On August 26, 2020, the U.S. Securities and Exchange Commission (SEC) voted 3 to 2, along party lines, to adopt amendments to disclosure requirements related to the description of business, legal proceedings, and risk factors in SEC filings. The final amendments are substantially similar to the amendments proposed in August 2019 and discussed in our prior Alert, and are summarized below.
The Amendments
As noted by the SEC, many of the amendments reflect its commitment to a principles-based, registrant-specific approach to disclosure, stating "[o]ur disclosure requirements, while prescriptive in some respects, are rooted in materiality and facilitate an understanding of a registrant's business, financial condition and prospects through the lens through which management and the board of directors manage and assess the performance of the registrant."1 In adopting these amendments, the SEC highlighted the fact that registrants' responses to the principles-based guidance regarding disclosure of COVID-19 impacts generally led registrants to provide detailed discussions of the impact of COVID-19 on their liquidity, operational constraints, and funding sources, among other things.
Item 101(a), General Development of the Business.
Item 101(c), Description of Business.
Item 103, Legal Proceedings.
Item 105, Risk Factors.
The final amendments are effective 30 days after publication in the Federal Register; therefore, the amendments will likely be effective during October 2020.
What to Do Now?
Given the near-term effective date (and assuming no further guidance from the SEC allowing for any transition periods), companies should start reviewing their disclosures soon, including consideration of, among other things:
These amendments will require thoughtful consideration of existing disclosures in registration statements and annual reports, and we urge companies to start their review process early.
For more information, please contact any member of Wilson Sonsini's public company representation or capital markets practice.
[1] See, “Modernization of Regulation S-K Items 101, 103, and 105,“ SEC Release No. 33-10668 (Aug. 26, 2020), available at: https://www.sec.gov/rules/final/2020/33-10825.pdf.