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Feb. 2013

February 2013
From the Colorado Bar Association
Business Law Section

Ed Naylor, Editor
In this issue...

Foreign Private Issuer Status Under U.S. Securities Laws

By Victoria B. Bantz, Burns Figa & Will, P.C.

Do you work with corporations that are organized or incorporated outside the United States but do business or seek financing in the United States? If so, it is important to make sure that the financing activities of non-U.S. companies comply with U.S. securities laws. Many non-U.S. companies are considered “foreign private issuers” under the U.S. securities laws and enjoy certain advantages in avoiding some registration and reporting requirements with the Securities and Exchange Commission (the “SEC”).

What is a “foreign private issuer?”

Under Rule 3b-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”), a “foreign private issuer” is defined as any non-U.S. company that has less than 50 percent of its issued and outstanding stock held by U.S. residents. If 50 percent or more of a non-U.S. company’s stock is held by U.S. residents, the company will still be classified as a foreign private issuer if it meets none of the following tests:

  • The majority of the executive officers or directors are United States citizens or residents;
  • More than 50 percent of the assets of the issuer are located in the United States; or
  • The business of the issuer is administered principally in the United States

This test for foreign private issuer status is conducted on the last day of the company’s second fiscal quarter and is effective for the following fiscal year. For example, if a company with a fiscal year end of Dec. 31 meets the foreign private issuer test as of June 30, 2012, the company will be qualified as a foreign private issuer for the entire year of 2013. The majority of Canadian companies can be classified as “foreign private issuers.”

Why is it important for a non-U.S. company to be classified as a foreign private issuer?

Companies classified as foreign private issuers are allowed to rely on certain exemptions from registration with the SEC and are not required to file periodic reports with the SEC. Under Rule 12g-1 of the Exchange Act, foreign private issuers with assets of $10 million or less and that are not quoted in an automated inter-dealer quotation system are exempt from registration under Section 12(g) of the Exchange Act.

A second exemption is available under Rule 12g3-2(a) of the Exchange Act, providing that foreign private issuers that have fewer than 300 shareholders resident in the U.S. are exempt from registration under Section 12(g) of the Exchange Act. A third exemption is available for foreign private issuers under Rule 12g3-2(b) as long as the company:

  • Is not otherwise required to file or furnish reports under Section 13(a) or Section 15(d) of the Exchange Act;
  • Maintains a listing of the subject class of securities on one or more exchanges in a non-U.S. jurisdiction that either singly, or together with the trading of the same class in another non-U.S. jurisdiction constitutes the company’s primary trading market (at least 55 percent of the trading in the subject class of securities on a worldwide basis during the issuer’s most recently completed fiscal year); and
  • Publishes in English, on its website or other electronic information delivery system generally available to the public in its primary trading market, information that, as of the first day of its most recently completed fiscal year:
    • Has been made public or been required to make public pursuant to the laws of the company’s home jurisdiction;
    • Has been filed or been required to file with the principal stock exchange in its primary trading market on which its securities are traded and which has been made public by that exchange; and
    • Has been distributed or been required to distribute to its shareholders.

Many Canadian companies that have a class of stock trading in the U.S. easily meet the requirements of Rule 12g3-2(b) if they are listed on the Toronto Stock Exchange, TSX Venture, or Canadian National Stock Exchange.

Regardless of foreign private issuer status, a company will not be required to file a registration statement under the Exchange Act unless it has total assets of more than US$10,000,000 and has either (i) a class of stock held by 2,000 or more persons or (ii) stock held by 500 persons or more who are not accredited investors. The benefit of having foreign private issuer status means that a foreign private issuer has two exemptions from SEC registration in addition to those exemptions available to U.S. companies.

A company that is classified as foreign private issuer and is subject to the reporting requirements under the Exchange Act, either by voluntary registration of a class of its shares or registration under the Securities Act, reaps certain benefits. These companies may file their periodic reports on Forms 20-F and 6-K, essentially wrapping around the reports required to be filed in the home jurisdiction. In addition, if a company prepares its financials using the International Financial Reporting Standards (IFRS), a company is not required to reconcile its financial statements with U.S. Generally Accepted Accounting Principles.

What happens if the company fails the foreign private issuer test?

