SEC Issues Guidance for Registered Funds Facing Operational Challenges Due to COVID-19
Date: March 20, 2020
On March 13, 2020, the Securities and Exchange Commission (SEC) issued an order (the “Order”) pursuant to Section 6(c) and Section 38(a) of the Investment Company Act of 1940, as amended (the “1940 Act”) and a statement that grants relief from various requirements of the 1940 Act. The SEC granted the Order after recognizing the disruption caused by the outbreak of COVID-19. Specifically, the Order: (I) solidifies the SEC’s previously granted exemptive relief from certain in-person meeting requirements of the 1940 Act, (II) temporarily exempts registered funds from certain Form N-CEN and N-PORT filing requirements, (III) allows the delayed transmission of annual and semi-annual reports, and (IV) modifies the filing requirements of Form N-23c-2. The statement contains a staff position regarding the delayed delivery of a prospectus.
I. In-Person Board Meeting Requirements
The Order exempts registered funds, business development companies (“BDCs”), advisers and underwriters of registered funds from the in-person board meeting requirements of Section 15(c), Section 32(a), Rule 12b-1(b)(2), and 15(a)-(4)(b)(ii) under the 1940 Act, for the period of March 13, 2020 to June 15, 2020, so long as:
- Reliance on the Order is necessary due to the current or potential effects of COVID-19;
- The votes required to be cast at an in-person meeting are instead cast at a meeting in which directors may participate by any means of communication that allows all directors participating to hear each other simultaneously during the meeting; and
- The board of directors, including a majority of the directors who are not interested persons of the registered investment company or BDC, ratifies the action taken pursuant to this exemption by a vote cast at the next in-person meeting.
The SEC had previously issued a statement on March 4, 2020 that extended relief provided by a prior no-action letter from such in-person board meeting requirements.
II. Forms N-CEN and N-PORT Filing Requirements
The Order allows a registered fund to delay filing of its Forms N-CEN and N-PORT, where the original due date is between March 13, 2020 and April 30, 2020, so long as:
- The registered fund is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19;
- Any registered fund relying upon the Order notifies the SEC staff, via email at IMemail@example.com, and provides a brief description of the reasons why it could not file its report on a timely basis, and the estimated date it expects to file;
- Any registered fund relying on the Order includes a statement on its website briefly stating that it is relying on the Order and the reasons why it could not file its reports on a timely basis;
- The registered fund files its report on Form N-CEN or N-PORT as soon as practicable, but not later than 45 days after the original due date; and
- Any Form N-CEN or Form N-PORT filed pursuant to this Order must include a statement of the filer that it relied on the Order and the reasons why it was unable to file such report on a timely basis.
III. Transmittal of Annual and Semi-Annual Reports to Investors
The Order allows a registered fund to delay transmission of an annual or semi-annual shareholder report, where the original due date is between March 13, 2020 and April 30, 2020, under the following conditions:
- The registered fund is unable to prepare or transmit the report due to circumstances related to potential or current effects of COVID-19;
- The registered fund notifies the SEC staff, via email at IMfirstname.lastname@example.org, and (a) states that the fund is relying on the Order, (b) provides a brief description of why it could not prepare or transmit the report on a timely basis; and (c) provides an estimated date for transmission of the report;
- The registered fund posts a statement on its website, which states that it is relying on the Order and the reasons it could not prepare and transmit the report on a timely basis; and
- The registered fund transmits the report to shareholders as soon as practicable, but no later than 45 days after the original due date and files the report within 10 days of transmitting to shareholders.
IV. Timing of Filing Form N-23C-2
For the period of March 13, 2020 to June 15, 2020, the Order allows BDCs and closed-end investment companies to file notice on Form N-23c-2 of a call or redemption of securities for which it is the issuer, fewer than the required 30 days prior to the company’s call or redemption, including the same business day, subject to the following conditions:
- The BDC or closed-end fund notifies the SEC staff, via email at IMemail@example.com, and states that it is relying on the Order and provides a brief description of the reasons why it needed to file notice fewer than 30 days prior to the call or redemption;
- The BDC or closed-end fund ensures that the abbreviated notice period is permitted under applicable state law and the company’s governing documents; and
- The BDC or closed-end files a notice on Form N-23c-2 that contains all the information required by Rule 23c-2 prior to (a) any call or redemption of existing securities, (b) the commencement of any offering of replacement securities, and (c) providing notification to the existing shareholders whose securities are being called or redeemed.
V. Prospectus Delivery
In its statement, the SEC staff takes the position that a registered fund may delay delivery of a current prospectus under the following conditions:
- The sale of shares to the investor is not an initial purchase;
- The registered fund notifies the SEC staff, via email at IMfirstname.lastname@example.org and (a) states that it is relying on the staff position, (b) provides a brief description of the reasons why the prospectus could not be delivered on a timely basis, and (c) provides the estimated date of prospectus delivery;
- The registered fund posts a statement to its website, which states that it is relying on the SEC staff position and the reasons why it could not deliver the prospectus on a timely basis;
- The registered fund publishes its current prospectus on its website; and
- The registered fund’s original prospectus delivery date is during the period of March 13, 2020 to April 30, 2020, and the registered fund delivers the current prospectus to investors as soon as practicable but no later than 45 days after it was originally required to be delivered.
The Order and statement reflect the SEC’s understanding that registered funds may face operational challenges as a result of potential or current effects of COVID-19, particularly if certain essential personnel become unavailable, or are only available on a limited basis. Management personnel of registered fund advisers and third-party service providers should identify and assess the impact of COVID-19 on key personnel and processes to determine if registered funds that they manage or support will require relief under the Order and/or statement regarding prospectus delivery.
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