HOME E-MAIL THIS PAGE JAPANESE WEB SITE Alert > Corporate Securities SEC Adopts New Rules Regarding Foreign Private Issuer Disclosure and Registration Requirements October 3, 2008 The SEC recently adopted amendments to the rules regarding disclosure and registration requirements for foreign private issuers. The rule amendments (i) accelerate the deadline for filing an annual report on Form 20-F from six months to four months, (ii) enable issuers to test their foreign private issuer status once per year, (iii) enhance the disclosure required in an annual report on Form 20-F, (iv) impose additional conditions on foreign issuers eligibility for the exemption from registration under Section 12(g) of the Exchange Act, and (v) update the going private rules under Exchange Act Rule 13e-3. Accelerated Deadline for Foreign Private Issuer Annual Reports Under current rules, a foreign private issuer s annual report on Form 20-F is due six months after the end of each fiscal year. Beginning with fiscal years ending on or after December 15, 2011, this deadline will be shortened to four months after the end of each fiscal year. The SEC chose not to adopt a 90-day deadline it had originally proposed for large foreign private issuers. In its adopting release, the SEC justified the accelerated deadline by pointing to (1) technological developments since Form 20-F s adoption 30 years ago, which ease the dissemination of information, (2) the fact that many foreign private issuers already have filing deadlines of three months in their home countries, and (3) the three-year grace period foreign private issuers will have, before the new deadline takes effect. Also motivating the faster timetable is the SEC s concern for investors timely access to reliable information. In addition, the SEC believes the four-month deadline may incentivize some foreign private issuers to prepare their financial statements in accordance with International Financial Reporting Standards ( IFRS ), since, under rules adopted by the SEC last December, foreign private issuers that report using IFRS need not provide a reconciliation to U.S. GAAP (which might be difficult to complete before the accelerated deadline). Annual Test of Foreign Private Issuer Status The existing rules have saddled a foreign company with the obligation to test its foreign private issuer status continuously and to begin reporting as a U.S. issuer immediately upon the loss of such status. Under the new rules, a foreign private issuer need only assess its foreign private issuer status once a year on the last business day of its second fiscal quarter the same date used by issuers to determine accelerated filer and smaller reporting company status. Both issuers and investors can now be confident regarding the status of foreign issuers at any given time, and companies will avoid the time and costs associated with continuous monitoring, as well as the risk associated with losing foreign private issuer status on short notice. If an issuer that currently qualifies as a foreign private issuer fails to satisfy the foreign private issuer test on the last day of its second fiscal quarter, the issuer must begin complying with the SEC s domestic registration and reporting regime effective the first day of its next fiscal year, rather than immediately, as has been the case until now.
Enhanced Disclosures on Form 20-F The SEC also amended Form 20-F to: require information regarding any changes in and disagreements with the foreign private issuer s certifying accountant; require disclosure of fees and other charges paid in connection with ADR facilities; require a concise summary of the significant ways in which the issuer s corporate governance practices differ from the corporate governance practices followed by domestic companies under the relevant U.S. exchange s listing standards; eliminate the instruction to Item 17 of Form 20-F that permits certain foreign private issuers to omit segment data from their U.S. GAAP financial statements, which as a result, previously allowed certain foreign private issuers to file qualified U.S. GAAP audit reports on such financial statements; and eliminate the limited U.S. GAAP reconciliation option in Item 17 of Form 20-F for foreign private issuers that are only listing a class of securities on a U.S. national securities exchange, or only registering a class of equity securities under Section 12(g) of the Exchange Act, and not conducting a public offering. Streamlined Registration Exemption For Foreign Private Issuers The SEC also adopted amendments which overhaul Exchange Act Rule 12g3-2(b). Under Section 12 (g) of the Exchange Act and related rules, unless an exemption is available, a foreign private issuer with 500 or more holders of record of a class of equity securities at the end of its most recent fiscal year must register that class if, on that date, the issuer s total assets exceed $10 million. One available exemption is Rule 12g3-2(b), which, prior to the amendments, exempted a foreign private issuer that had not listed or publicly offered securities in the U.S. from Section 12(g) registration, as long as the issuer furnished the SEC with a written application and, on an ongoing basis, furnished paper English-language versions of certain material information that the issuer has made public or is required to make public in its home country. The new rules may make it easier for a foreign private issuer to satisfy the exemption and, accordingly, to have its equity securities traded in the U.S. overthe-counter market without registering with the SEC under Section 12(g). The amendments eliminate the requirements for a written application and paper submissions. Under the new rule, the 12g3-2(b) exemption is self-executing, so that a foreign private issuer will be automatically exempt, so long as the issuer: currently maintains a listing of the subject class of securities on one or more exchanges in its primary trading market ; is not required to file or furnish reports under Exchange Act Section 13(a) or 15(d); and has published in English specified non-u.s. disclosure documents, from the first day of its most recently completed fiscal year, on its Internet Web site or through an electronic information delivery system generally available to the public in its primary trading market, unless the issuer is claiming the exemption in connection with a recent Exchange Act deregistration.
