On January 3, 2022, the Delaware Court of Chancery denied a motion to dismiss a shareholder lawsuit against a SPAC’s sponsor, its directors, and financial advisor claiming among items, breach of fiduciary duty. The facts supporting the claim mirror common factual scenarios in SPAC and de-SPAC (acquisition transaction) transactions where the post SPAC public company has a decline in stock value. As such, the case is being closely watched by SPAC sponsors and boards of directors.
Background on SPACs
A special purpose acquisition company (SPAC) is a blank check company formed for the purpose of effecting a merger, share exchange, asset acquisition, or other business combination transaction with an unidentified target. Generally, SPACs are formed by sponsors who believe that their experience and reputation will facilitate a successful business combination and public company. SPACs are often sponsored by investment banks together with a leader in a particular industry (manufacturing, healthcare, consumer goods, etc.) with the specific intended purpose of effecting