SEC Adopts Tighter 20-F Deadline

At its open meeting on August 27, 2008, the SEC adopted amendments to the rules applicable to foreign private issuers (FPIs) that file reports with the SEC. The most important amendment is to accelerate the deadline for filing an annual report on Form 20-F to four months after the end of the fiscal year, an improvement compared to the 90-day deadline the SEC originally proposed for large issuers. Based on the discussion at the SEC’s open meeting, the final rule will otherwise implement the amendments substantially as proposed in March 2008, with one exception. These amendments are summarized below. The full text of the release is not yet available.

At the same meeting, the SEC acted on two other major proposals affecting foreign private issuers: it adopted amendments to Rule 12g3-2(b) under the Securities Exchange Act of 1934, which exempts certain FPIs from registration with the SEC, and it adopted amendments to its rules on cross-border M&A transactions. The SEC also decided to issue for comment a proposed “roadmap” for moving towards the use of International Financial Reporting Standards (IFRS) by domestic U.S. issuers. We will be sending separate emails addressing these developments.

Deadline for Filing Form 20-F
Currently an issuer’s annual report on Form 20-F is due six months after the end of each fiscal year. The SEC shortened the deadline to four months for all FPIs. It had proposed 90 days for accelerated filers and 120 days for other filers. The change will take effect for fiscal years ending on or after December 15, 2011 – so for a calendar-year issuer, it will take effect for the 2011 annual report filed in 2012.

To justify the shorter deadline, the SEC pointed out that filing deadlines in other countries are generally not longer than four months and that a four-month deadline will ensure more timely disclosure for investors. The SEC apparently rejected the arguments of many commentators that an accelerated deadline will be burdensome for FPIs since their 20-F reports must include more and different information than the home-country report and are often prepared after the home-country report is substantially complete.

The accelerated deadline is particularly significant for FPIs that must reconcile their financial statements to U.S. generally accepted accounting principles, a complex and lengthy process that may be hard to complete within the new deadline. Companies that prepare financial statements under IFRS (as issued by the International Accounting Standards Board) are exempt from this requirement, and the tighter deadline may cause some companies to switch to IFRS, especially if they can use IFRS for home-country reporting. One reason for the three-year delay in effectiveness is to allow time for foreign issuers and regulators to adopt IFRS.

Other Changes Relating to Form 20-F
Most of the changes concern the disclosure requirements of Form 20-F, which FPIs use to file annual reports with the SEC and which forms the basis of the disclosures required for registered offerings.

• An FPI that must reconcile its financial statements to U.S. GAAP will no longer have the option to use the less demanding presentation under Item 17 of Form 20-F. Financial statements of a company other than the issuer – e.g., an acquired company or an equity-method investee – may still be prepared under Item 17.
• Form 20-F will require disclosure of significant differences between the issuer’s corporate governance practices and the requirements of U.S. securities exchanges. The rules of the U.S. exchanges already require essentially the same information but permit it to be published on the website instead.
• Form 20-F will require disclosures about any fees and charges relating to an issuer’s ADR programs, including payments made by a depositary to the issuer in connection with the programs.
• Form 20-F will require disclosures regarding changes in and disagreements with the issuer’s auditors. The disclosures are substantially the same as those that apply to U.S. issuers under Form 8-K, except that under Form 20-F they will only be required annually.
  The SEC specified that the change described in the first bullet above will take effect for fiscal years ending on or after December 15, 2011. It did not address the effectiveness of the other amendments, which will apparently be earlier.

The SEC did not adopt one related proposal, under which an annual report on Form 20-F would have had to include target financial statements and pro forma financial information for some large completed acquisitions. The proposal would have affected only a few companies each year, but the burden would have been significant, so the decision not to adopt this requirement provides significant relief.

Changes to “Going Private” Rules
The SEC amended its “going private” rules under Exchange Act Rule 13e-3 to cover share repurchases, tender offers and proxy solicitations that are intended, or would be reasonably likely, to render an FPI eligible to deregister its securities.

Changes to Determination of FPI Status
Under the new rules, an issuer will be required to determine its FPI status under the SEC’s rules once a year on the last day of its second fiscal quarter, and the amendments will provide a transition period for a company that loses FPI status. Under current rules, a company must test its status continually and start reporting as a U.S. company immediately upon the loss of FPI status.

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