As 2022 and 2023 have continued to be extremely tough years for the capital markets many small cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements, see HERE, and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement, see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provided an overview of deficiencies, deficiency notices, cure periods and compliance plans – see HERE. In this Part 2, I will review the hearing panel process followed by appeals and ultimately delisting.
Review of Deficiency Determinations by Hearing Panel
As noted in Part 1 of this series, Nasdaq deficiency notifications are one of four types:
- Staff delisting determinations, which are notifications of deficiencies that, unless appealed, subject the Company to immediate suspension and delisting;
- Notifications of deficiencies for which a company may submit a plan of compliance for staff review;
- Notifications of deficiencies for which a company is entitled to an automatic cure or compliance period (generally 180 days); and
- Public Reprimand Letters – which are not available for late periodic filings or the failure to timely hold a shareholder meeting.
When a company receives either a Delisting Determination or Public Reprimand Letter, it may request a review by a Hearing Panel in an oral or written hearing. Notifications of deficiencies allowing for a plan of compliance or with an automatic cure period, are not entitled to a Hearing Panel review until when/if they ripen into either a Delisting Determination or Public Reprimand Letter.
Procedures for Requesting a Hearing
A request for a hearing must be submitted in writing within seven calendar days of receiving a Delisting Determination or Public Reprimand Letter. A hearing fee of $20,000 must be paid within 15 days of the initial receipt of the Delisting Determination or Public Reprimand Letter.
Subject to the following special rules, the request for a hearing will stay the delisting action pending a written Hearing Panel decision:
- Delisting Determination for failure to file SEC reports – the delisting action will only be stayed for 15 calendar days from the deadline to request a hearing (22 days total) unless the company specifically requests a further stay which is granted by the Hearing Panel. Notification of an additional stay will be communicated to the company no later than 15 calendar days following the deadline to request a hearing. If an additional stay is not granted, the securities will be immediately suspended.
- No stay of suspension of trading will be granted where a Delisting Determination is a result of: (a) a company filing for bankruptcy or comparable foreign laws or who announces its board of directors has approved a plan of liquidation; or (b) a Nasdaq Global Markets listed SPAC that fails to meet the continued listing requirements or completes a transaction upon which the combined entities fail to meet the listing requirements.
If no hearing is requested within the seven calendar day time limit the company will be deemed to have waived the right to request a review of the Delisting Determination or Public Reprimand Letter and will be subject to immediate suspension and delisting.
Hearings are generally scheduled within 45 days of the request though that time varies depending on how busy the hearing department is. Moreover, Nasdaq must give at least ten days written advance notice of a hearing and deadlines for written submissions.
Contents of Request for Hearings and Submissions
All hearing requests should include an explanation as to why the requested relief is appropriate, including details regarding the company’s specific circumstances, including the likelihood that the company will regain compliance within any exception period that could subsequently be granted (such as by filing late SEC reports), the company’s past compliance history, the reasons for the deficiency, corporate events that may occur within the exception period, the company’s general financial status, and the company’s disclosures to the market.
In addition to the information in the initial hearing request, a company must provide a written submission. In addition to the information listed above, the company must include all legal arguments upon which it intends to rely. It is important that the legal arguments are complete as no new legal arguments will be allowed either in writing or in the hearing presentation. The submission may also include a plan of compliance, public documents or any other information in support of its position. A company may also supplement the submission with additional information, including in response to Nasdaq comments, provided however, no additional information may be submitted later than two business days prior to the hearing.
Presentation at Hearing
At an oral hearing, a company can make a presentation including testimony by officers, directors, accountants, counsel, investment bankers, or other persons, to make its case. However, no legal arguments that were not already raised in the pre-hearing submission will be allowed. In addition, the ability to introduce material facts and information that was not already included in the pre-hearing written submission is limited. That is, only information that the Hearing Panel solicits or for which the company can argue did not exist at the time of the original submission or for which such other exceptional or unusual circumstances apply will be allowed.
Exceptional or unusual circumstances would include material information that was not earlier discoverable by the Company despite all reasonable measures having been taken. The Hearing Panel has three business days to respond to a request to present new information.
Hearings are presided over by at least two panel members and are generally scheduled for one hour, so it is very important that the company fully prepares beforehand.
Hearing Panel’s Discretion
A Hearing Panel has the authority to: (i) grant an exception to the continued listing requirements for up to 180 days from the date of the Delisting Determination; (ii) suspend and delist the company’s securities; (iii) issue a Public Reprimand Letter where the deficiency is corporate governance or notification related (considering whether the violation was inadvertent, materially adversely affected shareholders’ interests, has been cured, whether the company reasonably relied on an independent advisor and a pattern of violations); (iv) find the company in compliance with the listing standards; (v) grant additional time to file late SEC reports for a period not to exceed 360 days from the report due date; or (vi) grant up to an additional 360 days to hold an annual meeting.
Hearing Panel Procedures
Following a hearing, the Hearing Panel will issue a written decision that may be appealed within 15 calendar days. The decision may also be reviewed by the Listing Council within 45 calendar days. If the decision is to delist and is not appealed, Nasdaq will begin the process right away including by filing a Form 25.
A Hearing Panel decision must be unanimous. If a unanimous decision cannot be reached, the company will be granted a second hearing in front of a new panel of three. The company can decide whether the hearing will be written or oral, in person or by telephone. The company can submit any documents or other written material in support of its request for review, including information not available at the time of the initial hearing. There is no fee for the new hearing. The second hearing decision only requires a majority vote of the Panel.
A company may also request that a Hearing Panel reconsider its decision if it can show that there was a mistake of material fact. The reconsideration must be requested within seven calendar days. However, a reconsideration request will not stay a delisting or suspension of trading unless the Hearing Panel specifically grants such a stay. A reconsidered decision must be rendered within 15 calendar days of the date of the original panel decision.
A Hearing Panel may also decide to put a company under monitoring for up to one year after regaining compliance where it deems the company a risk for future or continued violations. If a company is under a monitoring order and fails to maintain the listing standards, it will be immediately delisted. That is, it will not be allowed a cure period or to submit a plan of compliance. For a review of deficiencies that generally allow for cure periods or plans of compliance, see HERE.
In some cases, a monitoring order is mandatory. In particular, if a company is granted an exception (i.e. additional time) by the Hearings Panel for the failure to (i) maintain stockholders equity; (ii) timely file periodic reports; (iii) maintain the minimum bid price, a mandatory one year monitoring period will be imposed from the date of regaining compliance. If during that period, the company fails to maintain the particular listing standard for which it was granted additional time, it will be delisted without being given a cure period, extra time or the ability to submit a plan of compliance.
If a company that is being monitored receives a Delisting Determination, it may request a Hearing Panel review of that determination with the same procedures as any hearing.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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