Just when it appeared that small banks and their holding companies could simply go private or “go dark” under the new rules in the Jumpstart Our Business Startups (JOBS) Act, legacy rules are significantly slowing the process for some. Under the JOBS Act, banks and bank holding companies may now go dark if they have fewer than 1,200 shareholders, but the process can be delayed. Sometimes the delay can last up to a full year, and during that time, the expenses of remaining a public company continue to add up.
The main reason for the delay is that the JOBS Act does not expressly provide full relief from reporting obligations. While banks and bank holding companies can deregister from Section 12(g) of the Securities Exchange Act of 1934 if they have less than 1,200 shareholders, there is only limited relief from Section 15(d). Section 15(d) contains reporting requirements for issuers that file or update a registration statement during the current fiscal year. Under this section that was amended by the JOBS Act, a banking company going dark could suspend its reporting obligations, effective as of the beginning of the current fiscal year, provided that it did not update or file a registration statement during its current fiscal year. If the banking company filed a registration statement or updated one as required by Section 10(a)(3) of the Securities Act of 1933 (updating a registration statement on Form S-3 or Form S-8 can be accomplished by merely filing a Form 10-K), Section 15(d) would then require continued public filings (i.e., all Form 10-Qs and the Form 10-K) for the current fiscal year.
Recognizing the problem, the SEC is providing some relief. In recent situations where a public bank has an outstanding registration statement, like a shelf registration or a benefit plan S-8, the SEC has been granting no-action relief and allowing the companies to go dark so long as there are no sales of securities under the registration statement during the current fiscal year.
This relief, however, does not go far enough to help some banking companies. Particularly, those that have sales under a registration statement will be required to continue reporting for the remainder of the fiscal year. In the past the SEC has given no action relief allowing companies to suspend their Section 15(d) reporting obligations when the number of shares sold in the fiscal year was nominal; however, the SEC has informed us that its current position is that no relief can be granted. It is the SEC’s position that any sales in the current fiscal year makes the company ineligible for no action relief from its reporting obligations under Section 15(d). This apparent change in position causes a significant expense and delay for banking companies that otherwise have been targeted for relief under the JOBS Act. Considering the intent of the JOBS Act (i.e., to relieve the huge burdens on smaller companies), it would seem that the SEC should provider even greater relief in this area.