April 3, 2020

SEC Chair Encourages Continued Disclosures Amid Pandemic

Yesterday, SEC Chairman Jay Clayton issued a public statement emphasizing that the SEC is “focused on ensuring that issuers and other registrants continue to provide material information to investors, including information related to the current and expected effects of COVID-19, as promptly as practicable.”  In another statement before a special meeting of the Investor Advisory Committee yesterday, Chairman Clayton again emphasized the need for issuers to provide disclosures about efforts to address the effects of COVID-19.  Here’s an excerpt:

Our investors and our markets thirst for information as a general matter.  This is particularly the case in times of economic shock and uncertainty.  Couple this fundamental premise with the reality that for COVID-19-related reasons issuers may not be able to file required quarter-end reports on time, and we have a challenge.  Importantly, an inability to file required reports does not prevent issuers from issuing earnings releases and filing current reports on Forms 8-K.

I believe the conditional, tailored relief crafted by the Division of Corporation Finance, coupled with their detailed guidance regarding COVID-19-related disclosure topics will allow issuers to provide prompt, period-end earnings information, and information regarding their past and expected future efforts to address the effects of COVID-19, regardless of whether they are able to comply with filing deadlines.  We encourage issuers to provide as much information as is practicable and stand ready to engage with them.

Hat tip to Cooley’s Cydney Posner who blogged about yesterday’s statements and included notes from the Investor Advisory Committee meeting.

COVID-19 Financial Reporting Considerations Guide

Last week, John blogged about Corp Fin’s COVID-19 disclosure guidance and we’ve blogged about COVID-19 disclosures involving executive health, annual meeting implications, earnings calls, etc.  This 64-page report from Deloitte outlines financial reporting considerations related to COVID-19 and an economic downturn…could be a helpful resource as companies prepare first quarter financial reports, which no doubt will require more effort as the quarter was far from a “normal” first quarter and nearly everyone is working remotely, including most service providers.

Beyond discussing key accounting & financial reporting considerations related to issues resulting from COVID-19, it also includes various industry-specific considerations.  The report lists the following topics as likely being the most pervasive and challenging accounting & reporting issues:

– Preparation of forward-looking cash flow estimates

– Recoverability and impairment of assets

– Accounting for financial assets

– Contract modifications

– Subsequent events

– Going concern

More on “Will Business Interruption Insurance Pick Up Some of the Tab?”

Not too long ago, John blogged about the long fight ahead for companies thinking of recovering for COVID-19 related losses under business interruption coverage.  Ultimately, a company’s policy language will be one factor that determines whether COVID-19 business interruption losses will be covered and many commercial property policies exclude coverage for losses resulting from a virus such as COVID-19.

This Seyfarth memo notes that business interruption coverage usually requires that losses be accompanied by direct physical loss to the property.  During the COVID-19 pandemic, many businesses are closed due to state orders so it may be difficult to get coverage under a policy providing business interruption coverage.  Some might try to argue the physical loss resulted from COVID-19 contamination but this sounds like part of the long fight John blogged about.

An interesting wrinkle is that several states are trying to expand business interruption coverage retroactively by introducing bills that would provide coverage for losses from COVID-19 under commercial property policies.  The memo says that legislators in Ohio and Massachusetts have introduced these bills and this Hunton Andrews Kurth blog reports bills have been introduced in other states. New Jersey introduced similar legislation but another Hunton Andrews Kurth blog reports the bill has been pulled to allow time for insurers time to come forward with their own plan for how to address the issue.  Some might also want to watch whether lawsuits filed by restaurant owners seeking coverage for coronavirus-related business losses move forward  – here’s a story about a lawsuit brought by Thomas Keller, the famed chef of The French Laundry and Per Se.

– Lynn Jokela