The ability of listed companies to meet their financial reporting obligations has, in many instances, been severely impacted by the Covid-19 crisis. Difficulties encountered by listed companies include the inability by management to review and sign off financial reports, as well as the ability of auditors, whose procedures include physical verification of certain audit evidence and the consideration of reliability of significant estimates and judgements made by management, to conduct their audit.
In light of these difficulties, the Financial Sector Conduct Authority (FSCA) issued a notice on 3 April 2020, in terms of which it extends certain deadlines in relation to financial reporting obligations and audit requirements applicable to companies listed on the JSE, in terms of the Financial Markets Act, 2012 (FMA) and the JSE Listings Requirements and JSE Debt Listing Requirements (FSCA Notice).
FSCA's general extensions
The JSE does not have the power to grant blanket dispensations to issuers in relation to the publication of their financial results. The JSE accordingly issued a letter on 25 March (March Letter) encouraging issuers and sponsors to approach the JSE on an individual basis so the JSE could make a determination in relation to any extension of time on a case-by-case basis (see our previous alert on the March Letter).
The JSE also engaged with the FSCA to enquire whether the FSCA had the power to grant a general extension to accommodate issuers and the audit fraternity on an industry-wide basis, rather than a case-by-case approach. In response to the JSE's request, the FSCA granted a general extension of two months in relation to the following financial reporting deadlines, applicable to JSE-listed equity issuers with financial year-ends of 31 December 2019, 31 January 2020, 29 February 2020 and 31 March 2020:
- distribution of notice of annual general meeting (AGM) and financial statements to security holders in terms of paragraph 3.19 of the JSE Listings Requirements: JSE-listed issuers are currently required, within four months after the end of their financial year and at least fifteen business days before the date of their AGM, to distribute to all holders of securities and submit to the JSE (i) a notice of the AGM; and (ii) their audited AFS for the relevant financial year. The general extension granted by the FSCA means that issuers now have six months from their financial year-end to issue the AGM notice and to distribute their audited AFS to their shareholders. We note that the time periods prescribed for the holding of an AGM and the distribution of AFS' to shareholders of public companies remains unchanged in terms of the Companies Act, 2008 (which requires an AGM to be held no later than 15 months from the date of the prior AGM), so that, in practice, this extension may not be as extensive as provided for in the FSCA Notice. These periods can be extended by application to the Companies Tribunal. We also note that, while the FSCA Notice does not specifically refer to the submission of the AGM notice and the audited AFS to the JSE, we submit that the relief would, by implication, also apply to these submissions to the JSE;
- publication of provisional AFS in terms of paragraph 3.16 of the Listings Requirements: where an issuer fails to distribute its AFS to security holders within three months of its financial year-end, the issuer is required to publish a provisional report. The blanket extension granted by the FSCA means that issuers have a further two months to distribute their AFS to security holders before they trigger this requirement (effectively, thus a 5 month period); and
- publication of the AFS on the websites of issuers of specialist securities in terms of paragraph 19.20 of the Listings Requirements: issuers of specialist securities are required to publish their audited AFS on their website within four months of their financial year-end. They will now have an additional two months to publish these on their website.
Debt issuers were also granted some relief as the deadline for submission by debt issuers of their audited financial statements to the JSE has been extended by two months.
The FSCA further stated that these extensions will apply irrespective of any extensions that may already have been granted to individual issuers by the JSE.
It is worth noting that the FSCA presently has not extended these reliefs to any of the other exchanges licenced under the FMA.
Suspension of JSE's powers to sanction issuers for failure to submit AFS timeously
The JSE welcomed the announcement from the FSCA and submitted, in a letter dated 3 April 2020, that these blanket extensions will accommodate issuers and the audit fraternity as well as provide certainty to the market during this period of crisis. The JSE advised that, following the FSCA Notice, for a period of two months, it will suspend its powers to:
- issue reminder letters to issuers regarding the submission of their AFS;
- annotate an issuer's listing on the JSE trading system with a "RE" to indicate that it has failed to submit its AFS timeously; and
- suspend an issuer's listing until such time as the issuer has submitted its AFS.
Requirement to notify investors and the JSE
In addition, the JSE stated that, notwithstanding the FSCA Notice, issuers will be required to update the market through SENS and to notify the JSE by email should they intend to rely on the FSCA Notice for the publication of any financial results. In addition, the JSE's March Letter remains in force and if an issuer is unable to meet any of its financial reporting obligations in terms of the JSE Listings Requirements, which have not addressed by the blanket extension granted by the FSCA, it can still request a reporting variation form the JSE in relation to such obligation. A variation application will therefore be required, for example, if an issuer wishes to issue the AFS within the original or extended timeframe but where the content of these financial statements will deviate from the minimum content and disclosure requirements, or vary the nature of the assurance report provided therewith.