A Swiss SPAC – Frequently asked (legal and tax) questions
1. Why do we read so much about SPACs?
The number of IPOs in the US more than doubled in 2020 compared to 2019 and then again more than doubled in 2021. The reason for this sharp increase can partly be found in the popularity of special purpose acquisition companies (SPACs).
SPACs have yet mostly been noted in the US and reached a high increase in recent years, both in terms of deal numbers as well as deal volume. The upward trend for SPAC listings is persisting on an impressively high level.
In Europe, an increasing interest in establishing more SPAC listings on a European stock exchange is observable. Compared to the US, the number of European SPACs is still low but encounters a steady increase. At the date of this publication, 1 SPAC has been listed on a Swiss trading venue. However, several Swiss companies have already gone public on stock exchanges abroad with foreign SPACs. The SIX Swiss Exchange (SIX) recently amended its listing rules (LR) in order to create a new listing standard for Swiss SPACs. In addition, SIX published a new directive on the listing of SPACs (SPACs Directive ). The new rules have entered into force on 6 December 2021.
2. General FAQs about SPACs
2.1 What is a SPAC?
A SPAC, also referred to as a “blank check company", is a company created for the sole purpose of raising public capital through an IPO and merging with or taking over a private company.
2.2 What is the lifespan of a SPAC?
The lifespan can generally be divided into three main phases which are hereinafter referred to as: (i) the IPO phase, (ii) the accumulation of funds and target determination phase, and (iii) the de-SPACing phase.
2.2.1 What are the characteristics of the IPO phase (first phase)?
The IPO phase starts with the incorporation of a shell company, i.e., a company without commercial operations set up by a sponsor – often an experienced and renowned professional – or a team of institutional investors. In order to raise capital, the SPAC is listed on a stock exchange.
Once listed, a SPAC usually issues units at a uniform price. These units typically comprise of a share and a fraction of a warrant. A warrant entitles investors to purchase a share at a predetermined price.
At this point in time, the SPAC does not have any commercial operations. Its intention is to merge with or acquire a target company. The investors have normally not yet identified the target company and are, therefore, investing in the unknown. Typically, to the extent permitted by the applicable laws, investors do however have a right to redeem to get full or part of their investment back, should they decide not to participate in the merger. The sponsor typically takes up to 20% of the IPO shares at a price equal to the nominal value of the shares. Proceeds of the IPO are placed in a trust or escrow account until a target company is found.
2.2.2 What are the characteristics of the accumulation of funds and target determination phase (second phase)?
During the accumulation of funds and target determination phase, the SPAC is already listed on a trading venue and the sponsor and its team have a pre-defined period of usually 12 to 24 months in order to identify a target company and, simultaneously, raise further capital to accomplish the merger or takeover.
2.2.3 What are the characteristics of the de-SPACing phase (third phase)?
Once the target company has been identified, the last phase, the so-called de‑SPACing phase, starts. This requires, amongst other things, the structuring of the transaction, starting with confidentiality undertakings and a clear picture on applicable ad hoc-publicity reporting obligations as well as a detailed assessment from a legal and tax perspective. In addition, various accounting and other reporting aspects have to be considered as well. Further, the target company has to be prepared to comply with the main listing requirements.
Alternatively, this phase may as well consist of the liquidation of the SPAC. See question 2.3.
2.3 What if no target can be found or the shareholders do not get to an agreement?
If no target company can be found, or no agreement amongst the shareholders can be achieved with respect to the contemplated merger with a specific target, the third phase of a SPAC’s lifespan mainly revolves around its liquidation. Upon payment of all liabilities, any remaining funds would need to be returned to the shareholders.
3. Swiss law FAQs
3.1 What company forms are available for the incorporation of a SPAC?
In general only stock corporations are listed as SPACs (art. 89h of the LR).