If a non-U.S. company does not meet the foreign private issuer test, it may be required to register its shares under Section 12(g) and begin filing reports with the SEC. If a company has total assets of more than US$10,000,000 and has either (i) a class of stock held by 2,000 or more persons or (ii) stock held by 500 persons or more who are not accredited investors, the company will be required to file a registration statement with the SEC under the Exchange Act. This will subject the company to filing periodic reports on Forms 10-K and 10-Q and subject it to the current report requirements of Form 8-K. From the last day of the company’s second fiscal quarter, the company has six months before it will be required to file periodic reports with the SEC. For example, if a company’s fiscal year end is Dec. 31, and as of June 30, 2012 the company fails to meet the foreign private issuer test and fails to meet the exemption from registration under Section 12(g), then as of Jan. 1, 2013, the company would begin filing reports with the SEC. The Form 10-K for fiscal year end Dec. 31, 2012 would be due, for a non-accelerated filer (public equity float under US$75,000,000) on April 1, 2013.

Secured Creditors Beware:
New Bankruptcy Rules and a National Chapter 13 Form Plan

By Deanna Lee Westfall and Britney Beall-Eder, The Castle Law Group, LLC

The Advisory Committee on Bankruptcy Rules is expected to propose a uniform Chapter 13 plan and submit it for comment in August, 2013. The current version of the proposed Plan raises concerns as it consolidates many different motions into the Chapter 13 plan confirmation process. Proposed changes to Federal Bankruptcy Rules 3012 and 3015 will force creditors to act more quickly in objecting to plans and analyzing their secured status.

Currently, case law provides that a secured lien passes through bankruptcy unaffected. Accordingly, a creditor may choose to file a proof of claim or simply wait out the case and exercise its rights against the property outside of the bankruptcy process. Additionally, current practice generally requires that a debtor file and serve a separate motion or adversary proceeding in order to strip a lien or otherwise impair the rights of a mortgage creditor.

The Bankruptcy Code revisions adopted in 2005 include a requirement that the Court hold a confirmation hearing promptly after the case is filed. The initial confirmation hearing is held approximately 60–90 days after the petition date. However, the creditors are allowed approximately 120 days after the petition date to file proofs of claim. This timing creates a certain number of cases that are confirmed prior to the proof of claim bar date.

Consistent with the history of allowing secured creditors to choose whether to participate in or opt out of the bankruptcy process, many jurisdictions “pay per claim” which means that the trustee pays the amount in the timely filed proof of claim, regardless of the amount the debtor may have stated in the confirmed plan. Alternatively, some jurisdictions impose a duty on debtor to modify his/her plan if a timely filed proof of claim is received after the plan is confirmed (“pay per plan” jurisdictions).

The proposed rules would resolve this perceived conflict differently. Instead of holding the Debtor responsible for obtaining the correct claim amount pre-confirmation or modifying his plan after confirmation, the duty is shifted to the creditor to file its proof of claim within 60 days of the petition date. Thus, in an apparent effort to expedite plan confirmation, the proof of claim bar date would be decreased to 60 days from the petition, rather than 90 days from the first scheduled Section 341 meeting of creditors. This shortens the bar date by more than 90 days and will create further pressure on lenders/servicers to timely file proofs of claim which comply with all of the various requirements of the rules. When combined with the changes to the proof of claim process that became effective in 2011 (e.g., escrow analysis, itemization for attachment A to B-10 form, etc.), these proposed rules would greatly increase the burdens of servicing mortgages in Chapter 13 proceedings.

By cutting the time period for filing a proof of claim in half, the proposed rules increase the likelihood that creditors will miss the bar date or file incomplete proofs of claim. It appears that the intention of the drafters is to treat late proofs of claim as disallowed. What is less clear is the effect of this disallowance on a later attempt to foreclose on the property after the Debtor obtains a discharge. Many of the comments from the Chapter 13 Form Plan Working Group for the Advisory Committee on Bankruptcy Rules indicate that a lender or servicer that fails to timely file a proof of claim and participate in the confirmation process may waive both its claim in bankruptcy and its right to pursue the lien outside of bankruptcy.

The second most important, or troubling, proposal is to allow multiple types of relief to be obtained within the plan process. Under the proposed rules and plan, creditors will receive one notice of a proposed plan which will incorporate claim objections, cram downs and lien strips. Thus, a claim may be disallowed, a lien stripped, or a cram down approved, without the separate additional notice historically required. Historically, a lien strip or cram down required an additional motion or, in some jurisdictions, an adversary complaint. The treatment of each claim will be included in one plan—not in several separate motions addressed to the adversely affected creditors. Accordingly, the proposed rules will mandate increased vigilance to ensure that both objection to plans and proofs of claim are timely filed in order to protect the creditor’s rights from being impaired by a Chapter 13 plan.

The current proposals warrant attention and comment. When the comment period begins, affected entities should provide comments that argue for a balance between the rights of creditors and those of debtors. Stay tuned for updates as the process moves forward.

