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Business Law Today

January 2022

January 2022 in Brief: Securities Law

Alan J Wilson and Rani Doyle

January 2022 in Brief: Securities Law

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BLS Young Leaders to Host Upcoming Event on Securitization Basics: Introduction to Reference Rates

By Eric Fidel, Hunton Andrews Kurth LLP

The ABA Young Leaders in Securitization and Structured Finance is a growing subcommittee of the Business Law Section (BLS) Committee for Securitization and Structured Finance. The Committee and the Young Leaders are at the forefront of discussing and tackling new issues in these fields.

The Young Leaders will be hosting an event focusing on how reference rates work and how they are used in structured finance and securitization transactions. In this session, Matt Hays, partner in Latham & Watkins LLP’s Finance Department and Chair of the LIBOR Task Force of the ABA Securitization and Structure Finance Committee, will share insights on reference rates such as LIBOR and SOFR and the business and legal considerations behind using different reference rates.

For those interested in attending, the event will be held on Thursday, February 3, 2022, at 3PM Eastern Time.

Securities Regulation

New Data Tagging Requirements for Annual Reports

By Christina M. Thomas, Mayer Brown

The US Securities and Exchange Commission (SEC) adopted final amendments to its rules on December 2, 2021, to implement the requirements in the Holding Foreign Companies Accountable Act. Although for the foreseeable future, the majority of the new rules are expected only to affect SEC registrants whose operations are based in China or Hong Kong, all SEC registrants that file their annual reports on Forms 10-K, 20-F, or 40-F need to be aware of new requirements that are not included in the forms themselves.

Specifically, a registrant filing an annual report for a period ended after December 15, 2021, that files financial statements using Inline XBRL, must tag three additional data elements:

  • the auditor(s) who provided the opinion(s) related to the financial statements in the annual report;
  • the location from where the auditor’s report was issued; and
  • the Public Company Accounting Oversight Board (PCAOB) ID Number(s) of the audit firm(s) or branch(es) that provided the opinion.

As noted above, this new requirement cannot be found in the annual report forms themselves. Rather, the SEC has adopted an amendment to Rule 405 of Regulation S-T, effective January 10, 2022. The new paragraph in Rule 405 refers the reader to the SEC’s Document Entity and Information (DEI) taxonomy in the EDGAR Filer Manual, Volume II: EDGAR Filing, which contains these new data elements in Section 6.5.54. While the SEC’s adopting release states that the location of the information in the annual report is “up to the registrant,” the EDGAR Filer Manual provides that the data “should be tagged where they normally appear, adjacent to the auditors’ opinion.”

There is no consensus yet on where to provide the data. The auditor’s signature page to its report already includes the auditor’s name and location, but the auditor (and not the company) would be required to revise the audit report to add its PCAOB ID to that page. Companies may consider adding the auditor’s name, location, and ID number next to the reference to the audit report in the index to the financial statements and tagging the data there.

Delaware Court of Chancery Allows deSPAC Litigation to Proceed Applying “Entire Fairness” Standard

By John R. Ablan, Edward Best, Anna T. Pinedo, Philip Brandes & Brian Massengill, Mayer Brown

On January 3, 2022, the Delaware Court of Chancery issued an opinion denying motions to dismiss in In re Multiplan Corp. Stockholders Litigation, a stockholder action arising out of the completed business combination for Churchill Capital Corp. III, a SPAC, and Multiplan Inc.. The court’s opinion has important implications for SPAC sponsors, directors, officers, and other stakeholders because of its application of traditional Delaware corporate law concepts to a “deSPAC” business combination transaction. This linked Legal Update (i) summarizes the facts alleged by the plaintiffs in the case and the court’s conclusions; and (ii) provides key takeaways and practical considerations.

SEC Staff Updates Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns

By Alan J. Wilson, WilmerHale

On January 19, 2022, the SEC Division of Corporation Finance updated its Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns. The updates modify the section regarding “presentation of shareholder proposals” and recognize the ongoing, possible difficulties for shareholder proponents to attend annual meetings in person. Through the 2022 proxy season, issuers are again encouraged to provide shareholder proponents or their representatives the ability to present shareholder proposals through alternative means, such as by phone. Looking ahead to shareholder proposals that may be submitted for the 2023 proxy season, the staff will continue to consider a shareholder’s inability to attend a 2022 annual meeting and present a shareholder proposal thereat due to the inability to travel or other COVID-19 hardships as “good cause” for purposes of assessing arguments for exclusion under Rule 14a-8(h).