TheCorporateCounsel.net

As the latest in a series of reminders, the Corp Fin Staff has posted a new sample comment letter regarding the disclosure obligations of companies based in or with a majority of their operations in the People’s Republic of China. As usual, the Staff provides an explanation and a series of sample comments. The explanation notes that Corp Fin is focused on the following three key areas of disclosure regarding China-specific matters:

– Disclosure obligations under the Holding Foreign Companies Accountable Act

– “Specific and prominent disclosure” about material risks related to the role of the government of the People’s Republic of China in the operations of China-based companies

– Disclosures regarding the material impacts of certain statutes including, for example, the Uyghur Forced Labor Prevention Act (UFLPA)

The sample comments focus on Item 9C of Form 10-K (Disclosure Regarding Foreign Jurisdictions that Prevent Inspections), risk factors and MD&A.  With respect to risk factors and Corp Fin’s concern about government intervention, it reminds companies that the term “control” is broadly defined in the federal securities laws:

We remind companies that there are other ways in which a government or any person can exercise control over a company beyond appointing members to the board or having formal powers under the company’s organizational documents.  The federal securities laws and regulations generally define the term “control” (including the terms “controlling,” “controlled by,” and “under common control with”) more broadly.  For purposes of the Commission’s rules under the Securities Act of 1933 and the Securities Exchange Act of 1934, control “means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”

With respect to MD&A, the Staff provides the following sample comment regarding the UFLPA:

We note that you appear to conduct a portion of your operations in, or appear to rely on counterparties that conduct operations in, the Xinjiang Uyghur Autonomous Region.  To the extent material, please describe how your business segments, products, lines of service, projects, or operations are impacted by the Uyghur Forced Labor Prevention Act (UFLPA), that, among other matters, prohibits the import of goods from the Xinjiang Uyghur Autonomous Region.

– Meredith Ervine