Syed Rahman of financial crime specialists Rahman Ravelli details the changes - and the litigation risks.
The Financial Conduct Authority (FCA) has brought in new rules so that the UK can attract the huge amounts of money being invested in the special purpose acquisition companies (SPACs) market.
A SPAC is created by a team of investors specifically to acquire another company. Once incorporated, the SPAC undertakes an initial public offering and its shares are listed but it has no commercial operations and no assets other than the funds it has raised.
As part of the rule changes, the FCA has devised safeguards for SPAC investors. These include allowing investors to exit a SPAC before any acquisition is completed, ensuring money raised from public shareholders is ring-fenced, requiring shareholder approval for any proposed acquisition and time limits on a SPAC's operating period if no acquisition is completed.
Yet, despite the safeguards, the arrival of SPACS in the UK will almost certainly lead to litigation in the financial services sector. Investors could bring legal action over what they allege is a SPAC's poor performance or the conduct of those who create and run it. Either issue could see investors going to court to recoup what they have lost.
Whether everyone involved was provided with the true financial position of the company could also prompt legal action. The principle of adequate disclosure - that there is full disclosure of all material matters which can affect the financial statements, so as not to mislead - and whether due diligence was conducted at all stages of an acquisition may well be at the centre of much SPAC litigation.
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