Securities Law Consequences of a Late Filing

Exchange Act Rule 12b-25 provides that if a company cannot timely file all, or any portion, of a quarterly or annual report then within one business day after the report’s due date the company must file a Notification of Late Filing (on a Form 12b-25) stating the reason why.*

Rule 12b-25 also provides that if the report could not have been filed by its due date without unreasonable effort or expense, then it may still be deemed to have been timely filed if the company:

• timely files its Notification of Late filing; and

• files the late report within the applicable grace period (no later than 5 calendar days in the case of a quarterly report, and no later than 15 calendar days in the case of an annual report, regardless of the company’s filer status).

This is an important detail because if a company has not timely filed all of its Exchange Act filings (with the exception of certain filings required to be made on a Form 8-K) it will lose the ability to file a short form registration statement on Form S-3 (or Form F-3 in the case of a foreign private issuer) for at least a period of 12 months. This will in turn limit the company’s ability to conduct certain types of registered securities offerings.

In addition, until the late report is filed the company will also lose its ability to file a Form S-8 registration statement and its Rule 144 eligibility. Form S-8 is a short form registration statement used for offering securities under an employee benefit plan, and Rule 144 covers unregistered public resales of restricted and control securities. These are temporary consequences, however, because neither Form S-8 nor Rule 144 require that a company’s reports be timely filed, only that they are filed.

As for any currently effective registration statement, a company’s ability continue to rely on that registration statement prior to filing a late report will depend on whether the prospectus and anti-fraud provision of the Securities Act are satisfied, the late filing notwithstanding.

In the case of a company with securities quoted in an over the counter market, like the OTC Bulletin Board, there are no listing requirements. However broker-dealers participating in the OTC Bulletin Board markets are members, and governed by the rules, of the Financial Industry Regulatory Authority (FINRA).  FINRA Rule 6530(e) prohibits members from quoting the securities of a company that has failed to timely file a required report three times in any 2-year period, or that has had its securities removed from the OTC Bulletin Board quotation service twice in a 2-year period for failing to file a required report within 30 days of the filing deadline. Once a company’s securities are prohibited from being quoted on the OTC Bulletin Board the company must timely file all required reports for a period of one year before it can regain eligibility.

Other Consequences of a Late Filing

Late filings occur for all kinds of reasons and under certain circumstances may simply be unavoidable. In addition to these general capital market, securities law and securities exchange consequences, late filers also need to be aware of and consider company-specific consequences, such as whether a late filing will trigger an event of default or violate any other contractual covenants.