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SEC Disclosures Amidst Coronavirus

As the global incidence of COVID-19 (or coronavirus disease 2019) grows, companies are feeling real effects from what seemed like a hypothetical risk a short time ago. They must quickly evaluate risks to and effects on their businesses, employees and customers, often with uncertain information. Public companies must also consider whether, how and when to update their investors and markets about the effects of the spread of COVID-19 on their operations and outlook.

On March 4, the Securities and Exchange Commission provided conditional relief for public companies that are unable to meet their filing requirements due to the COVID-19 outbreak. SEC Chairman Clayton also reminded “all companies to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.”

Key Disclosure Considerations:

  • Risk factors should describe material effects of COVID-19 on the company that have already occurred and that are anticipated. Companies directly affected by material operational, supply or demand disruptions may require robust disclosure, while companies experiencing smaller, indirect consequences may be comfortable with only a general reference to diseases such as COVID-19. Companies that have already filed their annual report for fiscal year 2019 should assess whether existing risk factors must be updated on a Form 8-K or included in the company’s next quarterly report.
  • Describe assessment of COVID-19 effects as a known trend or uncertainty in MD&A. Public companies should include a discussion in MD&A of known trends, events, demands, commitments and uncertainties that are reasonably likely to have a material effect on the company’s financial condition or operating performance. Management should assess whether the spread of COVID-19 meets this standard and include appropriate disclosure in MD&A. This may include financial, operations, or personnel effects.
  • Review and update key assumptions, sensitivities and accounting measures. Financial and accounting and audit teams should consider the effect of COVID-19 developments on impairment analysis, counterparty credit risk, covenant compliance and other financial and accounting measures and sensitivity analyses.
  • Update safe harbor language. Update forward-looking statements (FLS) disclaimers in press releases and SEC filings that include statements that may be affected by COVID-19.
  • Consider updates to financial or other guidance. Financial and other guidance, even if made recently, may have already been materially affected by the spread of COVID-19. Consider whether and when to provide updating disclosure to those statements, and consider whether new guidance should be for short periods only.

COVID-19 SEC Disclosure Checkup

  • Risk Factors
  • MD&A
  • Accounting
  • FLS Disclaimers
  • Guidance

Key Process Considerations:

  • Avoid selective disclosure of material non-public information (MNPI). Normal anti-fraud rules and Regulation FD apply even in a pandemic. Do not selectively disclose MNPI. Any inadvertent disclosure of MNPI by a senior company official should be promptly corrected with a public filing. Consider whether the company has a duty to update prior risk factors, earnings guidance or other information that has become materially inaccurate in light of new developments.
  • Close trading windows until MNPI is disclosed. The current environment of market and operational volatility from COVID-19, commodities pricing, and political uncertainties may cause companies to have MNPI at times that trading windows are normally open. Pay attention to information, and close trading windows generally or selectively as material information emerges until the information is publicly disclosed.
  • Consider switching to a virtual or hybrid stockholder meeting. Verify that a virtual or semi-virtual stockholder meeting is permitted by governing law and charter documents and whether it is a practical option.
  • Monitor internal controls. Be vigilant against cybersecurity attacks. Make contingency plans to maintain internal controls during foreseeable disruptions to operations or staff. Be particularly vigilant in protecting against cybersecurity threats. Read more on COVID-19 in the workplace here.
  • Apprise directors regularly about developments. Management should provide regular reports to the board to allow directors to play an active role in assessing the company’s risks, management’s responses, and company disclosure related to COVID-19. Use this as an opportunity to assess the effectiveness of emergency by-laws or to enact emergency by-laws if the company does not already have them.

COVID -19 Key Process Checkup

  • Selective Disclosure
  • Insider Trading
  • Stockholder Meeting Planning
  • Internal Controls
  • Cybersecurity
  • Board Engagement

Take Advantage of SEC Relief If Needed

The SEC granted relief to companies unable to meet certain filing deadlines due to COVID-19, allowing certain filings to be delayed by up to 45 days. Companies taking advantage of this relief must file a current report explaining why they need the relief. More details on the relief can be found here.

For any Coronavirus-related legal questions, please contact a member of V&E’s Coronavirus Taskforce or visit our Coronavirus: Preparation & Response site for a list of contacts and additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.