TheCorporateCounsel.net

With a looming government shutdown dominating the headlines, it is yet again time to go down that well-worn path of trying to plan for the worst in the event Congress is unable to get its act together.

This shutdown talk always brings up bad memories for me, because I can remember starting my career in Corp Fin in the Fall of 1995 when, shortly after I began working in the Division, I was attending all-hands meetings with the Chairman talking about what would happen when the government shut down in the ensuing weeks. The partial government shutdown that ultimately happened, pitting President Bill Clinton against Republican Speaker of the House Newt Gingrich, only lasted for a few weeks. Fortunately, the SEC remained operational during that time using some appropriations that were apparently saved up in its piggy bank. While the crisis was averted, it was a good lesson for me in how a dysfunctional government could have a real impact on my life, as I was trying to figure out how I was going to pay my bills if my paychecks stopped arriving during a prolonged government shutdown.

Here we are, 28 years later, and the dysfunction has only gotten worse as the shutdown card is being played again. While the SEC and the Staff have not yet provided any guidance on how things will be handled in the event of a shutdown, we do have the 2018-2019 shutdown experience to draw on. The shutdown that began on December 22, 2018 and ended on January 25, 2019 was markedly different from the 1995 version, because there was no piggy bank to bail out the SEC, so we actually experienced several weeks of substantially curtailed operations at the SEC.

In advance of the 2018-2019 shutdown, the SEC published its Operations Plan Under a Lapse in Appropriations and Government Shutdown (updated July 2023), and Corp Fin issued fourteen FAQs, which no longer appear to be on the SEC’s website but which are described in this White & Case memo. In the absence of any further updated guidance from the SEC or the Staff, these are good resources to review as we plan for a shutdown. If history is any guide, the SEC may be able to remain fully operational for a few days, but an extended lapse in appropriations will ultimately mean that SEC Staff will be prohibited from doing any work, so Corp Fin will be staffed with only a skeleton crew to handle emergencies during the course of the shutdown. Recall that, during the 2018-2019 shutdown, issuers had to pull their delaying amendments in order to have registration statements go effective so they could proceed with their capital-raising transactions and mergers. There was no impact on the ability to make EDGAR filings during the last shutdown, because EDGAR is operated by a third party.

With only one week to go until the end of the government’s fiscal year and the potential for a lapse in appropriations, now is a good time to speak with your Corp Fin examiner about any registration statements that you have pending with the SEC. It may be the case that the Staff will be willing to resolve any outstanding issues and consider an acceleration request this week, so as to avoid the prospect of a prolonged delay for the issuer in the event of a shutdown. I will continue the coverage this week as events unfold.

– Dave Lynn