulties submitting them. Once again, in light of health and safety concerns related to COVID-19, the Corp Fin staff is providing relief for specified paper forms submitted for the period from and including April 23, 2020 to June 30, 2020.
The Treasury Department has issued a series of FAQs related to loans made under the Paycheck Protection Program provisions of the CARES Act, one of which is addressed to borrowers that are large companies and, particularly, public companies. The FAQ provides that, to be eligible for a PPP loan, a borrower must certify, in good faith, that the loan is necessary to support continuing operations. According to the FAQ, that may be difficult in some cases.