Aon | Financial Services Group
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Following a lengthy comment period that began with the SEC’s March 2022 proposed SPAC disclosure rules, on January 24, 2024, the SEC adopted final SPAC disclosure rules (Final Rules). Overhauling the existing – often perceived as more lenient – disclosure regime applicable to SPAC and deSPAC transactions, the Final Rules impose new and more onerous reporting requirements that the SEC Chair himself analogized as “substantially aligned with those of traditional IPOs.”1
The enhanced reporting obligations have substantial directors’ and officers’ (D&O) liability insurance implications.2 The SEC’s focus on SPAC/deSPAC transactions – paired with the SEC’s Final Rules – necessitates a careful review of SPAC and deSPAC deal participants’ indemnification agreements, as well their D&O insurance policies. It’s important insureds begin reviews and craft appropriate coverage terms for the private company target and SPAC in unison.
Among other things, deSPAC transaction participants and resulting go-forward companies should review their D&O policies to ensure adequate and continuous coverage, with language concerning prior acts and pre-deal (i.e., “roadshow”) statements, claim interrelatedness, entity vs. insured claims, and split retentions among the notable provisions warranting review.
The Final Rules’ release is available here. In addition to other new requirements, the Final Rules:
- Require that the private company target in a registered deSPAC transaction be a co-registrant on the deSPAC registration statement, and thereby subject itself and its D&O signatories to liability under Section 11 of the Securities Act of 1933. In the Final Rules’ accompanying release, the SEC predicted that, in light of this new liability, some private target companies will spend significant additional time and resources in reviewing deSPAC-related disclosures, while others might elect to forego deSPAC transactions and this related liability altogether.
- Render unavailable to SPACs the so-called “safe harbor” from liability for certain forward-looking statements (including with respect to projections of target companies), as otherwise provided under the Private Securities Litigation Reform Act of 1995.
- Require additional disclosures about SPAC sponsors (including their compensation), actual and potential conflicts of interest, and shareholder dilution.
- Mandate new “disclosures regarding deSPAC transactions, including (1) if the law of the jurisdiction in which the SPAC is organized requires its board of directors (or similar governing body) to determine whether the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders, or otherwise make any comparable determination, disclosure of that determination, and (2) if the SPAC or SPAC sponsor has received any outside report, opinion, or appraisal materially relating to the de-SPAC transaction, certain disclosures concerning the report, opinion, or appraisal.”3
Insureds are encouraged to consult with an experienced broker to analyze the myriad risks and exposures attendant to a SPAC/deSPAC transaction and to ensure robust D&O coverage is in place to mitigate such risks. If you have questions about your coverage or are interested in obtaining coverage, please contact your Aon broker.
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1 https://www.sec.gov/news/statement/gensler-statement-final-rule-012424 (Final Rules Release).
2 The Final Rules are set to become effective 125 days after their publication in the Federal Register.
3 Final Rules Release.
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