{"id":8540,"date":"2024-01-16T09:05:13","date_gmt":"2024-01-16T14:05:13","guid":{"rendered":"https:\/\/www.campbellslegal.com\/?p=8540"},"modified":"2024-01-16T09:20:48","modified_gmt":"2024-01-16T14:20:48","slug":"spac-disputes-in-the-cayman-islands","status":"publish","type":"post","link":"https:\/\/www.campbellslegal.com\/articles\/spac-disputes-in-the-cayman-islands-8540\/","title":{"rendered":"SPAC Disputes in the Cayman Islands"},"content":{"rendered":"

SPAC disputes in the Cayman Islands<\/strong><\/h3>\n

2023 has produced the first special purpose acquisition company (SPAC) related filings in the Grand Court of the Cayman Islands, and Campbells has recently advised on numerous SPAC related disputes.<\/p>\n

The SPAC structure<\/strong><\/h3>\n

A SPAC is a structure whereby a special purpose vehicle is listed on a public stock exchange to raise IPO proceeds, which are used to complete a merger with a privately held entity (often a promising start-up) within a certain period of time.<\/p>\n

Class A Shares in a SPAC are issued to the public at a specified price, and those proceeds are held in trust. The SPAC then has a specified period of time within which to consummate a merger using those proceeds, failing which it must return them to the public investors (with interest), and then ordinarily dissolve.<\/p>\n

In exchange for funding its set-up costs, acting as its directors and managers, and being responsible for identifying a target and negotiating a merger, the sponsors of a SPAC are issued Class B shares. These shares generally give the sponsors control of the SPAC and convert into Class A shares if a merger is consummated. Generally, these shares will convert into 20% of the value of the SPAC in the event of a merger, but will be worthless if no merger takes place.<\/p>\n

The SPAC boom<\/strong><\/h3>\n

While the SPAC concept was developed decades ago, the volatility surrounding the global COVID-19 pandemic saw a renewed enthusiasm for SPAC deals, with 247 SPACs incorporated in 2020, raising USD80 billion, and a further 295 SPACs incorporated, raising USD96 billion, in the first quarter of 2021 alone, before a sharp decline beginning in 2022. While the US was the epicentre of the SPAC boom, significant numbers of SPACs were also launched in other jurisdictions. It has been estimated that around one third of the SPACs launched globally during this boom were incorporated in the Cayman Islands.<\/p>\n

SPAC maturities<\/strong><\/h3>\n

While early SPAC launches and mergers were wildly successful, the majority of SPACs launched between 2020\u20132022 have ultimately failed to consummate a merger transaction within the required time period. Under the usual terms of Cayman Islands SPAC constitutional documents, those SPACs are now required to return the funds held on trust to investors (with interest), and then liquidate and dissolve.<\/p>\n

SPAC disputes<\/strong><\/h3>\n

The failure to consummate the intended business combination transactions has resulted in a number of disputes arising, which in some cases have led to the commencement of litigation in the Cayman Islands. The failure of a SPAC to complete a merger within the required timeframe may give rise to claims against:<\/p>\n

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