On September 23, the SEC published final rules amending disclosure and reporting requirements for foreign private issuers. The purpose of the amendments is to enhance the timeliness and quality of company information available to U.S. investors and to make U.S. public markets more accessible to these issuers. Among other noteworthy changes, the amended rules accelerate the filing deadlines for annual reports on Form 20-F, augment line-item disclosures required under Form 20-F, and modify requirements for reconciling home-country financial statements to U.S. GAAP. The amendments, which have various compliance dates, are discussed in Release No. 34-58620.

Background

The amendments are part of a series of initiatives undertaken by the SEC to update disclosure and other requirements applicable to foreign private issuers in light of global market developments, the convergence of U.S. and international accounting standards, and advancements in technology that have occurred since the SEC’s adoption almost 30 years ago of Form 20-F, which is the principal SEC disclosure form for these issuers. A foreign private issuer is a non-U.S. company that either has 50% or less of its outstanding voting securities held of record by U.S. residents or that has more than 50% of its outstanding voting securities held by U.S. residents and has no other specified connection with the United States. The SEC’s announced objective has been to facilitate the access of foreign issuers to the U.S. capital markets by accommodating their home-country practices and policies, while promoting disclosure by foreign issuers that is as equal as practicable to the disclosure provided by U.S. companies. The new amendments continue to seek a balance between these dual objectives of facilitating cross-border capital flows and enhancing protection of U.S. investors.

Amendments to Form 20-F

A number of the amendments modify current SEC rules governing filing and disclosure requirements applicable to filings on Form 20-F.

Acceleration of Filing Deadline

Beginning with fiscal years ending on or after December 15, 2011, foreign private issuers filing annual reports on Form 20-F will have to file the report within four months after the issuer’s fiscal year-end, regardless of the size of their public float. Under the prior rule, Form 20-F reports have been due six months after fiscal year-end. The SEC justified the accelerated deadline on the basis that it reflects advancements in technology, investor expectations and evolving global practice toward more expedited disclosures. The new deadline, although accelerated, reflects the SEC’s recognition that foreign private issuers face burdens in addition to those assumed by reporting U.S. issuers, which, depending on their reporting status, must file annual reports on Form 10-K between 60 and 90 days after their fiscal yearend. The SEC stated that a four-month due date would be appropriate in light of the fact that, over the next several years, a majority of foreign private issuers will have incentives to prepare their financial statements using International Financial Reporting Standards (IFRS), which may be filed with Form 20-F without time-consuming reconciliation to U.S. GAAP. The SEC did not provide for a similar acceleration of annual reports filed on Form 40-F by Canadian issuers under the multijurisdictional disclosure system (MJDS).

Disclosure of Change in or Disagreements with Certifying Accountants

Beginning with fiscal years ending on or after December 15, 2009, foreign private issuers will have to provide information regarding any change in or disagreements with their certifying accountant in their annual report on Form 20-F, as well as in certain registration statement forms available to foreign private issuers. The contents of this disclosure are spelled out in new Item 16F of Form 20-F, which will require substantially the same information U.S. issuers must report under Item 4.01 of Form 8-K and Item 304 of Regulation S-K. Under existing SEC rules, a foreign private issuer also is required to disclose a change in or disagreement with accountants on Form 6-K if disclosure is required in its home jurisdiction.

Disclosure of ADR Fees and Payments

Beginning with fiscal years ending on or after December 15, 2009, foreign private issuers will have to provide information about the fees and other charges paid in connection with their American Depositary Receipt (ADR) facilities. Issuers will be required to disclose fees paid by ADR holders on an annual basis, including the annual fee for general depositary services, and payments issuers have received from depositaries in connection with their ADR programs. The new disclosures will be required in annual reports on Form 20-F for sponsored ADR facilities and in registration statements on Form 20-F filed for the deposited securities.

Corporate Governance Disclosures

Beginning with fiscal years ending on or after December 15, 2008, foreign private issuers will be required under a new Item 16G of Form 20-F to provide a concise summary in their annual reports of the significant ways in which their corporate governance practices differ from the practices followed by U.S. companies listed on the same exchange. Many U.S. securities exchanges currently exempt listed foreign private issuers from many of their corporate governance requirements, but require the issuers to disclose significant differences either in their annual report or on their corporate web site. The SEC expects that the disclosures required by Item 16G will be similar, if not identical, to the disclosure now required of foreign private issuers by the exchanges.

Requirement for Full U.S. GAAP Reconciliation and Segment Data

Beginning with fiscal years ending on or after December 15, 2011, foreign private issuers preparing their financial statements in accordance with home-country accounting standards will no longer be permitted to provide a limited reconciliation to U.S. GAAP under Item 17 of Form 20-F. Those issuers instead will have to provide a full reconciliation to U.S. GAAP under Item 18 of Form 20-F. Item 17 has permitted a more limited reconciliation if a foreign private issuer is listing a class of securities on a national securities exchange or under Section 12(g) of the Exchange Act without conducting a public offering. The new rules eliminate this distinction between disclosure provided to the primary and secondary markets and require full reconciliation under Item 18 if the issuer prepares its financial statements in accordance with the accounting standards of its home jurisdiction. Item 17 reconciliation will continue to be available, however, for Canadian issuers that use the multijurisdictional disclosure system and for financial statements of non-registrants that are required to be included in an issuer’s registration statement, annual report or other Exchange Act report.

