Client Alert

Coronavirus (COVID-19): How Delays in Processing of Filings May Impact Transactions

20 Mar 2020

As the coronavirus (COVID-19) outbreak continues to unfold, secretary of state and equivalent offices in various states are starting to limit their service offerings in order to safeguard the health of staff and the public. Certain expedited filing options may no longer be honored, and submitting filings and receiving confirmation of acceptance of those filings may take longer than usual. Such delays, if not anticipated and planned for, could impact the closing of transactions where the timing and approval of state filings are essential, such as mergers, bank financings, and sales of securities. Companies contemplating transactions during this period should therefore look to their service providers and specific states for guidance and evaluate issues that these delays may cause.

Restrictions Being Implemented Across States

In Delaware, over-the-counter services have been limited; however, the full range of the state’s filing services generally continue to be available electronically, including expedited options for filing and requesting various documents.

In a number of states, including Illinois, Maryland, and Vermont, secretary of state or equivalent offices have been closed to in-person filings or otherwise are subject to remote work only and are only accepting filings sent in by mail or submitted electronically. Offices in other states appear to remain open, for now, although over-the-counter services in many states have been suspended, and filers must drop off their documents in onsite drop-boxes or submit them by mail or electronically.

In states where over-the-counter services have been suspended, expedited filing options may no longer be available. In Maryland, for example, charter amendments and articles of merger are usually filed over the counter, as the state does not allow electronic filing of these documents. With over-the-counter services now unavailable, filings generally must be submitted by mail, and their processing may take several weeks. The Maryland SDAT has indicated that articles of merger and similar filings will be afforded an effective date of the date received by mail, but receipt of acceptance will take time. In the context of a merger where a specific effective date or time is critical, significant advanced planning may be necessary, and even that may not prove enough to allow parties to feel comfortable releasing funds from escrow or taking other closing actions. In addition, in many of these states, pre-clearance activities have ceased or significantly slowed.

It is not yet clear how quickly states will be able to process filings submitted electronically, by mail, or through drop-box options. In Connecticut, Georgia, Maine, and Nevada, expedited service options appear to still be available, although with some delays. In Minnesota, New Mexico, and Pennsylvania, no expedited services are available at all.

As states continue to grapple with the spread of the COVID-19 outbreak, it is likely that some processing times will increase due to secretary of state and equivalent offices in various states becoming overwhelmed with requests, coupled with pressures in staffing.

Some Filings That May Be Impacted by Delays

State filings that may be impacted by delays include, but are not limited to, the following:

  • Charter Amendments. In transactions where stock is being issued, a company may need to amend its charter at closing in order to authorize the issuance of additional stock or designate share preferences. In states where charter amendments can no longer be processed electronically or have to be submitted by mail (as in the case of Maryland, discussed above), the processing time for filings could be up to several weeks. Although states will generally make filings effective as of the date they are received, companies cannot be certain that their filings will be free of deficiencies, until long after transactions have closed.
  • Good Standings and Certified Organizational Documents. In a wide variety of transactions, lenders, underwriters, or advisors may require good standing certificates or certified documents from companies in connection with closings. In states like Delaware, where good standings and similar documents are generated through an automated process, companies will likely continue to be able to obtain these documents. In contrast, in California, where the filing process is not fully automated, expedited good standings must be obtained over the counter. Consequently, if secretary of state offices were to suspend over-the-counter services, it is likely that there will be significant delays in obtaining good standing certificates. In addition, it is our understanding that receipt of certified organizational documents in many states is taking up to three weeks in certain cases.
  • Entity Formations, Restructurings, Certificates of Merger and Other Corporate Documents. Corporate or LLC formations, entity conversions, mergers, dissolutions, and similar transactions require filings with the secretary of state or equivalent offices in various states. As in the case of good standing certificates, these filings often can only be expedited through over-the-counter service. If over-the-counter services were suspended, and companies had to mail in their filings, there will likely be lengthy processing delays.  

Planning Ahead is Key

States have not indicated when they will be returning to normal service, and it is possible that many of the current filing limitations may expand as states continue to contend with the effects of the COVID-19 outbreak. Further, some of the current guidance on timing from states may change as they implement the new filing restrictions. It is important, therefore, that companies plan ahead and continuously evaluate the impact that potential delays in filings could have on contemplated transactions.

Morrison & Foerster Associate Fred Muna assisted in the preparation of this client alert.

Close
Feedback

Disclaimer

Unsolicited e-mails and information sent to Morrison & Foerster will not be considered confidential, may be disclosed to others pursuant to our Privacy Policy, may not receive a response, and do not create an attorney-client relationship with Morrison & Foerster. If you are not already a client of Morrison & Foerster, do not include any confidential information in this message. Also, please note that our attorneys do not seek to practice law in any jurisdiction in which they are not properly authorized to do so.