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Law360 (May 14, 2020, 6:24 PM EDT) -- The New York Stock Exchange on Wednesday filed a proposal with the U.S. Securities and Exchange Commission seeking temporary relief from certain shareholder approval rules that would make it easier for listed companies to raise capital amid the coronavirus pandemic.
The Big Board is seeking an exception to shareholder approval requirements in cases where a listed company issues common stock that amounts to 20% of the voting power of all outstanding shares before the issuance, or 20% of all common shares before the issuance. Shareholder approval rules also apply to the issuance of securities that can be converted into common stock.
The NYSE is seeking temporary relief from these shareholder approval requirements through June 30, saying the pandemic has created the need for flexibility. Nasdaq gained SEC approval on a similar proposal earlier this month.
"Many listed companies are experiencing urgent liquidity needs during this period of crisis due to lost revenues and maturing debt obligations," the NYSE said in its Wednesday proposal.
The NYSE said its current rules provide companies raising equity an exception from shareholder approval requirements if they are under financial duress. But it said those rules are not helpful when dealing with the COVID-19 pandemic, which could threaten the viability of some companies.
The new exception would be limited to issuers that demonstrate that delays caused by seeking shareholder approval for equity financing would have "a material adverse impact on the company's ability to maintain operations under its pre-COVID-19 business plan; result in workforce reductions; adversely impact the company's ability to undertake new initiatives in response to COVID-19; or seriously jeopardize the financial viability of the enterprise," according to the NYSE proposal.
Companies seeking relief will also be required to demonstrate that the equity financing they are seeking is needed because of the pandemic and that proceeds won't be spent on acquisitions. Companies also must show that they pursued the best possible terms on the transaction.
Additionally, companies will have to show that the audit committees of their boards of directors approved relying on this exception. The NYSE said it will advise companies to begin discussions and share documents with the exchange as far in advance as possible before seeking the exception.
NYSE is also proposing that companies that seek this exception advise their shareholders they are doing so through a press release or interim SEC filing known as an 8-K as soon as they can.
Separately, as part of this proposal, the NYSE is seeking SEC permission to allow a temporary and narrow exception to rules that require shareholder approval for certain stock sales to officers, directors, employees or consultants that could be considered equity compensation.
A message to the NYSE was not immediately returned Thursday. The SEC declined to comment.
The impact of the proposal is not clear. An SEC approval would likely only leave about six weeks for the temporary rule, which expires June 30, to take effect before expirng.
"Any additional flexibility you can provide issuers in this volatile environment is helpful," Mayer Brown LLP counsel Brian Hirshberg said.
The SEC has approved several exemptions on stock exchanges and issuers aimed at making capital raising easier amid the pandemic. The NYSE also enacted temporary exceptions to shareholder approval rules last month, citing hardships caused by the coronavirus outbreak.
--Editing by Abbie Sarfo.
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