Foreign private issuers that prepare financial statements in accordance with IFRS are not required to prepare a reconciliation to U.S. GAAP. Because many countries are expected to adopt IFRS before expiration of the three-year transition period for the new requirement, the SEC expects that few companies are likely to be affected by these amendments.

Beginning with fiscal years ending on or after December 15, 2009, foreign private issuers that provide limited reconciliation of home-country financial statements to U.S. GAAP under Item 17 of Form 20-F will no longer be permitted to omit segment data from their financial statements. The SEC explained that it believes continuation of this accommodation is unnecessary in light of the very small number of foreign private issuers that have taken advantage of it.

Determination Date for Foreign Private Issuer Status

Upon effectiveness of the new rules on December 6, 2008, a foreign issuer will no longer be required to monitor its status as a foreign private issuer on a continuous basis, as is currently the case, but will be permitted to determine its status once a year on the last business day of its second fiscal quarter. This is the same date used to determine accelerated filer status under Rule 12b-2 of the Exchange Act and smaller company reporting status under Item 10(f)(2)(i) of Regulation S-K. The SEC said that it expects these changes will eliminate uncertainty for foreign private issuers about their reporting status and reduce the costs and burdens of complying with the reporting requirements.

A company that qualifies as a foreign private issuer as of the determination date may take immediate advantage of the foreign private issuer registration and reporting forms and the other accommodations associated with this status. For example, an issuer that qualifies as a foreign private issuer as of the end of its second fiscal quarter in 2009 will be permitted immediately to begin furnishing reports on Form 6-K, rather than Form 8-K.

A foreign issuer that no longer qualifies as a foreign private issuer as of the determination date will have to comply with the reporting requirements and use the forms prescribed for U.S. companies beginning on the first day of the fiscal year following the determination date. For example, if a foreign company determines as of the end of its second fiscal quarter in 2009 that it no longer qualifies as a foreign private issuer, it will have to file on Form 10-K in 2010 for its 2009 fiscal year. The issuer also will have to begin complying with the proxy rules and Section 16 of the Exchange Act, and become subject to reporting on Forms 8-K and 10-Q, on the first day of its 2010 fiscal year. The six-month period between the status determination date and commencement of the new reporting obligations will provide issuers with an opportunity to prepare for their transition to the domestic issuer requirements.

The new determination date also will be applicable to Canadian issuers that use the multijurisdictional disclosure system. If a Canadian MJDS filer no longer qualifies as a foreign private issuer as of the end of its second fiscal quarter, its ability to use MJDS registration statements will cease immediately, although it will be permitted to continue to use other foreign private issuer registration statement forms, such as Form F-3, until the end of the fiscal year. All other eligibility requirements, such as public float, for filing annual reports on Form 40-F would still be tested as of the end of the fiscal year.

No notice by the foreign company is required to announce a change in its reporting status.

Amendments to Exchange Act Rule 13e-3 to Address Deregistrations

The SEC has amended Rule 13e-3 under the Exchange Act, which governs “going private” transactions, to reflect recent changes to the deregistration rules for foreign private issuers that permit them to terminate their reporting obligations by meeting certain quantitative benchmarks that measure relative U.S. market interest in their securities. We discussed the new deregistration regime in our SEC Update of April 20, 2007.

Rule 13e-3 currently is triggered when an issuer is engaged in a specified transaction that has either a reasonable likelihood or a purpose of causing any securities listed under the Exchange Act to be held by fewer than 300 persons or delisted from all U.S. national securities exchanges. Any transaction that triggers Rule 13e-3 requires the issuer to file a Schedule 13E-3 to disclose, among other things, its plans to take the company private and to disseminate such information to shareholders. Rule 13e-3 is intended, in part, to provide shareholders with one last opportunity to obtain information about an issuer before it ceases to make such information publicly available through filings with the SEC.

The amendment seeks to provide regulatory consistency with the new deregistration and termination of reporting provisions applicable to foreign private issuers. It accomplishes this by substituting a test foreign private issuers already use to deregister a class of securities in place of the “300 person” test. Under the amendment, Rule 13e-3 obligations will be triggered when (1) a foreign private issuer becomes eligible under Rule 12g-4 pursuant to the Exchange Act to deregister a class of securities, (2) a foreign issuer becomes eligible pursuant to Rule 12h-6 under the Exchange Act to deregister a class of securities or terminate a reporting obligation or (3) an issuer becomes eligible pursuant to Rule 12h-3 under the Exchange Act or Section 15(d) of the Exchange Act to have a reporting obligation suspended.

The amendment to Rule 13e-3 will be effective as of December 6, 2008.