Business Law Section Activities
Financial Institutions Subsection

UCC Article 9 Security Interests: Collateral Refresher and Hot Topics—Wednesday, March 6

The Financial Institutions Subsection is co-sponsoring the CBA-CLE event “UCC Article 9 Security Interests: Collateral Refresher and Hot Topics.” The speakers are: Charles (Chuck) Calvin, of Faegre Baker Daniels LLP; Michael Hardin, of Colorado Secretary of State’s office; Herrick K. Lidstone, Jr., of Burns, Figa & Will, P.C.; and Patricia (Trish) Rogers, of Moye White LLP. Topics include a summary of the types and categories of collateral covered by Article 9, hot issues involving Article 9 (including the recent amendments to Article 9), filing and searching security interests with the Colorado Secretary of State, and UCC Security Interest Opinions.

The live program will be held in the CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO or via webcast, from 8:30 a.m. to 12:15 p.m. Four general CLE credits available.

Click here for more information and to register.

Cancelled: Lunch and Learn on Wednesday, March 20

The Financial Institutions Subsection will not have its regularly scheduled Lunch and Learn CLE program on March 20 due to the March 6 UCC Article 9 Security Interests program.

The financial institutions subsection is always interested in receiving input and suggestions from its members as to future events and activities. Please contact G. Brent Coan at or Steve Suneson at

M&A Subsection

The Latest on Tax Issues in Structuring M&A Transactions—Tuesday, March 5

Co-sponsored by the CBA Business Law Section M&A Subcommittee

John R. Maxfield of Holland & Hart, LLP, will discuss the latest issues and thoughts on structuring M&A transactions under the current tax laws, including what, if any, effect the tax changes and issues in connection with the “fiscal cliff” will have on M&A transactions.

The live program will be held from 8 to 9 a.m. in the CBA-CLE Large Classroom, 1900 Grant Street, Suite 300, Denver, CO and via webcast. One general CLE credit is available.

Visit the CBA-CLE website for complete information and to register.

CLE Lunch Program: Current Issues in Insider Trading—Thursday, April 4

No M&A Subsection Breakfast CLE Program in April

Please note: The M&A Subsection will not hold a Breakfast CLE program on April 2. Instead, the M&A and Securities Subsections will co-sponsor a CLE lunch program on Thursday, April 4, 12–1:30 p.m., at the Warwick Hotel in Denver. The topic is “Current Issues in Insider Trading.” Please mark your calendars!

CBA-CLE Information

International Commercial Transactions—What a Business Needs to Know to Do Business Internationally—Thursday, March 14

Your clients’ businesses may outsource, manufacture, distribute, transfer technology, or joint venture in China, Mexico, and other countries. Learn tried and true methods for protecting your clients, or yourself, in the international market in which close to 200 countries are involved. Get practical “how to” advice concerning the laws, customs and languages of different countries. Hear how to use conventions and negotiations to facilitate international business.

The live program will be held in the CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO or via webcast, from 8:25 a.m. to 4:40 p.m. Eight general CLE credits are available.

Call 303-860-0608 (toll free 888-860-2531) or click here for the complete list of faculty, the detailed agenda, and to register.

Starting a Colorado Business—Thursday, April 11

Whether you are newly-licensed or an experienced attorney who is expanding your practice to include the corporate area, or simply need a refresher, this program will provide practical advice on starting a Colorado business. This program is packed with seven credits of valuable information. The program materials will become a resource you reach for time and again when working with start-up businesses.

The live program will be held at the CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO or via webcast, from 8:55 a.m. to 4:30 p.m. Seven general CLE credits including one ethics are available.

Call 303-860-0608 (toll free 888-860-2531) or click here for more information, the faculty list, and to register.

Save the Date

Friday, May 10—Annual Rocky Mountain Securities Conference

CBA-CLE Featured Publications

American Bar Association Business Law Books

Colorado Bar Association CLE carries a complete list of ABA books focused on business law including:

  • “Advising the Small Business: Forms and Advice for the Legal Practitioner”
  • “Corporate Director’s Guidebook; Directors and Officers Liability Insurance Deskbook”
  • “Financial Statement Analysis and Business Valuation for the Practical Lawyer”
  • “Fundamentals of Corporate Governance—A Guide for Directors and Corporate Counsel”
  • “Intellectual Property Deskbook for the Business Lawyer—A Transactions-based Guide to Intellectual Property”
  • “The Guide to Business Divorce”
  • “The Keys to Banking Law—A Handbook for Lawyers” and
  • “The Portable UCC”

For more information or to order books, call 303.860.0608 or 800.860.2531 or click here.

Contributions for future newsletters are welcome —
Contact Ed Naylor at or 303-292-2900

This newsletter is for information only and does not provide legal advice.

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