Alerts and Updates

SEC Amendments to Accelerated and Large Accelerated Filer Definitions Become Effective

April 27, 2020

The new amendments are intended to narrow the types of issuers that qualify as accelerated and large accelerated.

On March 12, 2020, the Securities and Exchange Commission (SEC) adopted final amendments to the definitions of “accelerated filer” and “large accelerated filer” under Rule 12b-2 under the Securities Exchange Act of 1934, as amended. The amendments became effective today, April 27, 2020.

The amendments are designed to reduce the number of issuers that qualify as accelerated and large accelerated filers, thereby promoting capital formation for certain smaller reporting companies by reducing compliance costs while still maintaining investor protections.

The amendments, which are summarized below, substantially mirror those proposed by the SEC on May 9, 2019.

Amendment to Exclude Certain Smaller Reporting Companies from the Accelerated and Large Accelerated Filer Definitions

Background

Pursuant to Rule 12b-2, an “accelerated filer” is defined as an issuer (i) with a public float of more than $75 million, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter; (ii) that has been subject to the reporting requirements under Sections 13(a) or 15(d) of the Exchange Act for at least 12 calendar months; and (iii) that has filed at least one annual report pursuant to Sections 13(a) or 15(d) of the Exchange Act. Rule 12b-2 defines a “large accelerated filer” in the same manner except that the issuer’s public float must be $700 million or more. 

In June 2018, the SEC adopted amendments to the definition of “smaller reporting company” to expand the number of issuers that were eligible to qualify for scaled disclosure accommodations afforded to smaller reporting companies. The June 2018 amendments increased the threshold in the public float test for an issuer to initially qualify as a smaller reporting company from less than $75 million to less than $250 million, and expanded the smaller reporting company revenue test to include issuers with annual revenues of less than $100 million (unless the company previously exceeded $100 million in annual revenues, in which case the threshold is $80 million), if they have no public float or a public float of less than $700 million (the SRC revenue test). Concurrently with these amendments, the SEC also revised the accelerated filer and large accelerated filer definitions in Rule 12b-2 to remove the condition that, for an issuer to be an accelerated filer or a large accelerated filer, it must not be eligible to use the smaller reporting company accommodations.

As a result of the June 2018 amendments, some registrants were categorized as both smaller reporting companies and accelerated or large accelerated filers. The new amendments are intended to narrow the types of issuers that qualify as accelerated and large accelerated.

Amendment to Definitions of Accelerated and Large Accelerated Filers

The new amendments now exclude from the definitions of accelerated filer and large accelerated filer any issuer that is eligible to be a smaller reporting company and that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available.[1]

The most significant effects of this amendment are that smaller reporting companies with revenues of less than $100 million (and which were previously categorized as both smaller reporting companies and accelerated filers):

  1. Will no longer be subject to the shorter period-end filing deadlines for quarterly and annual reports that are applicable to accelerated filers (40 and 75 days for quarterly and annual reports, respectively, for accelerated filers, as compared to 45 days and 90 days for quarterly and annual reports, respectively, for non-accelerated filers); and
  2. Will no longer have to comply with the requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires independent auditors to attest to, and report on, management’s assessment of the issuer’s internal control over financial reporting (ICFR).

Smaller reporting companies that meet the low revenue test will continue to be subject to the requirements under Section 404(a) of the Sarbanes-Oxley Act of 2002, which requires issuers (other than newly public companies) to include a management report on ICFR in their annual reports filed with the SEC.

Amendments to Exit Transition Thresholds

Background

An issuer initially becomes an accelerated filer or a large accelerated filer after it first meets certain conditions (which are set forth in Rule 12b-2 and summarized above), including that it had a public float of $75 million or more but less than $700 million for accelerated filers, or above $700 million for large accelerated filers, in each case, as of the last business day of its most recently completed second fiscal quarter.

Prior to the new amendments, pursuant to Rule 12b-2, once an issuer became a large accelerated filer, it would only transition to become an accelerated filer if it determined, at the end of a fiscal year, that its public float had fallen below $500 million but was more than $50 million on the last business day of its most recently completed second fiscal quarter. Further, pursuant to Rule 12b-2, both a large accelerated and an accelerated filer would transition to become a non-accelerated filer if it determined at the end of a fiscal year that its public float had fallen to below $50 million on the last business day of its most recently completed second fiscal quarter.

Amendment to Transition Thresholds

In order to limit instances where an issuer could be classified as both a smaller reporting company and an accelerated or large accelerated filer, the new amendments revised the public float transition thresholds for accelerated and large accelerated filers, as follows:

  1. The transition threshold for accelerated and large accelerated filers to become non-accelerated filers was increased from $50 million to $60 million;
  2. The transition threshold for a large accelerated filer to become an accelerated filer was increased from $500 million to $560 million;
  3. The transition thresholds for both accelerated filers and large accelerated filers now include companies that satisfy the SRC revenue test.

In sum, as a result of the new amendments, a large accelerated filer would become an accelerated filer if its public float fell to below $560 million but more than $60 million as of the last business day of its most recently completed second fiscal quarter. Further, a large accelerated filer and an accelerated filer would become a non-accelerated filer if its public float fell below $60 million as of the last business day of its most recently completed second fiscal quarter or if its annual revenues fell below the applicable revenue threshold ($80 million or $100 million).

Revised Cover Pages to Forms 10-K, 20-F and 40-F

The new amendments changed the cover pages of annual reports on Forms 10-K, 20-F and 40-F to include a check box indicating whether or not a Sarbanes-Oxley Act Section 404(b) auditor attestation with respect to ICFR is included in the applicable filing.

For More Information

If you have any questions about this Alert, please contact Darrick M. Mix, Barry Steinman, any of the attorneys in our Capital Markets Group or the attorney in the firm with whom you are regularly in contact.

Notes

[1] The amendments also allow business development companies to qualify for this exclusion if they meet the requirements of the SRC revenue test using their annual investment income as the measure of annual revenue, although they will continue to be ineligible to be smaller reporting company.

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