On March 30, 2022, the US Securities and Exchange Commission proposed new regulations governing SPACs with a 30-day comment period.  Final regulations are not expected until at least the fourth quarter, 2022.

  • Additional disclosure by both blank check company and target on sponsor compensation, conflicts of interest, and the potential for dilution of share value (and re: dilution – the nature of SPACS, offering as they do compensation and various rights to third parties along the path to the de-SPAC, presents heightened risks, especially for shareholders who do not redeem their shares before the completion of the business combination)
  • Disclosure whether the SPAC sponsors believe the de-SPAC transaction is fair to unaffiliated shareholders
  • Deem the target private operating company in a de-SPAC transaction to be a co-registrant, thereby subjecting it to traditional signing liability
  • A de-SPAC transaction would be deemed a sale of target securities to SPAC shareholders
  • Definition of “blank check company” would encompass SPACs so that the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995 (PSLRA) would not be available to SPACs or to target private operating companies
  • New rule to clarify that SPAC IPO underwriters are underwriters in the de-SPAC and therefore subject to underwriter liability
  • Generally, a minimum 20-calendar-day dissemination period for proxy/registration statements
  • Proposed safe harbor under the Investment Company Act
  • The circumstances in which target companies may report two, rather than three, years of financial statements in a proxy/registration statement would be expanded.
  • Target company’s disclosures in a proxy/registration statement would be required to be aligned with those required in an IPO, which are generally the same as those filed on Form 8-K four days after the close of the de-SPAC transaction
  • Existing SEC staff guidance would be codified by requiring that the financial statements of the target company included in a de-SPAC registration statement (proxy/registration statement) be audited in accordance with PCAOB standards
  • The age of financial statements provided by a target company in a proxy/registration statement would be based on whether the target company would qualify as a smaller reporting company (SRC) if it were filing its own registration statement.
  • A redetermination of the combined company’s SRC status would be performed within four days after the consummation of a de-SPAC transaction
  • Existing financial reporting practice would be codified by requiring the target company to apply Regulation S-X, Rule 3-05 or Rule 8-04 (or Rule 3-14 for real estate operations) to an acquired or to be acquired business (other than a predecessor). Further, significance test calculations would be performed by using the target company’s financial information as the denominator
  • Existing financial reporting practice would be codified by allowing the registrant to omit the pre-combination financial statements of the SPAC once (1) such financial statements have been filed for all required periods through the acquisition date and (2) the financial statements of the combined public company (the “combined company”) include the period in which the acquisition was consummated.