Yesterday, before the federal government shutdown took effect, the SEC’s Division of Corporation Finance (the Division) confirmed in guidance that its activities would be “extremely limited” during the lapse in appropriations.
Notably, the SEC will not be available to review filings or declare registration statements effective (although EDGAR will remain open).
Below are practical tips for navigating the shutdown based on the CorpFin guidance. We also have discussed broader impacts of the shutdown across the government here.
Other SEC Divisions, including the Division of Trading and Markets and the Division of Investment Management, have issued their own guidance.
EDGAR Remains Open; Companies Can and Should Continue to Make Timely ’34 Act Filings
EDGAR remains fully operational, accepting registration statements, offering statements, and all Exchange Act reports. Business-day counting continues (any day other than Saturday, Sunday or a federal holiday constitutes a business day).
Companies can and should continue to make timely ’34 Act filings.
But effectiveness by 'passage of time' requires removing the Rule 473 delaying amendment, with the risks and considerations described below.
Preliminary proxy statements: the 10-calendar-day clock runs without staff comments. You may send definitive materials once 10 days have passed, though staff may review later.
What Will Not Happen
During the government shutdown, the SEC will not:
- review filings or declare registration statements effective (or qualify Regulation A offerings);
- grant companies’ requests for acceleration;
- provide interpretive advice including reviewing and responding to Rule 14a-8 requests;
- issue no-action letters; or
- respond to company responses to SEC comment letters on filings (companies can obtain additional time to respond to comments letters by submitting a letter (filed as EDGAR correspondence).
What does this mean for you? Until the conclusion of the shutdown, any existing filings under SEC review at the time of the shutdown and any new filings made during the shutdown will not be reviewed by the SEC, registration statements which do not automatically become effective will be at a standstill, filings with outstanding comment letters and response letters will not be progressed and there will be no exemptive relief.
Going Effective (or Not) During a Shutdown
It’s a good time to be a well-known seasoned issuer (“WKSI”) since WKSI shelf registration statements will continue to be automatically effective without SEC review.
Non-WKSI issuers with effective shelves will continue to be able to conduct takedowns and file prospectus supplements during an SEC shutdown.
Non-WKSI issuers seeking an effective registration statement during the shutdown can elect to file registration statements which omit the customary “delaying amendment” legend and include the additional disclosure required by Rule 473 of the Securities Act, causing such registration statement to become automatically effective 20 calendar days after its filing. Such automatic effectiveness in twenty days can also be achieved by filing an amendment to an existing registration statement which removes such legend and includes the additional disclosure required by Rule 473 of the Securities Act.
However, the Division cautions that
“[a]ll companies, especially those conducting initial public offerings of securities, should consider carefully the risks of this course of action and should evaluate their particular facts and circumstances before doing so.”
The Division further cautions that the liability and antifraud provisions of the federal securities laws
“apply to all registration statements, including those that go effective by operation of law pursuant to Section 8(a) of the Securities Act.”
This means that an issuer and its
“representatives should ensure that the registration statement does not contain any material misstatements or omissions of material information required to be stated therein or necessary to make the statements therein not misleading.”
Further, any amendment to a registration statement would restart the 20-day period. In addition, simply omitting the delaying amendment from an amendment will not begin the 20-day period.
When the SEC resumes operations, the Division stated that it may ask issuers to amend the registration statement to include the delaying amendment.
During the shutdown the SEC may issue a stop order under Section 8(d) of the Securities Act or take other emergency actions if necessary. Once the SEC resumes operations, the staff may request that an issuer amend its registration statement even if it has become effective by operation of Section 8(a).
Rule 430A is not available in the absence of a delaying amendment because Rule 430A is only available with respect to registration statements that are declared effective by the Commission or the staff.
When considering whether to omit or pull a delaying amendment, factors for companies to consider include, but are not limited to, whether the registration statement is subject to review and whether significant unresolved staff comments remain outstanding. The Division notes that
“… companies that remove their delaying amendment with outstanding staff comments should carefully consider the material issues raised by the staff and not remove their delaying amendments prior to making the necessary changes to the registration statement.”
After a shutdown ends the Division may ask issuers to amend their filings to include the delaying amendment so that the Division may work with the issuer to resolve outstanding comments.
Companies with registration statements which have already been declared effective that are seeking more time to price an offering may restart the 15-business-day period provided in Rule 430A by filing a post-effective amendment to the registration statement which includes the additional disclosure required by Rule 462(c), which becomes effective upon such filing. Issuers cannot rely on Rule 462(c) if the post-effective amendment includes substantive changes from the prospectus in the effective registration statement.
Please feel free to get in touch with us if you would like to further discuss how a SEC shutdown may affect your company.
