SEC Adopts Final Rules Relating to SPACs and de-SPAC Transactions

On January 24, 2024, the Securities and Exchange Commission (the “SEC”) adopted the final rules relating to special purpose acquisition companies (“SPACs”) and SPAC business combination transactions with private operating companies (“de-SPAC transactions”). The final rules create significant new disclosure obligations for SPACs and expand potential liability under the federal securities laws for SPACs and participants in SPAC transactions. The proposed rules had a significant chilling effect on the SPAC market when proposed, and it seems unlikely that the final rules will provide much of a thaw to the SPAC market as investment banks continue to wrestle with what measures they need to take in order to protect themselves in the absence of clear rules from the SEC. The final rules are substantially similar to those proposed in March 2022, with two notable exceptions:

• First, the SEC did not adopt proposed Rule 140a, which would have deemed SPAC IPO underwriters participating in de-SPAC transactions to be liable as statutory “underwriters” under the Securities Act of 1933, as amended (the “Securities Act”), instead providing guidance on when a participant may have statutory underwriter status in de-SPAC transactions. The SEC stated that it views a de-SPAC transaction as a distribution of securities in that the purpose of a de-SPAC transaction “is to provide the target company with capital and access to the public markets” and that the distribution is the “process by which the SPAC’s investors, and therefore the public, receive interests in the combined operating company.” Unfortunately, the SEC’s guidance is unlikely to clarify for the market who is and is not “participating” in the “distribution” that is the de-SPAC transaction and who may have underwriter liability. Going forward, we may see financial institutions participating in de-SPAC transactions take a conservative approach and treat de-SPAC transactions more akin to a traditional IPO rather than a public M&A transaction, to manage liability until market practice settles in this area or further guidance is provided by the SEC or courts.
• Second, the SEC did not adopt the proposed safe harbor for SPACs under the Investment Company Act of 1940 (the “1940 Act”), opting instead to provide guidance on when SPACs are likely to meet the definition of an “investment company” under the 1940 Act.

For more information, see Debevoise Insights.

SEC Updates Processes for Expiring Confidential Treatment Orders

On January 8, 2024, the SEC Division of Corporation Finance updated the guidance on confidential treatment applications and confidential treatment order extensions made pursuant to Rule 406 of the Securities Act and Rule 24b-2 of the Securities Exchange Act of 1934, as amended. In particular, the updated guidance sets out the options available to companies that have confidential treatment orders that are about to expire.

There are three alternatives, depending on whether the confidential treatment order was initially granted more or less than three years ago: companies may refile an unredacted exhibit, request an extension or transition to the streamlined process that was created by the SEC in 2019. The SEC expects that most companies will elect to transition to the streamlined process, which allows companies to file redacted exhibits without submitting a confidential treatment request and an unredacted copy of the document to the SEC, provided that the company customarily treats the redacted information as confidential and the omitted information is not material. Companies that have historically filed confidential treatment applications pursuant to Rules 406 and 24b-2 should consider availing themselves of the SEC’s streamlined process in their next upcoming periodic report.

For more information, see Debevoise Insights.

Reinvigorated Antitrust Enforcement of Interlocking Directorate Violations

Over the past several months, the Department of Justice’s (the “DOJ”) Antitrust Division and the Federal Trade Commission (the “FTC”) have indicated their intent to reinvigorate enforcement of the Clayton Act’s prohibition against “interlocking directorates,” situations where a person simultaneously serves on the board of two or more competing corporations. In April, for example, Assistant Attorney General Jonathan Kanter expressed the DOJ’s intent to apply the “bright-line rule” against interlocking directorates beyond the merger review process. This fall, there were reports of the DOJ sending letters and civil investigative demands to companies, private equity firms and investors requesting information about their board composition; shortly thereafter, the DOJ’s concerns regarding interlocking directorates between five pairs of companies led to the resignation of seven directors. Although those companies and directors were able to unwind the interlocks in question by resigning without admitting to liability, the action by the government forewarns of greater enforcement in this area. Meanwhile, in November, the FTC issued a policy statement that expressly lists interlocking directorates as a method of unfair competition subject to enforcement under Section 5 of the FTC Act, even if not covered by the literal language of the Clayton Act, and as conduct that “violates the spirit of the antitrust laws.”

Private equity firms should assess the composition of the management teams and boards of their portfolio companies—with a particular focus on portfolio companies with overlapping or potentially competing businesses—and obtain counsel to minimize risk and uncertainty in this area. Private equity firms may also consider annually reviewing other director or officer positions held by independent board members at their portfolio companies.

For more information, see Debevoise Insights.

UK Updates

Three recent developments to UK capital markets are particularly noteworthy:

• On January 29, 2024, the UK government published “The Public Offers and Admissions to Trading Regulations 2024” to provide an amended regime for public offers of securities (covered by us in detail here), which came into force in part on January 30, 2024, and will become fully effective at the time the onshored EU prospectus regime is repealed in accordance with the Financial Services and Markets Act 2023. The regulations are substantially similar to the near-final draft of the regulations published by the UK government in July 2023 (covered by us in detail here).
• On January 22, 2024, the Financial Reporting Council published an updated version of the UK Corporate Governance Code (covered by us in detail here), which will come into effect on January 1, 2025 (except for Provision 29, which will come into effect on January 1, 2026). Key updates include measures to strengthen companies’ risk management and internal controls by, for example, requiring companies to disclose in their annual report the effectiveness of such controls, as well as a description of any material controls that have not been effective. The updated UK Corporate Governance Code will continue to apply on a “comply or explain” basis.
• On December 20, 2023, the Financial Conduct Authority published a consultation paper setting out near-final proposed reforms to the UK equity listing regime (covered by us in detail here). The consultation paper maintains the proposed single segment for equity shares, which the updated UK Corporate Governance Code will apply to. It is anticipated that the final listing rules will be published in the second half of 2024 and will be effective shortly thereafter. Taken together, the proposed updates to the UK Corporate Governance Code and the UK listing regime are part of a conscious drive to make UK capital markets more attractive for issuers and potential issuers.

SEC Rule-Making Agenda

The SEC’s Fall 2023 Regulatory Agenda was posted in December 2023. A summary of key pending rule changes is included below. We expect the spring 2024 agenda to be released by June 2024. For more information, see the full regulatory agenda here.

The SEC has finalized almost three dozen rules during the current administration, with the below remaining on its agenda as the 2024 elections approach. In an interview on February 14, 2024, SEC chair Gary Gensler said of the remaining rulemaking agenda: “I’m not doing this against the clock. It’s about getting it right and allowing staff to work their part.”

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.