Citing the impact of the current outbreak of coronavirus disease 2019 (COVID-19), the Securities and Exchange Commission (SEC) issued orders on March 13, 2020 under the Investment Company Act of 1940 and the Investment Advisers Act of 1940 permitting registered funds and investment advisers to delay certain filings and mailings, including prospectuses, shareholder reports, Form N-CEN, Form N-PORT, Form N-23C-2, Form PF and Form ADV. The SEC also permitted boards to meet telephonically or by video conference to consider and vote on matters that would otherwise require an in-person vote.
In light of the outbreak of COVID-19 and related operational disruptions around the world, the SEC has recently provided relief to its registrants from certain regulatory requirements. On March 4, 2020, the staff of the SEC’s Division of Investment Management extended no-action relief from certain in-person voting requirements for the period from March 4, 2020 to June 15, 2020. The SEC also issued an order on March 4, 2020 providing conditional relief to issuers affected by COVID-19 from timeliness requirements for certain filings under the Securities and Exchange Act of 1934. On March 13, 2020, the SEC staff issued guidance for conducting annual meetings in light of COVID-19 concerns.
The two orders issued on March 13, 2020 are part of the SEC response to current and potential difficulties raised by the spread of COVID-19. The SEC staff stated that it is monitoring the COVID-19 situation and may extend the period for relief or provide additional relief as circumstances warrant.
In light of the current and potential effects of COVID-19, the SEC has granted relief to boards of investment companies and business development companies from in-person voting requirements for all approvals and renewals of contracts, plans or arrangements under Section 15(c) (advisory and sub-advisory agreement approvals); Section 32(a) (approval of accountants); Rule 15a-4(b)(2) (interim advisory agreements) and Rule 12b-1 (distribution plans). A board relying on the order would be required to ratify any vote taken under the relief at the next in-person board meeting. The relief is temporary and only applies to meetings held through June 15, 2020. As noted above, the SEC staff had previously issued no-action relief covering the period from March 4, 2020 to June 15, 2020.
Forms N-CEN and N-PORT
The SEC has also granted relief to investment companies and unit investment trusts that are unable to timely file their Forms N-CEN or N-PORT due to the effects of COVID-19. The relief is available for filings originally required to be filed on or before April 30, 2020. The Form N-CEN or Form N-PORT must be filed as soon as possible, but not later than 45 days after the original due date. Any Form N-CEN or Form N-PORT filed pursuant to the order must include a statement noting that the order was relied on and explaining why the fund was unable to timely file such report.
Closed-end funds and business development companies were given relief from the requirement to file Form N-23C-2 at least 30 days prior to calling or redeeming securities if prevented from timely filing due to the effects of COVID-19. The relief is available through June 15, 2020. A notice must still be filed before any call or redemption of existing securities and before any offering of replacement securities. The actual notice period must comply with any applicable state laws and the fund’s governing documents.
Form ADV and Form PF
The SEC provided relief to investment advisers prevented from timely filing Form ADV and Form PF and delivering Form ADV Part 2 due to the effects of COVID-19. The relief applies when the original due date is on or prior to April 30, 2020. The adviser must file or deliver the relevant documents as soon as possible, but not later than 45 days after the original due date. The SEC, however, also reminded investment advisers to continue to evaluate their obligations, including their fiduciary duty, under federal securities laws when determining whether to rely on the order.
Delivery of Prospectuses and Shareholder Reports
The SEC also issued relief through April 30, 2020 to registered funds who are unable to prepare or transmit annual and semi-annual reports due to the effects of COVID-19. The shareholder reports must be transmitted to shareholders as soon as possible, but no later than 45 days after the original due date, and the reports must still be filed with the SEC within 10 days of their transmission to shareholders.
The SEC also stated in the release that SEC staff would not pursue an enforcement action for failure to timely deliver the current prospectus due to the effects of COVID-19, provided that it was not in connection with an initial purchase and the prospectus was delivered no later than 45 days after the date originally required.
In order to rely on the relief from the timeliness requirements for Form N-CEN, Form N-PORT, Form ADV, Form PF, prospectuses and shareholder reports, the funds and advisers must adhere to certain notice requirements. In general, the fund or adviser must provide the SEC notice of its intention to rely on the order promptly via email. The fund or adviser must also disclose on its public website: (i) that it is relying on the order, (ii) a brief description of the reasons why it could not file or deliver the relevant document on a timely basis, and (iii) the estimated date by which it expects to file or deliver the relevant document.
The SEC orders provide relief from the timely filing and delivery requirements for many, but not all, documents. Notably not included were Form N-LIQUID, Form N-CR and Form N-MFP, which are still required to be filed on time. In its press release announcing the orders, the SEC provided contact information for questions or concerns related to these forms. Funds and advisers should continue to revisit their business continuity plans, valuation procedures, and other relevant policies and procedures in light of the COVID-19 threat.As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center provides information to help you understand and assess the legal, regulatory and commercial implications of COVID-19.