CSE offers momentary regulatory flexibility to listed companies amid COVID-19

Considering the challenges faced by the listed companies in complying with the rules regarding the submission of annual reports and interim financial statements, as a result of the COVID-19 pandemic, the Colombo Stock Exchange (CSE) has decided to extend the financial report submission and enforcement action deadlines applicable to Sri Lankan listed companies as a temporary relief measure. 

These extensions have been approved by the Securities and Exchange Commission of Sri Lanka (SEC). 
The specific regulatory flexibility offered to Sri Lankan listed companies comes in the form of the following: 

Timelines for submission of financial statements
The listed companies with a December 31 financial year end were required to submit the 2019 annual reports on or before May 31, 2020 and their first quarter interim financial statements for the year 2020, on or before May 15, 2020.

The annual report timelines have been extended for a period of two months plus the number of days the market has been closed from March 20, 2020, up to the date of recommencement of trading in the future.

The deadline for interim financial submission has been extended for a period of one month plus the number of days the market has remained closed from March 20, 2020, up to the date of recommencement of trading in the future. 

A company with a March 31 financial year end was required to submit 2019/2020 annual reports on or before August 31, 2020 and the final quarter interim financial statements on or before May 31, 2020.

The annual report timelines have been extended for such companies for a period of two months plus the number of days the market has been closed from March 20, 2020, up to the date of recommencement of trading in the future. 
The deadline for the final quarter interim submission has also been extended for a period of 45 days plus the number of days the market has remained closed from March 20, 2020, up to the date of recommencement of trading in the future.

However, the listed companies, which are unable to submit the annual reports or interim financial statements on the due dates currently set out in the CSE Listing Rules, will be required to submit a market disclosure, setting out the reasons for the delay in submitting the annual report or the interim financial statement. The disclosure must include the following:

The turnover or a note if the company is unable to ascertain the value.
A brief of future outlook relating to the operation and brief of applicability of government reliefs and restrictions to the operation; 

Message to investors who wish to trade in the absence of financials/until the release of next applicable financials and 
Whether the listed company has informed its directors, key management personnel and other related parties, who have access to unpublished price-sensitive information, to take additional precautions in the event such parties intend to trade during the delayed period of information submission. 

Extension of enforcement actions
1. Modified audit opinion
As per the current rules, if the audited financial statements of a listed company contains a modified audit opinion, the trading in the securities of the company will be suspended within six months from transfer to the Watch List, unless a deferment is granted by the SEC and a delisting will be sought upon the expiry of 12 months from the suspension. 

This enforcement action timeline has been extended and trading in such company securities will not be suspended upon the lapse of six months, unless the listed company fails to resolve the modification by the next year’s audited financial statement’s release due date and will be delisted 12 months after the suspension. 

2. Non-compliance with corporate governance requirements
The transfer of a company’s securities onto the Watch List due to non-compliance with corporate governance requirements has been deferred by a period of one month. This extension will be granted only to companies which become non-compliant with the Corporate Governance Requirements up to June 30, 2020.

Trading suspension and delisting of companies, which are currently on the Watch List due to non-compliance with the Corporate Governance requirements, will be withheld until June 30, 2020. 

3. Non-compliance of minimum public holding
Enforcement action on failure to comply with the CSE’s minimum public holding requirements has also been extended by three months. Therefore, a company that fails to comply with this requirement will be transferred to the Watch List after nine months and not six months.

Other extensions/waivers for CSE Listing Rules
1. Delivery of financial statement to shareholders
The CSE will not take enforcement action against the listed companies, which are unable to post/deliver the annual reports to the shareholders due to the prevailing conditions, provided the listed company has submitted the annual report to the CSE on the due date for publication on the CSE website. This shall only be applicable until the postal services are restored.

2. Computation of XD dates
The XD of the interim dividend, which was previously the seventh market day, excluding the date of the announcement, will now be computed as the third market day, excluding the date of announcement. The date of payment of the dividend to be within seven market days from the XD date. This would also apply to all dividends which do not require the approval of the shareholders and would only be applicable for announcements made/to be made up to April 30, 2020.