TheCorporateCounsel.net

We find ourselves in an uncertain time for the IPO market, and it has certainly been a rough ride for SPAC IPOs over the past couple years. It remains to be seen how the SEC’s new rules will impact the willingness of sponsors to bring SPACs to market through IPOs. For those brave souls who decide to dip their toes into the IPO waters, Woodruff Sawyer has provided a helpful publication with its 2024 edition of the Guide to D&O Insurance for SPAC IPOs. In the publication, the firm notes:

As it goes through the IPO process, the main assets of a SPAC are its cash in trust, its management team and directors, and the management team’s investment strategy.

SPAC management teams and directors are vulnerable to lawsuits from their public company shareholders as well as regulators like the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). D&O insurance is designed to mitigate the risk of litigation costs falling on individual directors and officers and the companies they serve.

The vulnerabilities associated with being a public company create a need for D&O insurance coverage for the SPAC’s management team and its board. Remember too that national stock exchange rules mandate that most of a SPAC’s board must consist of independent board members. Businesspeople who serve as independent board members typically do not accept a board appointment without the promise of good D&O insurance to protect them against lawsuits and regulatory enforcement.

The Guide to D&O Insurance for SPAC IPOs provides an overview of the most common litigation that SPACs have faced, a description of the regulatory enforcement environment, an explanation of the process for securing D&O insurance and questions to ask when engaging a broker, among other topics.

– Dave Lynn