Nasdaq allows compliance plans for delinquent listed companies
By Cydney Posner
The SEC has posted, and declared immediately effective, a proposal to modify the Nasdaq rules to allow companies that have missed filing a periodic report with the SEC to submit a plan to regain compliance to Nasdaq and to allow staff to grant the company up to 180 days from the report's due date to regain compliance. Under the previous rules, a Nasdaq-listed company that was late in filing a required periodic report would immediately receive a delisting letter from Nasdaq under Nasdaq Rule 4310(c)(14) or 4320(e)(12). Prior Nasdaq rules did not allow a company any compliance period to make a late filing, and Nasdaq staff did not have the authority to consider a company’s plan to regain compliance or otherwise grant the company any additional time. Exceptions were granted only after a hearing and could not exceed 180 days from the staff’s delisting letter. If a company could not file within that period, it typically would be delisted.
Nasdaq now recognizes that it is increasingly difficult for companies to prepare, obtain auditor review and file their periodic financial statements on time as a result of recent regulatory changes, heightened scrutiny by independent auditors and increasingly complex technical accounting standards. Nasdaq now believes that an immediate delisting letter may not be the best approach.
As a result, Nasdaq has determined to allow companies to submit a plan to regain compliance to the staff of the Listing Qualifications Department and to allow staff to grant the company up to 180 days from the due date for a periodic report (as extended by Rule 12b-25, if applicable) to regain compliance. Nasdaq will still notify companies promptly upon determining that they are delinquent. Companies will then have to publicly disclose receipt of that notification both under Nasdaq and 8-K rules. Nasdaq will also disseminate the fact that the company is late in filing a periodic report, and the company will be included on a list of deficient and delinquent companies on Nasdaq’s website.
In determining whether to grant a company additional time, Nasdaq will consider the company’s specific circumstances, including past compliance history, the reasons for the late filing, corporate events that may occur within the exception period, the company’s general financial status, the company’s disclosures to the market and the likelihood that the filing can be made within the exception period. Information taken into account as part of this review may be provided by the company, its audit committee, its outside auditors, the staff of the SEC and any other regulatory body. Various appeals are possible, and exceptions may be granted allowing the company to stay listed for up to 360 days from the date of the staff’s delisting letter, but in no event more than 360 days from the due date of the company’s first late filing. These changes are similar to the NYSE’s current procedures for late annual report filers.
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