The New York Stock Exchange has adopted rules which broaden the circumstances in which a listed company will be deemed a delinquent filer of periodic reports with the Securities and Exchange Commission and potentially subject to suspension of trading and delisting. In particular, circumstances in which a filer will be deemed a late or delinquent filer will now include, in addition to the failure to timely file an annual report on Form 10-K or 20-F:
- the failure to timely file a quarterly report on Form 10-Q;
- the filing of an annual or quarterly report that is defective in specified material respects (such as the failure to include required financial statements, a required audit opinion, a required CEO/CFO certification or a required Section 404 internal control report or auditor certification);
- the filing of an annual report without an audit report from its independent auditor for any or all of the periods required;
- the withdrawal by an issuer’s auditor of a required audit report or the filing of a Form 8-K indicating that a required audit report or interim review should no longer be relied upon; and
- the filing of a Form 8-K to disclose that previously issued financial statements should no longer be relied upon because of an error in such financial statements or, in the case of a foreign private issuer, a similar disclosure in a Form 6-K or by other means, where, in either case, the company does not refile all the required corrected financial statements within 60 days.
Prior to these amendments, the NYSE deemed a listed company to be delinquent only if it failed to submit its annual report on Forms 10-K, 20-F or 20-F to the SEC by the required filing date (or if a Form 12b-25 was timely filed with the SEC, the extended filing due date for the annual report). If such a delinquency occurred, then for six months following the date of the delinquency, the NYSE monitored the company and the status of its annual report, including through contact with the company, until the filing delinquency was cured. If the company failed to cure the delinquency within this initial six-month period, the NYSE could, 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 determined that this additional six-month trading period was not appropriate, it would then commence suspension and delisting procedures. Late filings of a Form 10-Q did not count as delinquent, nor did the filing of a Form 10-K, 20-F or 40-F with any particular material defect.
Amended rule: delinquent filings
As revised, the following circumstances count as a delinquent filing:
Form 10-K, 20-F or 40-F. An issuer’s filing of a Form 10-K, 20-F or 40-F beyond its required filing date (or, if a Form 12b-25 was timely filed, 15 calendar days beyond the original required filing due date for the report) constitutes a delinquent filing.
Form 10-Q. An issuer’s filing of a quarterly report on Form 10-Q beyond its required filing date (or, if a Form 12b-25 was timely filed, five calendar days beyond the original required filing due date for the report) constitutes a delinquent filing.
Materially deficient annual or quarterly report. The NYSE will view a filing as delinquent if the annual or quarterly report is filed on a timely basis but is deficient in some respect in meeting the requirements of the applicable SEC form and the NYSE determines in its sole discretion that such deficiency is material. A non-exclusive list of elements that would cause the NYSE to deem the filing to be materially deficient includes:
- the filing does not include required financial statements or a required audit opinion;
- a required financial statement audit opinion includes qualifying or disclaiming language or the auditor provides an adverse financial statement audit opinion;
- a required financial statement audit opinion is unsigned or undated;
- there is a discrepancy between the period end date for required financial statements and the date cited in the related audit report;
- the company’s auditor has not conducted a SAS 100 review with respect to the company’s Form 10-Q;
- a required CEO or CFO certification is missing;
- a required internal control report or auditor certification under Sarbanes-Oxley Act Section 404 is missing;
- the filing does not comply with the applicable SEC XBRL requirements; and
- the filing does not include signatures of officers or directors required by the applicable form.
Absence of audit report. The NYSE will view an annual report as delinquent if it does not include an audit report from the company’s independent auditor for any or all of the periods included in such audit report.
Withdrawal of audit report. The NYSE will deem a company to be delinquent if its independent auditor withdraws a required audit report or the company files a Form 8-K with the SEC disclosing that it was notified by its independent auditor that a required audit report or completed interim review should no longer be relied upon.
