On Wednesday, March 4, 2020, the Securities and Exchange Commission (SEC) issued two statements intended to ease certain corporate governance and reporting obligations in light of the coronavirus disease 2019 (COVID-19). The first relates to the requirement that registered management investment companies and business development companies (BDCs and together with registered management investment companies, Funds) seeking to approve or renew (1) an investment advisory contract, (2) a principal underwriting agreement, (3) selection of the Fund’s independent public accountant, or (4) in the case of mutual funds (and closed-end funds operating pursuant to multi-class relief) renewal of the Fund’s 12b-1 Plan, do so at an in-person meeting of directors (the In-Person Requirements). The second extends the deadlines for certain reports and soliciting materials required by the Securities Exchange Act of 1934 (the Exchange Act) and due between March 1, 2020 and April 30, 2020.
Relief for In-Person Requirements
Previously, on February 28, 2019, the Chief Counsel’s Office of the SEC’s Division of Investment Management issued a letter (the February 2019 Relief Letter) to the Independent Directors Council stating that they would not recommend enforcement action if the directors of a Fund seeking to approve or renew a contract, plan, arrangement or selection subject to the In-Person Requirements, do so telephonically, by video conference or by other means by which all participating directors may participate and communicate with each other simultaneously; provided, that, such directors cannot meet in person due to unforeseen or emergency circumstances, no material changes to the relevant contract, plan and/or arrangement are proposed, and such directors ratify the applicable approval at the next in-person board meeting (the 2019 Emergency Relief). 1
On March 4, 2020, the SEC’s Division of Investment Management, citing travel concerns resulting from COVID-19, extended the 2019 Emergency Relief to the approval and renewal of all contracts, plans and arrangements, including material changes, and the selection of a Fund’s independent public accounting, including where such accountant is not the same accountant as selected in the immediately preceding year. Such position applies to board meetings through June 15, 2020, and is conditioned on board ratification of such actions at the Fund’s next in-person board meeting.
Extended Deadline for Certain Filings and Materials
Also on March 4, 2020, the SEC issued an exemptive order (the Order) granting a 45-day extension for filing reports, schedules (not including Schedule 13D or any amendments required to be filed there) or forms pursuant to the Exchange Act if the registrant or other person obligated to make such filing is unable to timely file such report due to circumstances relating to COVID-19. In order to rely on the Order, the registrant or other person relying on the Order must furnish a Form 8-K (or Form 6-K, as applicable) stating, (1) that it is relying on the Order, (2) a description of the reasons preventing a timely filing, (3) the date on which the report, schedule or form is expected to be filed, and (4) if appropriate, risk factor disclosure, explaining any material impact of COVID-19 on the registrant’s business. In addition, if the report cannot be timely filed because a person other than the registrant cannot timely furnish any required opinion, report or certification, the Form 8-K (or Form 6-K, as applicable) must include an exhibit signed by such person indicating the reason why such person cannot furnish the required opinion, report or certification. A registrant or other person relying on the Order must file the relevant report, schedule or form within 45 days of the original due date and when the report, schedule or form is filed, it must include disclosure that the registrant or other person making such filing, is relying on the Order.
The Order also provides an exemption from the Exchange Act requirements to furnish proxy statements, annual reports and other soliciting materials and information statements if the security holder to whom such information is to be provided has a mailing address in an area where the common carrier has suspended delivery as a result of COVID-19 and provided that the registrant or other person relying on the Order has made a good faith effort to deliver such materials in accordance with applicable rules.
Funds that have scheduled upcoming board meetings to approve or renew contracts, plans or arrangements that are generally required to be approved in-person, may hold such meeting by telephonic, video conference or other means to reduce risks associated with travel in light of COVID-19. Funds must remember to ratify any actions taken in reliance on this relief at their next in-person board meeting.
Registrants and other persons that are unable to make timely Exchange Act filings as a result of COVID-19, may rely on the Order and will be granted a 45-day extension provided that they furnish the appropriate information on a Form 8-K (or Form 6-K, as applicable). A late filing that is made in compliance with the Order will be considered “timely” for purposes of determining eligibility to conduct an offering. The Order does not provide relief for filings that are required to be made other than by the Exchange Act.
Registrants and other persons relying on the Order should be sure that their inability to timely file is directly related to COVID-19 and consider the effect that a late filing may have on other contractual obligations. Regardless of whether a registrant is relying on the Order or a Fund is delaying an in-person approval, issuers that believe COVID-19 could have a material impact on their business should consider whether such impact could cause a material breach of any contractual obligations and include appropriate risk factor disclosure in their filings. In addition, in the press release announcing the Order, SEC Commissioner Clayton reminded issuers that even when the effects of COVID-19 are uncertain, how issuers plan for uncertainty and respond to unfolding events, is a material consideration for investors and issuers should “work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.”