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Law360 (May 5, 2020, 10:26 PM EDT ) The Nasdaq Stock Market told the U.S. Securities and Exchange Commission it is temporarily lifting shareholder approval requirements for certain securities issuances, as companies look to raise much-needed capital due to the impacts of COVID-19.
The stock exchange believes the new rule, effective immediately and valid through June 30, will boost companies' access to capital amid the uncertainty of the coronavirus pandemic and the impacts of measures such as social-distancing and business closures on revenues, according to an SEC notice published Monday.
"Nasdaq believes that this temporary [rule] will permit companies to raise capital quickly to continue running their businesses and address the immediate health crisis caused by the COVID-19 pandemic, including its impact on their employees, customers, and communities," the notice said.
The exceptions apply only to circumstances where the transactions are related to the pandemic. They are also limited to circumstances where current shareholder approval requirements would have a "material adverse impact" on operations, result in workforce reductions, adversely impact the ability to carry out COVID-19 initiatives, or otherwise "seriously jeopardize" the viability of the business, according to the notice.
"This is a major step forward for companies affected by COVID-19," Nasdaq said in a statement sent to Law360. "The relief we are adopting is unprecedented and it meaningfully streamlines Nasdaq-listed companies access to capital."
However, the measures do not apply to shareholder approvals for the issuance of securities that could allow companies to acquire the stock or assets of another company, to compensate employees or consultants, or to implement ownership changes.
Approval requirements will also remain necessary for so-called 20% issuances of nonpublic common stock, which by definition equal 20% or more of the common stock — or 20% or more of the outstanding voting power — prior to the issuance.
Anna Pinedo, a Mayer Brown LLP partner focused on securities and derivatives, said the temporary relief would be a great help to companies coping with the impacts of the pandemic.
"The temporary Nasdaq relief is quite significant," she said in an email. "Many Nasdaq-listed issuers find it challenging to navigate the shareholder vote rules, and having a roadmap in the form of the temporary safe harbor for certain financing transactions that do not require a shareholder vote or Nasdaq pre-approval is going to help many companies."
The SEC did not immediately respond to requests for comment.
--Editing by Breda Lund.
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