The SEC extends relief from in-person board meeting requirement for investment companies

Eversheds Sutherland (US) LLPOn March 13, 2020, and March 25, 2020, the Securities and Exchange Commission (the SEC) issued exemptive orders1 (the March Orders) under the Investment Company Act of 1940 (the 1940 Act) providing regulatory relief for registered management investment companies and business development companies (BDCs, and together, Funds) impacted by the coronavirus disease 2019 (COVID-19).2 The March Orders provided an exemption for Funds from the requirements under the 1940 Act that certain agreements, plans or arrangements be approved by the Fund’s board of directors by an in-person vote.

On June 19, 2020, the SEC issued an exemptive order (the June Order) extending the conditional relief provided by the March Orders through December 31, 2020.
 
For Funds, the June Order continues to provide relief from 1940 Act sections and rules under Section 15(c) (dealing with approval of advisory contracts) and Section 32(a) (dealing with the selection of accountants) of the 1940 Act, and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the 1940 Act, requiring that board votes be cast in person. Funds relying on the June Order must continue to satisfy the following conditions:
 
(i) reliance on the June Order is necessary or appropriate due to circumstances related to current or potential effects of COVID-19;
 
(ii) the votes required to be cast at an in-person meeting are instead cast at a meeting in which directors may participate by any means of communication that allows all directors participating to hear each other simultaneously during the meeting; and
 
(iii) the board of directors, including a majority of the directors who are not interested persons of the Fund, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting.
 
The SEC also noted in the announcement for the June Order that it has determined not to extend the other relief provided in the March Orders at this time, including temporary relief from: (i) filing deadlines for Forms N-PORT and N-CEN, (ii) annual and semi-annual shareholder report transmittal requirements, (iii) contemporaneous prospectus delivery requirements, and (iv) the 30-day SEC notice requirement applicable to closed-end Funds intending to call or redeem their own securities.3 The SEC continues to monitor the impact of COVID-19 on investors, Funds and investment advisers, and may further extend the in-person board meeting requirement relief, or adopt other relief.
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1 Release No. IC-33824 (March 25, 2020); Release No. 33817 (March 13, 2020).
2 Previously, in a March 4, 2020, SEC Staff Statement regarding COVID-19, the SEC’s Division of Investment Management stated that, through June 15, 2020, it would not recommend an enforcement action if the directors of a Fund seeking to approve or renew a contract, plan, arrangement or selection subject to in-person voting requirements did so telephonically, by video conference or by other means by which all participating directors may participate and communicate with each other simultaneously. The March 13, 2020 Order formalized the relief from the in-person meeting requirement, and the March 25, 2020 Order extended the time period for the in-person meeting requirement relief through August 15, 2020.
3 For a description of the relief provided by the March Orders, see our prior legal alerts, “Coronavirus – The SEC provides relief for investment companies,” dated March 17, 2020, and “SEC extends flexibility due to COVID-19,” dated March 26, 2020.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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