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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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The Investment Company Act of 1940, as amended (1940 Act), requires that a fund’s board of directors (including a majority of the independent directors) approve various contracts, plans and arrangements at in-person meetings, including the renewal and approval of investment advisory contracts and principal underwriting contracts pursuant to Section 15(c) of the 1940 Act, selection of independent registered public accountants pursuant to Section 32(a), and renewal and approval of Rule 12b-1 plans. Inability to meet these requirements could result in the lapse of an agreement or arrangement that may not be reinstated without a costly shareholder vote. In its ongoing effort to promote modernization of fund governance, the Independent Directors Council (IDC) requested, and was granted, no-action relief by the Securities and Exchange Commission (SEC) to relax certain in-person meeting requirements for the renewal of an advisory agreement or underwriting agreement, selection of the fund’s independent registered public accountant or renewal of a fund’s 12b-1 plan in limited situations, as described below.

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On February 28, 2019, the SEC staff issued a no-action letter in response to the IDC’s request, stating that the staff would not recommend enforcement action for violations of Sections 12(b), 15(c) or 32(a) of the 1940 Act, or Rules 12b?1 or 15a-4(b)(2) promulgated thereunder, if a fund’s board made approvals under these sections via teleconference, videoconference or other similar means by which all participating directors may participate and communicate with each other simultaneously during a meeting, in cases where:

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For purposes of paragraph 1, “unforeseen or emergency circumstances,” as described by the IDC and accepted by the staff, include any circumstances that the board determines could not have been reasonably foreseen or prevented and that make it impossible or impractical for directors to attend a meeting in person. Such circumstances would include situations such as the illness or death of a director or director’s family member, weather events or natural disasters, acts of terrorism or disruptions in travel. This relief applies only to the renewal of an advisory agreement or underwriting agreement, selection of the fund’s independent registered public accountant (provided the accountant is the same as in the prior year) or renewal of a fund’s 12b-1 plan.

For purposes of paragraph 2, the IDC gave the following examples in its request:

This relief applies to the renewal or approval of an advisory agreement or underwriting agreement, approval of an interim advisory contract, selection of the fund’s independent registered public accountant, or renewal or approval of a fund’s 12b-1 plan.

Although boards must continue to meet in person under business as usual circumstances, this no-action relief will prevent the lapse of important agreements, plans and arrangements in situations where an in-person meeting is impracticable or impossible, and thus prevent boards from having to reinstate lapsed agreements through costly and unnecessary shareholder votes. If a board chooses to take advantage of this no-action relief, it should retain clear documentation illustrating how its particular circumstances are consistent with the situations contemplated by the no-action relief.

Andrew J. Davalla 614.469.3353 <a href="mailto:Andrew.Davalla@ThompsonHine.com">Andrew.Davalla@ThompsonHine.com</a>

Krisztina Nadasdy 614.469.3243 <a href="mailto:Krisztina.Nadasdy@ThompsonHine.com">Krisztina.Nadasdy@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

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SEC Issues No-Action Letter Regarding Fund Board In-Person Voting Requirements

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