In the last installment, we covered how to deal with Exchange Act reporting obligations after going into bankruptcy. In this installment, we address what happens when a company in bankruptcy wants to end its Exchange Act reporting entirely.

The Last Hurdle: Suspension of Exchange Act Reporting Obligations Post-Bankruptcy

Companies that qualify can formally suspend their Exchange Act reporting obligations once they emerge from bankruptcy (or maybe even before). We have previously covered the ins and outs of “going dark” – i.e., suspending a company’s reporting obligations (see here). Here is brief refresher, with a couple of tips applicable in a bankruptcy context.

If it qualifies, a company can suspend its reporting obligations by filing a Form 15 with the SEC. There are two provisions that permit companies to suspend their Exchange Act reporting obligations under Exchange Act Section 15(d): Section 15(d) itself and Rule 12h-3. Suspension via Section 15(d) itself is automatic – the Form 15 serves as a notification (see Exchange Act Rule 15d-6). Suspension under Rule 12h-3, however, is not automatic. Instead, the company must apply on Form 15.

Suspension Under Section 15(d)

Section 15(d) reporting obligations are automatically suspended if, on the first day of any fiscal year other than the fiscal year in which a Securities Act registration statement became effective, there are less than 300 shareholders of record (1,200 shareholders of record in the case of a bank or bank holding company) of the class of securities offered under the Securities Act registration statement. If a Securities Act registration statement became effective during that fiscal year, including by means of a Section 10(a)(3) update through the filing of the Form 10-K for the prior fiscal year, then suspension is not available under this provision. See C&DI 153.01 and the table at the end for an explanation of how this works.

Suspension Under Rule 12h-3

The beauty of Rule 12h-3 is that the company is not limited to counting holders of record at the beginning of the fiscal year. Instead, Rule 12h-3 is available at any time during the fiscal year (but see the caveat below), which could be important for a company emerging from bankruptcy. Alas, with this greater flexibility comes a couple of extra hurdles.

  1. A company is eligible to suspend its Section 15(d) reporting requirements under Rule 12h-3 if:
  • Its securities are either:
  • held of record by less than 300 persons, or
  1. held of record by less than 500 persons and its total assets have not exceeded $10 million on the last day of each of the three most recent fiscal years;
  2. It has filed all required Exchange Act reports in the portion of the current year preceding the date of filing of the Form 15 (without regard to Rule 12b-251) and the past three fiscal years; and

It does not have a Securities Act registration statement relating to the securities which became effective in the fiscal year for which the issuer seeks to suspend reporting. Note that this includes an S-3 or S-8 that was updated under Section 10(a)(3)2 of the Securities Act by means of filing a Form 10-K during the fiscal year for which the issuer seeks to suspend reporting. (If the issuer is relying on the fewer than 500 record holders and less than $10 million in assets threshold in (1), the relevant period is the two preceding fiscal years – see Rule 12h-3(c).)

The current reporting requirement in (2) above is a potential concern if the company followed modified reporting while it was in bankruptcy without a grant of no-action relief by the SEC Staff. In these circumstances, it is possible that the SEC Staff may require the company to file the missing 10-Qs and 10-Ks before it will allow the company to suspend its Exchange Act reporting obligations..

The third requirement is another common pitfall for companies that have effective S-3 or S-8 registration statements on file, because those registration statements are required to be updated on an annual basis under Section 10(a)(3) by means of a Form 10-K. We try to demystify this Section 10(a)(3) conundrum in the following table, and as you will see, timing is everything. For more information, see this Words of Wisdom installment.

Suspending Section 15(d) Reporting Obligations for Companies With Active S-3 or S-8 Registration Statements and Fewer Than 300 Shareholders: The Section 10(a)(3) Update Conundrum3

Click here to view table.