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In December 2008, the SEC adopted Foreign Issuer Reporting Enhancements, which mandated that SEC registrants with periodic reporting obligations test and establish foreign private issuer (FPI) status only once a year - on the last business day of their second fiscal quarter (that is, on the “determination date”). The purpose of creating the FPI annual determination date was to avoid the former continuous testing requirement which was viewed as burdensome to FPIs. In contrast, determining FPI status during an Initial Public Offering (IPO) registration could take place within 30 days of filing the IPO registration statement (Rule 405 under the Securities Act and Exchange Act Rule 3b-4).

Sections 6410.2.d and 6410.4, Backdoor listings by foreign companies, of the Division of Corporation Finance Financial Reporting Manual (FRM) states a foreign operating company merging with a US public shell shall provide US GAAP financial statements given that the public shell is a US legal entity, and hence, could not be considered an FPI and the operating company succeeds into the SEC reporting obligations of the US public shell upon completion of the reverse merger.

However, in certain transactions, the public shell company is a foreign-domiciled entity with predominantly US shareholders and therefore, does not meet the FPI status as of its last determination date. In addition, the foreign operating company has readily available audited financial statements prepared under IFRS as issued by the IASB (IFRS-IASB). Immediately upon the merger of the two entities, the combined company may now meet the FPI criteria, as a result of shareholder composition and/or its foreign nexus, however, it must wait until its next “determination date” to obtain the FPI status.

In many of these transactions, the merged entity may be able to ascertain before the next determination date whether it would qualify as an FPI or not at that date. Given the guidance from FRM 6410 discussed above, when the shell company is not a FPI, the foreign operating company may not use IFRS-IASB for purposes of the financial reporting of the operating company in either the Form S-4/merger proxy or Form 8-K (“Super 8-K”) reporting the merger. The foreign operating company presents financial statements in accordance with US GAAP and reports as a U.S. issuer Then upon the next determination date, if the registrant obtains FPI status it would be able to convert to IFRS-IASB and investors may only have US GAAP financial statements for a short period, i.e. the Form S-4/proxy, Super 8-K and any periodic reports prior to the next determination date.

The Super 8-K or “Super 20-F”should provide the same information for the foreign operating company as would be required in an initial registration statement on Form 10 or Form 20-F. Based on this observation the Task Force asked whether the SEC staff would permit a foreign operating company merging with a foreign-domiciled public shell, that does not meet FPI status at time of transaction, to re- determine its FPI status either: (a) immediately upon completing a reverse merger/recapitalization or (b) 30 days prior to the reverse merger consistent with the determination for an initial registration statement.

The staff observed that the answer to this question involves a legal determination regarding the FPI status of the entity and facts specific to the transaction. The staff in the Office of International Corporate Finance (OICF) is aware that this is a fact pattern in the SPAC market.

Rule 12-28 of Regulation S-X requires certain real estate companies to provide a schedule detailing real estate and accumulated depreciation amounts. This includes providing the initial costs to the company and costs capitalized subsequent to acquisition. IAS 29, Financial Reporting in Hyperinflationary Economies, requires entities to apply the standard from the beginning of the period in which the existence of hyper-inflation is identified.

The Task Force asked whether the staff would expect that all schedule information also be restated for the application of IAS 29 in the first filing (e.g., Form 20-F) where the financial statements are presented under IAS 29.

The staff indicated that they would expect the schedule information to conform to the basis of presentation of the financial statements and related notes. Registrants may consult with the staff if they believe providing this information presents a hardship.

The next meeting of the Task Force has been set for May 19, 2020.