2. Financial Reporting. PSPC transactions involve several complex areas of financial accounting and reporting, including: If a target company in a PSPC transaction is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the proposed rules would require that certain additional sections of Regulation S-K be included in the description of the target company in the proxy registration/circular. including: (1) section 101 (Business Description); (2) Section 102 (description of property); (3) Item 103 (Legal proceedings); (4) Item 304 (Changes and disagreements with auditors on accounting and financial reporting); (5) Item 403 (Ownership of securities of certain beneficial owners and management, assuming completion of the PSPC transaction and all related financing transactions); and (6) Section 701 (Recent Sales of Unregistered Securities). Because shareholders of a PSPC are required to vote on the transaction, PSPC may file either a proxy statement on Schedule 14A or a combined proxy and registration circular on Form S-4 (both collectively, the “Proxy/Registration Statement”). These documents must include the target`s financial statements that must comply with GAAP disclosure requirements for publicly traded companies and SEC rules and requirements. For fiscal years, the financial statements should be audited in accordance with PCAOB standards. 1 The proposed rules, which include new rules and amendments to existing rules, are available here. 2 www.whitecase.com/publications/insight/us-spacs-data-hub 3 Statement on Special Purpose Acquisition Corporations (SPACs), Shell Companies and Forecasts by President Gary Gensler (the “Gensler Statement”), available here. 4 For Aristotle`s maxim “similar cases,” Mr.
Gensler quoted Benjamin Johnson and Richard Jordan: “Why should similar cases be decided in the same way? A formal model of Aristotelian justice” (March 1, 2017). After analyzing the maxim and, in particular, how cases are defined as “equal” in practice, Messrs. Johnson and Jordan conclude that “far from being an essential characteristic of justice, the maxim is either useless or harmful” and “invoking the principle of equality is not merely a waste of paper; It can also be deeply insidious. » 5 www.sec.gov/about/what-we-do 6 In 2010, SEC staff raised this point as part of their review of changes to the structure of the LMCC as part of the IPO of a new PSPC, in which members of our firm represented the underwriters. After discussions, including a face-to-face meeting with senior SEC officials at the SEC`s office in Washington, D.C., staff authorized the offer without registration. 7 While most PSPC transactions do not currently contain a fairness opinion (unless the transaction involves a conflict of interest), we expect that many PSPCs will seek fairness opinions to support their “reasonable belief” as to the fairness of the PSPC transaction as a result of proposed section 1606 of Regulation S-K. 8 See here. 9 SEC Complaint, SEC v. Mikhail Kokorich, Case No. 1:21-CV-1869, (D.D.C.
13 Jul. 2021), available here. 10 See footnote 8 above. Our View: With the elimination of the PSLRA`s Safe Harbour for PSPCs and the requirements of applicable foreign or state law, the M&A Regulation and the anti-fraud provisions of federal securities laws for PSPC to disclose the projections considered by the Board of Directors when approving a PSPC transaction, Proposed Rule 140a represents a fundamentally difficult regulatory framework for PSPCs. In other words, projections may need to be disclosed, but potential underwriters may not be willing to assume liability risk under the Securities Act for these projections; What risk is avoidable for underwriters in traditional IPOs and direct listings. This catch-22 could lead many financial institutions to refuse to be involved in many PSPC transactions. In addition, this aspect of the proposed rule could encourage participants in PSPC transactions to align their practices more closely with traditional IPO practice, where forecasts are disclosed orally only to certain institutional investors, which has the opposite effect of the SEC`s purported objectives of increasing retail investor protection and parity in information sharing. A target company must also assess the state of various functions, including the people, processes, and technology that must be in place to meet the SEC`s filing, audit, tax, governance, and investor relations requirements after the merger. It is important for the combined public company to have a competent and experienced management team that understands the reporting and internal control requirements and expectations of a publicly traded company and can effectively execute the company`s comprehensive plan on an expedited basis. For more information on accounting and financial considerations for PSPC transactions, contact your Moss Adams expert. In addition to standardizing existing disclosure practices, the proposal would introduce new disclosure requirements focused primarily on conflicts of interest, PSPC promoters, dilution and economic impact of a de-SPAC on non-affiliated public investors, fairness provisions regarding de-SPAC and forecasting, and seek to highlight the points that the SEC considers most important to public investors: Disclosure on the cover page of the prospectus in the event of an IPO and in a De-SPAC. Transaction.
The United States Financial markets are often the envy of the world, and we at IBC continue to promote healthy public markets. However, our efforts to facilitate capital formation will not be conducted in isolation, as each principle of the three-part U.S. Securities and Exchange Commission (“SEC”), which protects investors, maintains fair, orderly and efficient markets, and facilitates capital formation, is essential to our work. Regardless of the form or structure of access to our markets, we always focus on investor protection. High-quality financial reporting – the result of stakeholders working together across the financial reporting system to fulfil their respective professional responsibilities – is a key element of investor protection. High-quality financial reporting, including high-quality audits, also contributes directly to the health of our markets, and robust public procurement markets serve investors, issuers and the public well. Currently, how a private operating company decides to become a public company may affect its financial statements due to the different requirements of the applicable SEC forms. The proposal aims to address this transaction asymmetry by amending the relevant forms, timetables and rules in order to align more closely the reporting requirements for business combinations involving a shell company and a private operating company with those for traditional IPOs.
