SEC approves change in Nasdaq cure period for insufficient independent directors

By Cydney Posner

The SEC has approved the proposed Nasdaq rule change related to the cure period applicable for failure to maintain sufficient independent directors.  Click here. Nasdaq Rule 4350 requires each listed issuer to have a majority of independent directors and an audit committee that consists of at least three independent members. For an issuer that fails to comply with these requirements, the rule includes a cure period that lasts until the earlier of the company’s next annual shareholders’ meeting or one year from the date of the event that caused the non-compliance. The change to Rule 4350 modifies the cure period available to an issuer that fails to satisfy the majority independent board requirement, either because a vacancy arises on the board or because a board member ceases to be independent for reasons outside the member’s reasonable control, as well as for an issuer that fails to comply with the audit committee composition requirement because a vacancy arises on the audit committee. By allowing issuers a minimum of 180 days to regain compliance, the change will be especially helpful for companies that lose an independent director or audit committee member shortly before the annual meeting. The 180-day minimum would not permit a non-independent director to remain on the audit committee beyond the period contemplated in Rule 10A-3 (codified in Rule 4350(d)(4)(A), which is not being modified).

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