Litigation involving special purpose acquisition companies (SPACs) continues to heat up in Delaware. One year into this litigation boom, plaintiffs continue to sue SPAC management, founders, and sponsors for various alleged breaches of fiduciary duties. A recent decision—Delman v. GigAcquisitions3, 2023 WL 29325, (Del. Ch. Jan. 4, 2023)—could accelerate that trend and portend a narrowing of available defenses.

The Background of ‘Delman’

SPACs (aka blank check companies) are formed to raise funds in the open market through an initial public offering (IPO). The purpose of this IPO is to fund the acquisition or combination with a business or entity within a fixed period. The SPAC holds the proceeds of the IPO in a trust until the business combination is completed. As part of this process, once the initial business combination is announced, the SPAC must allow public shareholders the opportunity to redeem any portion of their shares for cash equal to their pro-rata share of the aggregate assets in the trust based on their shares. This “redemption” is not tied to how the shareholder votes on the transaction. If a SPAC does not close a business combination within a fixed period—generally between nine and 24 months at the market—it may be forced to liquidate the trust and wind up.

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