Inability to rely on financial statements. The NYSE will deem a company to be delinquent if it files a Form 8-K with the SEC to disclose that previously issued financial statements should no longer be relied upon because of an error in such financial statements or, in the case of a foreign private issuer, the company makes a similar disclosure in a Form 6-K filed with the SEC or by other means and, in either case, the company does not refile all required corrected financial statements within 60 days of the issuance of the 8-K, or other statement that the financial statements could no longer be relied upon. If the NYSE believes that a company is unlikely to refile all required corrected financial statements within such 60-day period or that errors giving rise to such disclosure are particularly severe in nature, the NYSE may, in its sole discretion, determine earlier than 60 days that the applicable company is delinquent.
The SEC’s adopting release also stated that, while this provision does not specifically provide for late filer treatment if a foreign private issuer fails to provide quarterly or semiannual financial information, a different NYSE provision provides that a listed company could be subject to delisting for “failure of a company to make timely, adequate and accurate disclosures of information to its shareholders and the investing public.” The SEC’s adopting release states that, in the SEC’s view, “failure by a listed company to make interim financial disclosures, on at least a semiannual basis, would meet this definition.”
Amended rule: procedures
Upon the occurrence of any of the filing delinquencies described above, the NYSE will promptly, typically within five business days, send written notification to a company of its procedures relating to late filings. Within five days of this notification, the company must contact the NYSE to discuss the status of the delinquent report and issue a press release disclosing the occurrence of the filing delinquency, the reason and, if known, the anticipated date the delinquency will be cured via the filing or refiling of the applicable report. If the company does not issue the required press release within five days of the date of the notification, the NYSE will issue the press release instead.
For six months following the date of the delinquency, the NYSE will monitor the company and the status of the delinquent annual or quarterly report and any subsequent annual or quarterly report the company fails to file by the applicable due date, including through contact with the company, until the filing delinquency is cured. In order to cure a filing delinquency, no subsequent report may be delinquent or deficient on the date by which the initial filing delinquency is required to be cured. If the company fails to cure the delinquency within this initial six-month period, 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 this additional six-month trading period is not appropriate, it will then commence suspension and delisting procedures.
Notwithstanding the foregoing, under the amended rules, the NYSE may in its sole discretion decide (1) not to afford a company any initial cure period or additional cure period, as the case may be, at all or (2) at any time during the initial cure period or additional cure period, to truncate the period and immediately commence suspension and delisting procedures if the company is otherwise subject to delisting pursuant to any other NYSE provision, including if the NYSE believes, in its sole discretion, that continued listing and trading of a company’s securities on the Exchange is inadvisable or unwarranted in accordance with NYSE rules. The NYSE may also commence suspension and delisting procedures without affording any cure period at all or at any time during the initial cure period or the additional cure period if it believes, in its sole discretion, that it is advisable to do so on the basis of an analysis of all relevant factors including, but not limited to:
- whether there are allegations of financial fraud or other illegality in relation to the company’s financial reporting;
- the resignation or termination by the company of the company’s independent auditor due to a disagreement;
- any extended delay in appointing a new independent auditor after a prior auditor’s resignation or termination;
- the resignation of members of the company’s audit committee or other directors;
- the resignation or termination of the company’s CEO, CFO or other key senior executives;
- any evidence that it may be impossible for the company to cure its filing delinquency within the cure periods otherwise available; and
- any past history of late filings.
The SEC’s adopting release notes that the reference to “any past history of late filings” will enable the NYSE to delist those companies that have demonstrated a history of providing outdated or stale financial information to investors and, for example, help the NYSE address the situation where a company becomes current within 12 months but then a short while later, such as by the next SEC filing date, incurs another filing delinquency.
In determining whether an additional 60-day cure period after the expiration of the initial 60-day cure period is appropriate, the NYSE will consider the likelihood that the delinquent report and all subsequent reports can be filed or refiled during the additional 60-day cure period, as well as the company’s general financial status, based on information provided by a variety of sources, including the company, its audit committee, its outside auditors, SEC staff and any other regulatory body. The NYSE “strongly encourages” companies to provide ongoing disclosure on the status of a delinquent report to the market through press releases, and “will also take the frequency and detail of such information into account in determining whether an additional trading period is appropriate.”