In connection with the foreign listing condition, a primary trading market is defined as a market or markets in no more than two foreign jurisdictions in which at least 55% of the trading in the issuer s subject class of securities occurred in the issuer s most recently completed fiscal year. If a foreign private issuer aggregates the trading of its subject class of securities in two foreign jurisdictions for its primary market, the trading for the issuer s securities in at least one of those foreign jurisdictions must be greater than the trading in the U.S. for the same class of the issuer s securities. The SEC chose not to adopt its proposal that the exemption be conditioned upon a foreign private issuer s U.S. average daily trading volume ( ADTV ) being no more than 20% of its worldwide ADTV for its most recently completed fiscal year, out of concern that this requirement would discourage foreign private issuers from establishing or maintaining ADR facilities or engaging in exempted offerings in the U.S., such as private placements and 144A resales, to the detriment of U.S. investors. In addition, according to the SEC, the foreign listing condition and the definition of primary trading market assure that there is a foreign jurisdiction principally regulating the trading of a foreign private issuer s securities and the issuer s disclosure obligations to investors, thus ensuring that material information regarding foreign private issuers utilizing the exemption remains available to investors. As adopted, the amendments condition the Rule 12g3-2(b) exemption on an issuer s electronic publishing, at a minimum, of English versions of the following documents: its annual report, including or accompanied by annual financial statements; interim reports that include financial statements; press releases; and all other communications and documents distributed directly to security holders of each class of securities to which the exemption relates. As under the previous rule, the amendments only require a foreign private issuer to publish electronically information that is material to an investment decision regarding the subject securities, such as information relating to: results of operations or financial condition; changes in business; acquisitions or dispositions of assets; the issuance, redemption or acquisition of securities; changes in management or control; the granting of options or the payment of other remuneration to directors or officers; and transactions with directors, officers or principal security holders. The issuer may continue to rely on the Rule 12g3-2(b) exemption until it: no longer electronically publishes the required disclosure documents in English; no longer maintains a listing for the subject class of securities on one or more exchanges in a primary trading market; or registers a class of securities under Section 12 of the Exchange Act or incurs reporting
obligations under Section 15(d) of the Exchange Act. These amendments are effective on October 10, 2008, subject to two transition periods. First, any issuer exempt under the old rules that no longer qualifies for the exemption under the new rules will have three years to comply with the rules or to register under the Exchange Act. Second, for three months following the effectiveness of the amendments, the SEC will accept and process any non-u.s. disclosure documents submitted in paper by Rule 12g3-2(b)-exempt issuers. Amendments to Going Private Rules For Foreign Private Issuers Finally, the SEC revised Exchange Act Rule 13e-3, which regulates going private transactions by reporting issuers or their affiliates, to reflect the recently adopted rules concerning deregistration and termination of the reporting obligations of foreign private issuers in connection with going private transactions. The amended Rule 13e-3 will be triggered when an issuer becomes eligible to deregister under the Exchange Act by meeting a benchmark based on ADTV in the U.S., rather than the previous rule s less certain test based on the number of the issuer s U.S. security holders. Conclusion Foreign issuers and their investors alike stand to benefit from the SEC s recent modernization of the rules and forms concerning foreign private issuer reporting and registration requirements. Several of these amendments, particularly concerning the annual test for foreign private issuer status and the automatic, paperless exemption from registration under Section 12(g), may simplify and reduce the costs of compliance for foreign private issuers. At the same time, the shortened deadline for filing Form 20-F and the requirements that foreign private issuers electronically publish English versions of non-u.s. disclosure documents promote investor protection and may provide U.S. investors increased and timely access to material information regarding foreign private issuers, enabling them to make better informed investment decisions. If you have any questions with respect to any of the foregoing or disclosure rules generally, please contact your regular Bingham corporate contact or one of the following attorneys: Laurie A. Cerveny, laurie.cerveny@bingham.com 617.951.8527 Michael P. O Brien, michael.obrien@bingham.com 617.951.8302 Jennifer R. Cleary, jennifer.cleary@bingham.com 617.951.8663 Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained herein does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose. 2009 Bingham McCutchen LLP To communicate with us regarding protection of your personal information or if you would like to subscribe or unsubscribe to some or all of Bingham McCutchen LLP s electronic and email notifications, please notify our Privacy Administrator at privacyus@bingham.com or privacyuk@bingham.com. Our privacy policy is available at www.bingham.com. We can also be reached by mail in the U.S. at One Federal Street, Boston, MA 02110-1726, ATTN: Privacy Administrator, or in the U.K. at 41 Lothbury, London, England EC2R 7HF, ATT: Privacy Administrator.
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