A partial shutdown of the federal
government began at midnight on December 21, 2018. As a result, the SEC
Division of Corporation Finance (the “Staff”) announced that the
SEC would “remain fully operational for a limited number of days” from the
beginning of the federal government shutdown. The SEC will be closed on
December 24th and 25th in observance of the federal
holiday. It is expected to have funding to remain in “open” status through the
end of December 26th. Should the shutdown continue past the 26th,
the SEC’s operating status is expected to change to “closed” and the SEC will
begin to operate according to its Operations
Plan under a Lapse in Appropriations and Government Shutdown. As currently
envisaged, starting on December 27th the SEC “will have only an
extremely limited number of staff members available to respond to emergency
situations involving market integrity and investor protection, including law
enforcement.” Regardless of the SEC’s operating status, the EDGAR filing system
will continue to accept reports, registration statements and other filings. Accordingly,
public companies must continue to file periodic and current reports when due on
Forms 10-K, 10-Q and 8-K; however, from December 27th the SEC will
not be able to declare registration statements effective nor qualify Form 1-A
offering statements. A prolonged shutdown could create difficulties for the IPO
market and for many public companies without an effective shelf registration
statement and, in particular, would create a complex calculus for any
company thinking about going public in January.
The Staff has provided an FAQ page regarding
operations during the shutdown. The processes described in the FAQ will be
mainly relevant for issuances by already-public
filers on Form S-1 and non-WKSI S-3s. S-3ASRs filed by WKSIs will, of
course, still become effective upon filing and offerings under effective shelf registrations can proceed through the filing of prospectus supplements
and FWPs.
As is noted in this FAQ, so long as
the SEC remains closed there will be no staff members available to act on
requests for the acceleration of the effective date of pending registration
statements or for the qualification of offering statements. Accordingly, filers
are advised that they may wish to consider submitting requests for acceleration
or qualification while the SEC is open on December 26th. The Staff
also states that it will consider requests for acceleration or qualification in
the absence of a “no objections” statement from FINRA regarding underwriting
compensation arrangements; however, underwriters will be required to confirm
that they will not execute the underwriting agreement or confirm sales of the
registered securities until they have received the “no objections” statement.
Additionally, companies are requested to inform FINRA of their plans to request
acceleration or qualification.
If not accelerated, registration
statements on Forms S-1 and S-3 become effective 20 days after their most
recent public filing, unless subject to a “delaying amendment”. An FAQ notes
that new registration statements may be filed without delaying amendments
during the closure; however, should the shutdown closure not take place the
Staff may ask that the filing be amended to include a delaying amendment.
Similarly, after the beginning of the shutdown, companies may file an amendment
to registration statements to remove delaying amendments in order to allow the
registration statement to become effective after the 20-day period. If during
the course of the shutdown filers wish to delay the effective date of a
registration statement past 20 days they may file another pre-effective
amendment. The registration statement would not go effective until 20 days
after the latest pre-effective amendment that does not include a delaying amendment.
Should SEC operations restart prior to effectiveness, the Staff will consider
requests to accelerate to an earlier date or may ask that the registration
statement be amended to include the delaying amendment. If a delaying amendment
is removed, the Staff notes that the registration statement must be amended to
include all information required by the form. Although not addressed in the
FAQ, unless accelerated, Form 10s become effective 60 days after initial public
filing and are not subject to delay. As a result, Form 10s must be withdrawn
prior to the end of the 60-day period if companies wish to avoid going
effective.
Additionally, while not addressed
in the Staff’s FAQ, we expect that during any shutdown the Staff will cease to
process shareholder proposal no-action letters, although companies should
continue to timely submit those letters under Rule 14a-8(j).
The SEC has stated that it intends to provide
information regarding any imminent change in its operating status with as much
advance notice as possible by means of status updates posted to the SEC website.
Special appreciation to associate Michael Mencher for assistance with this post.