TheCorporateCounsel.net

At the risk of sharing too much information, I have a recurring nightmare where I have to take an exam while I am in college or law school, and I never manage to get there on time. By the time I arrive, the classroom is empty and my hopes for completing the exam are dashed. This scenario never happened to me when I was actually in school, so I sometimes wonder whether this dream somehow relates to working in a profession where clients have strict deadlines with significant consequences when it comes to their SEC filings.

A company facing the prospect of missing their Exchange Act filing deadline is often gratified to learn that there is an ability to get some extra time for the filing through Exchange Act Rule 12b-25. But it is also important to keep in mind that a company must file a Form 12b-25 (denoted as “NT” and the filing type on EDGAR) whenever a periodic report is late, even if the company is not actually seeking the automatic extension of the deadline provided in the Rule 12b-25. As we noted in the January-February 2009 issue of The Corporate Counsel:

Rule 12b-25(a) requires the filing of Form 12b-25 within one business day after the due date whenever a periodic report is late. Exchange Act Rules CDI Question 135.02 confirms that the box in Part II of Form 12b-25 is to be checked only if the filing is expected to be made within the applicable, i.e., 15 or 5-day, extension period. This is consistent with the notion that the Form is required even where there is no expectation of meeting the deadline. But, if the box isn’t checked, there is no extension (see Rule 12b-25(b)(2)(ii)).

Moreover, companies need to be very careful about the accuracy and completeness of the description of reasons for the late filing that are given in the Form 12b-25. Rule 12b-25(a) states that the Form 12b-25 “shall contain disclosure of its inability to file the report timely and the reasons therefore in reasonable detail.” Form 12b-25 also requires the filer to confirm whether or not it anticipates that any significant change in results of operations from the corresponding period for the prior fiscal year will be reflected by the earnings statements to be included in the subject periodic report. If such change is anticipated, the filer must attach a narrative and quantitative explanation of the anticipated change and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made. Way back in 2005, the Commission brought an action against a company for false and misleading disclosure in a Form 12b-25 about the reasons for the inability to file the periodic report in a timely manner, which I have often pointed to when companies are considering what to say in this very sensitive filing – the case was called In the Matter of FFP Marketing Company, Inc., Warner Williams, and Craig Scott, CPA, Rel. No. 34-51198 (February 14, 2005).

This week, the SEC gave me several new examples to point to! The SEC brought administrative proceedings against five companies – Vivic Corp., ReShape Lifesciences Inc., Omnia Wellness Inc., Alpine 4 Holding, Inc. and Black Spade Acquisition Co – for violating Rule 12b-25 by filing a Form 12b-25 with the Commission in which the company failed to disclose why, in sufficient detail under the circumstances presented, the periodic report could not be timely filed, and also failed to provide required disclosures about significant changes in results of operations. In these settled administrative proceedings, the subject companies were ordered to cease and desist from violating Rule 12b-25 and were required to pay civil money penalties.

– Dave Lynn