Despite congressional leaders reaching a deal on Wednesday for a short-term stopgap funding extension, public reporting companies and Regulation A issuers are still left in limbo as the bill, if passed, will only extend appropriations for certain agencies, including the Securities and Exchange Commission (the “SEC”), through the end of the day on Friday, March 22. The House of Representatives voted 320-99 to approve the short-term continuing resolution on Thursday, February 29, and the Senate is expected to vote prior to the March 1 deadline. However, the bill offers only a temporary funding solution, and the threat of a government shutdown still looms.
In September 2023, the SEC’s Division of Corporation Finance adopted the “Operations Plan Under a Lapse in Appropriations and Government Shutdown” which describes the SEC’s plan for operating in the event of a lapse in appropriations that results in an SEC shutdown. The SEC’s operations during a government shutdown will be “extremely limited” because agencies are prohibited, under the Antideficiency Act, from continuing operations in the absence of appropriations subject to narrow exceptions.
Summarized below are key takeaways for public reporting companies, certain Regulation A issuers, and other companies involved in capital raising during a government shutdown:
The EDGAR system will remain operational.
Despite an appropriations lapse, the SEC’s public filing database, EDGAR, would remain open and operational. EDGAR would accept filings of all kinds even while the SEC’s operations are otherwise limited. Because EDGAR operates under a continuing contract that is not affected by the lapse in appropriations, issuers, investors, insiders, and others will be able to continue to submit filings using the EDGAR system.
Disclosure obligations and deadlines are unchanged.
Companies are required to timely file periodic and current reports with the SEC even during a government shutdown. A government shutdown would not affect what constitutes a “business day” for the purposes of SEC reporting deadlines, and rules regarding disclosure, such as Regulation FD and Rule 10b-5, would still be applicable. Therefore, so long as the EDGAR system remains up and running, companies with periodic reporting requirements, including Tier 2 Regulation A issuers, should continue to prepare to timely file any required periodic and current reports in accordance with existing deadlines.
The SEC will not declare registration statements effective nor qualify offering statements.
Filings that are not automatically effective, such as registration statements on Forms S-1 or S-3, tender offer statements, or preliminary proxy statements, would not be processed during a government shutdown. Moreover, the SEC will not review any filings, grant companies’ requests for acceleration, issue no-action letters, respond to comment letters, or provide any interpretive advice during a lapse in appropriations.
Public companies that plan to file registration statements that are not automatically effective or that are subject to SEC review may consider filing the registration statement, or filing an amendment to a current but not yet effective registration statement, without the customary “delaying amendment” required under Rule 473(a) of the Securities Act. Doing so would cause a non-automatically effective registration statement to become effective without SEC action 20 days after the registration statement was filed without the delaying amendment. However, the SEC has advised companies pursuing this option to “consider carefully the risks of this course of action and… evaluate their particular facts and circumstances before doing so.” Additionally, the SEC cautioned that companies should “ensure that the registration statement does not contain any material misstatements or omissions of material information required to be stated therein or necessary to make the statements therein not misleading,” because liability and antifraud provisions of the federal securities laws would still apply. Finally, the SEC notes that simply omitting the delaying amendment from an amendment to a registration statement will not begin the 20-day period; rather, the amendment must also include the language specified under Rule 473(b). Removal of the Rule 473 delaying language is not available for a traditional IPO because such transactions rely on Rule 430A of the Securities Act.
Similarly, post-effective amendments that are subject to SEC review will not be automatically effective. Thus, registrants who need to file post-effective amendments to update disclosure in a prospectus or an offering circular will be unable to continue the offering until the shutdown ends and the SEC declares the amendment effective.
Finally, companies should prepare for significant delays in the SEC’s processing of registration statements during a government shutdown, because any registration statements that are not automatically effective will be at a standstill during that period. Companies should also expect delays immediately preceding a government shutdown as the SEC will likely face increased workload as a result of the impending shutdown.
Automatically effective registration statements will still be automatically effective.
Automatically effective registration statements (e.g., Forms S-8, S-3ASR, S-3d, S-8 and certain post-effective amendments) will still become automatically effective in accordance with existing rules during a government shutdown. Although not specifically addressed by the SEC’s Division of Corporation Finance, a registration statement filed on Form 10 would still become automatically effective 60 days after public filing. Issuers with Form 10s that will become automatically effective during the potential shutdown should closely monitor any appropriations lapse and ensure the Form 10 is withdrawn if they do not wish for the Form 10 to become effective during the shutdown.
Certain issuers have unique privileges.
Well-known seasoned issuers (WKSI) will continue to be able to access public markets during a government shutdown because shelf registration statements will continue to be automatically effective without SEC review. Non-WKSI issuers with effective shelf registration statements on Form S-3 or Form F-3 will continue to be able to conduct shelf takedowns and file prospectus supplements.
Proxy Statements will not be reviewed.
The SEC will not review preliminary proxy statements during a shutdown. Definitive proxy materials may thus be filed and mailed 10 days after the preliminary proxy is filed.
We encourage all public reporting companies and Regulation A issuers to monitor the SEC website (http://www.sec.gov) for the most up-to-date information regarding the status of SEC operations.
