Once a company becomes subject to the requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), it has an obligation to timely file all SEC reports. Annual Reports on Form 10-K (“10-Ks”) and Quarterly Reports on Form 10-Q (“10-Qs”) for “smaller reporting companies” are due to be filed no later than 90 and 45 days, respectively, after the end of the SEC reporting company’s fiscal year or fiscal quarters. A 15-calendar day extension (for 10-Ks) and 5-calendar day extension (for 10-Qs) of the filing deadline is available through the filing of a 12b-25 no later than the next business day after the original 10-K or 10-Q filing deadline. Most Current Reports on Form 8-K (“8-K”) are due to be filed no later than four business days after the event triggering the filing of the 8-K. Despite the efforts of management and service providers assisting with the SEC report, sometimes there are foreseen and unforeseen circumstances which may cause an SEC report to be filed after the extended filing deadline.
What are the consequences of filing an SEC report after the deadline or not at all?
Filing an SEC report after the deadline (for 8-Ks) or the extended deadline (for 10-Ks and 10-Qs) can have serious consequences for SEC reporting companies. The first consequence of filing an SEC report after the deadline or not at all is shareholder and investor perception. Because SEC reporting companies have a public shareholder base of investors, it is critical for management to be perceived by its shareholder base as competent and fully-engaged in its responsibilities as management of an SEC reporting public company. If an SEC reporting company is exhibiting a pattern of filing its SEC reports after the deadline, the shareholders may lose confidence in management. In addition, disclosure under Item 307 of Regulation S-K requires an SEC reporting company to disclose the effectiveness of the company’s disclosure controls and procedures, which should be designed in such a way as to minimize the possibility of late filings of SEC reports. Late filings of SEC reports may force management to declare its disclosure controls and procedures are not effective, which may diminish shareholder confidence and potential new investors. A loss of shareholder confidence may also lead to loss of investor interest in the SEC reporting company.
The second consequence of filing an SEC report after the deadline or not at all is that it generally eliminates the use by the selling shareholders of an SEC reporting company of Rule 144.
Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Rule 144(c) requires that adequate current information about the SEC reporting company be publicly available before the sale can be made. For SEC reporting companies, this generally means that the companies have filed their SEC reports (10-Ks and 10-Qs). The SEC reporting company is also is required to submit electronically and have posted on its corporate website, if any, all XBRL data contained in the filings of its SEC reports. The loss of the availability of Rule 144 for resales of securities of an SEC reporting company by shareholders can be devastating to establishing a public market for the securities and liquidity for selling shareholders.
The third consequence of filing an SEC report after the deadline or not at all is that it disqualifies the SEC reporting company from using Form S-3 (“S-3s”) and it also prevents a company from filing a Form S-8 (“S-8s”) while the SEC reporting company is delinquent in its reporting requirements. As will be discussed in a future post, the use of S-3s and S-8s can be critical for an SEC reporting company.
The last consequence of filing an SEC report after the deadline or not at all is that the SEC may bring enforcement proceedings against the SEC reporting company and its management, including actions to deregister the securities.
Filing SEC reports can be a very complicated process which requires the engagement of services of an expert who specializes in SEC reporting. Business Legal Advisors, LLC has over seven years of experience representing companies subject to SEC reporting and can assist companies with preparing and filing SEC reports in conformity with disclosure requirements and in a timely fashion.