The recent announcement of Hambro Perks Acquisition Company Limited's IPO on the London Stock Exchange (the "LSE") signifies the first special purpose acquisition company ("SPAC") to list on the LSE since the changes to the Listing Rules, designed to make the LSE more attractive to SPACs, came into effect on 10 August 2021.
The Hambro Perks SPAC is a Guernsey company. Companies formed in Guernsey, Jersey, the Cayman Islands, the BVI and Bermuda ("Offshore") all have similar benefits making them attractive as SPACs for listing on the LSE, which are summarised below.
Changes to the Listing Rules
The changes came into effect on 10 August 2021 and bring the Listing Rules into line with the popular SPAC rules for the US markets, which have seen an unprecedented number of SPACs listed since the start of 2020. The updated Listing Rules are designed to encourage SPACs by allowing the trading of a SPAC's shares to continue once it had announced an intended acquisition, provided that certain investor protections are embedded in the SPAC. (These investor protections are dealt with further below.)
The Benefits of an Offshore company as the SPAC
Offshore companies are governed by very flexible corporate laws and are tax neutral. Offshore companies are therefore ideal as SPACs, both in relation to the IPO and as the company that is traded on the LSE, and then in relation to the "de-SPAC" transaction that occurs as part of the acquisition, which typically involves a merger. These benefits are summarised in the table below.
|Local regulatory approval to form SPAC?||Not required||Yes, Jersey companies registry consent required to form a SPAC; for the SPAC to circulate a "prospectus" (where the definition of a prospectus has recently been amended and is summarised here); and for the SPAC to issue warrants/certain other securities1||Not required||Not required||Yes - BMA consent required2|
|Redeemable shares/warrants allowed?||Yes||Yes||Yes||Yes||Yes3|
|Shares/warrants can be held in treasury||Yes||Yes||Yes||Yes||Yes4|
|Shares can be traded through CREST?||Yes - in addition to UK exchanges, Guernsey companies can also list uncertificated shares on a number of non-UK stock exchanges||Yes - in addition to UK exchanges, Jersey companies can also list uncertificated shares on a number of non-UK stock exchanges||Depositary interests may be traded through CREST||Depositary interests may be traded through CREST||Depositary interests may be traded through CREST|
|UK stamp duty reserve tax on sale of shares?||No - the share register must be maintained outside the UK||No - the share register must be maintained outside the UK||No - the share register must be maintained outside the UK||No - the share register must be maintained outside the UK||No - the share register must be maintained outside the UK|
|Tax neutral?||Yes - income tax for SPACs is 0%||Yes - income tax for SPACs is 0%||Yes - no local taxes||Yes - no local taxes||Yes - no local taxes|
|Withholding tax on dividends/distributions?||No5||No||No||No||No|
|Merger/amalgamation possible?||Yes - local and cross-border||Yes - local and cross-border||Yes - local and cross-border||Yes - local and cross-border||Yes - local and cross-border|
|Result of merger/ amalgamation?||Rights, property, business and liabilities of merging companies continue with the surviving company by operation of law||Rights, property, business and liabilities of merging companies continue with the surviving company by operation of law||Rights, property, business and liabilities of merging companies continue with the surviving company by operation of law||Rights, property, business and liabilities of merging companies continue with the surviving company (or the amalgamated company, in the case of an amalgamation) by operation of law|
|Migration possible pre-acquisition?||Yes||Yes||Yes||Yes||Yes|
|Treasury shares allowed?||Yes||Yes||Yes||Yes||Yes6|
|Financial assistance allowed?||Yes||Yes||Yes||Yes||Yes|
|Limitations on dividends, redemptions, buybacks and capital reductions?||Company must be solvent; no other limits||Company must be solvent; no other limits||Company must be solvent for redemptions and buybacks; dividends payable out of profits or (subject to solvency test) share premium||Company must be solvent; no other limits||Company must be solvent7|
|Can become tax resident elsewhere?||Yes||Yes||Yes||Yes||Yes|
|Economic substance requirements apply?||Not whilst SPAC||Not whilst SPAC||Not whilst SPAC||Not whilst SPAC||Not whilst SPAC|
The newly adopted LSE rules allow trading of a SPAC's shares to continue, provided that the following investor protections are embedded in the SPAC (otherwise the trading suspension applies)8:
- Size threshold - aggregate gross cash proceeds of at least £100 million are raised from public shareholders (i.e. not founders, sponsors or directors) on IPO;
- Acquisition time limit - the SPAC must have a two year time limit to make an acquisition, with a shareholder option for a one-year extension and a further board option for a six-month extension (if, broadly, an acquisition has been approved, the approval meeting has been convened or announced or the acquisition is agreed but is yet to be approved);
- Ring-fenced proceeds - the money raised from public shareholders is adequately ring-fenced to ensure that IPO proceeds from public shareholders are used only for an acquisition approved by the board and public shareholders, or are returned to shareholders if shareholders redeem, the SPAC is wound up or the SPAC does not make an acquisition within the acquisition time limit. A specified amount or proportion may be used to fund the SPAC's operations if disclosed in the IPO prospectus;
- Approvals - acquisition requires board and shareholder approval, with shareholder approval excluding the votes of the founders, sponsors and directors, and directors must publish a "fair and reasonable statement" based upon independent advice where any director has a conflict of interest;
- Redemption option - allows shareholders to redeem their shares and exit the SPAC for a predetermined amount before the acquisition (no matter how the shareholder voted on the approval); and
- Disclosure requirements - provision of sufficient disclosure to shareholders of key terms and risks from the time of the IPO through to the
1. Any "prospectus" will need approval from the Jersey Companies Registry. If the SPAC will be an AIF marketing into the UK, EU or EEA for the purposes of the AIFMD a certificate/ approvals will be required from the Jersey regulator
2. BMA means the Bermuda Monetary Authority.
3. If authorised by the bye-laws or memorandum of the company.
4. If authorised by the bye-laws or memorandum of the company.
5. Withholding tax applies on dividends/distributions paid to Guernsey resident natural person
6. If authorised by its bye-laws or memorandum
7. For dividends, Company subject to net assets test; for redemptions/repurchases, shares may only be redeemed out of the capital paid up on such shares, funds otherwise available for dividend of distribution or proceeds from a fresh issue of shares, with any premium payable paid out of the share premium account or out of funds available for dividend or distribution; for reductions of capital, intention of reduction to be published in an appointed newspaper in Bermuda
8. A detailed description of the protections is outside the scope of this briefing
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.