If the NYSE determines that an additional 60-day cure period is appropriate, but the company fails to file the delinquent report and all subsequent reports by the end of such 60-day period, the NYSE will commence suspension and delisting procedures. In no event will the NYSE continue to trade a company’s securities if (1) it has failed to cure its filing delinquency and (2) the company is not current with all subsequent reports on the date that is 12 months after its initial filing delinquency.
The NYSE’s revised rules became applicable for NYSE-listed companies on March 1, 2015. On or after March 1, 2015, any listed company that fails to timely file an annual report or quarterly report is subject to the new rules. Any listed company that was late as of March 1, 2015 in filing a Form 10-Q with a due date prior to that date is not subject to the amended rules with respect to that filing, but any such company is subject to the amended rules with respect to any report it does not file on a timely basis whose due date is on or after March 1, 2015.
Nasdaq procedures regarding late SEC filings
For purposes of comparison, Nasdaq’s rules for its listed companies require that companies timely file all required periodic financial reports with the SEC. Nasdaq rules provide that a company that is delinquent in its periodic filing obligations must within 60 days submit a plan of compliance to Nasdaq, although this timeframe can be shortened at Nasdaq’s discretion. Nasdaq’s review of the plan of compliance will be based on information provided by a variety of sources, which may include the company, its audit committee, its outside auditors, the SEC staff and any other regulatory body.
In submitting a plan of compliance to Nasdaq, the company should provide the following information:
- the reasons for the late filing;
- whether an investigation into the circumstances underlying the filing delinquency has been initiated by the company’s audit committee, auditors or other internal committee;
- the likelihood that the filing can be made within the initial 180-day exception period;
- the company’s past compliance history;
- whether the company is the subject of any regulatory or judicial investigation;
- any corporate events that may occur within the exception period;
- the company’s general financial status; and
- the company’s public disclosures relating to the filing delinquency, any forthcoming restatements and its financial condition.
Based on its review of the company’s plan of compliance, Nasdaq may grant the company up to 180 days from the due date of the periodic report to regain compliance. In determining whether to grant a company additional time, Nasdaq will consider the company’s specific circumstances, including the company’s past compliance history, the reasons for the late filing, corporate events that may occur within the exception period, the company’s general financial status, the company’s disclosures to the market and the likelihood that the filing can be made within the exception period. The company can regain compliance with the requirement by filing the late periodic report and other delinquent reports.
If a company fails to regain compliance prior to the up to 180-day deadline established by Nasdaq or if Nasdaq does not accept the plan of compliance, Nasdaq will issue a staff determination indicating that the company is subject to delisting. In certain cases, Nasdaq may determine that the circumstances which gave rise to the late filing raise public interest concerns and that the company should be required to submit its plan of compliance within a shorter period of time than 180 days. It is also possible that Nasdaq may determine that the circumstances leading to a late filing, coupled with the resulting lack of publicly available information, require the imposition of a trading halt. Nasdaq will request further information from the company during the halt to enable it to determine whether public disclosures can be made that would allow a resumption of trading and whether the continued listing of the company on Nasdaq is appropriate.
If Nasdaq determines to delist a company for failing to file financial records or related public interest concerns, the company may request a hearing before a hearings panel to review the determination. However, in this circumstance only, that request will operate to stay the delisting action for only 15 calendar days from the deadline to request a hearing. In order to obtain a long stay, the company must, in its request for a hearing, ask for a longer stay. If it does, the hearings panel can permit the company to remain listed for up to 180 days from the date of the staff determination letter regarding delisting, but in no event more than 360 days form the due date of the company’s first late filing.
In addition to filing delinquencies arising from late annual and quarterly reports, if a company is required to have its interim financial statements reviewed under SAS 100 and does not comply, Nasdaq views the filing to be incomplete and the company to be delinquent in its filing obligations.
The authors want to thank Max Weiss for his assistance in the preparation of this client alert.