Delaware Suit Means SPACs Will Face Tougher Legal Scrutiny

By Tom Zanki (January 14, 2022, 4:57 PM EST) -- Special-purpose acquisition company founders and directors doing business in Delaware will face increased litigation risks unless they provide fuller disclosure before merger proposals or enact other safeguards that can stem accusations of conflicts, experts say, following a recent Chancery Court action.

The sober outlook reflects the Delaware Chancery Court's refusal to toss an investor's suit alleging a SPAC's management disloyally pursued a merger favoring insiders, essentially signaling fiduciary duties to shareholders under the state's traditional corporate law will apply to modern vehicles like SPACs. Many SPACs, like operating companies, are incorporated in Delaware for certain legal and tax reasons.

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