3.2 What are the main characteristics of a stock corporation?
For a stock corporation, the share capital must amount to at least CHF 100,000 (whereby the LR prescribe a minimum capital requirement of CHF 25m). Additionally, a registered office in Switzerland is required at the seat of the company. The choice of the location of the seat often depends on logistical or fiscal reasons. Further, at least one member of the board must have his/her (permanent) residence in Switzerland.
3.3 Is it possible to issue authorised capital allowing investors to acquire shares without any additional shareholder meetings?
Yes, if the articles of association of the SPAC allow it, the board of directors may increase the share capital within a period of two years. No further shareholders' resolution is required. However, under Swiss law the authorised capital must not be higher than 50% of the existing share capital.
3.4 Is there a right to redeem shares?
As mentioned in question 2.2.1, shareholders of a SPAC typically have a right to redeem their shares to get their investments back. According to the LR, it is mandatory to grant redemption rights to shareholders but it may be limited to shareholders voting against the de-SPAC.
3.5 May a SPAC merge with any other company?
Yes, in principle a SPAC is entitled to merge with any other corporate form under Swiss law.
As concerns cross‑border mergers, Swiss law does not differentiate between jurisdictions. A SPAC may merge with any foreign company (in-bound merger), provided that the merger is also permitted by the law applicable to the foreign company and complies with any Swiss law merger requirements.
Similarly, a SPAC may as well be involved in an outbound cross-border merger, provided it can demonstrate that (i) all its assets and liabilities are assumed by the foreign company in connection with the merger and (ii) the membership rights of the SPAC's shareholders are adequately protected by the foreign company.
3.6 What are the requirements for listing a SPAC on the SIX Swiss Exchange?
In principle, for an admission to the SIX Swiss Exchange, the LR require the SPAC to have:
i. a minimum equity of CHF 25m on the first day of trading;
ii. an adequate free float at the time of listing (i.e., at least 20% of the outstanding securities in such company have to be publicly traded);
iii. the capital raised during the IPO deposited in an escrow account at a bank; and
iiii. their founding shareholders, sponsors as well as members of the board of directors and the executive committee of the SPAC entering into lock-up agreements providing for a holding period of at least six months after completion of the de-SPAC.
Compared to a regular listing, no track record of existence of the company of at least three years, including submission of financial statements, is required.
The capital in the escrow account, i.e., the proceeds of the offering, may only be used for the purpose described in the prospectus, in particular the acquisition of one or more acquisition targets, the repurchase of IPO shares in connection with the de-SPAC or the repayment of IPO shares in connection with the liquidation of the SPAC. It cannot be used for the SPAC's operating costs.
If no de-SPAC takes place within three years from the first day of trading, the SPAC will be dissolved.
3.7 Does a prospectus need to be published with regard to the shares of a SPAC to be listed on the SIX Swiss Exchange?
Yes, when seeking admission of a SPAC’s shares to trading on a trading venue in Switzerland, a listing prospectus needs to be published in advance. Like a prospectus for a regular listing, the prospectus needs to contain the essential information for the investor's decision such as further details on the issuer, the securities to be offered and the type of placement and estimated net proceeds and must be reviewed and approved by a reviewing body before publication. The scope of the review does not only comprise formal completeness of the content, but also coherence and understandability. The approved prospectus must be published at least six business days prior to the end of the subscription period.
The SPACs Directive provides for several additional disclosure requirements for the prospectus of a SPAC. Accordingly, a SPAC must disclose additional quantitative and qualitative information in the prospectus. The quantitative information mainly concerns details on the dilutive effect and on the costs to be borne by a public shareholder upon redemption of the shares. The qualitative information, on the other hand, refers to different information on the de-SPAC and the founders, members of the board of directors and management, for example potential conflicts of interest.
3.8 What reporting obligations apply to a listed SPAC?
Being listed on the SIX Swiss Exchange leads to certain reporting obligations being applicable. Typically, and similarly to many other stock exchanges, these relate to (i) the acquisition of a certain amount of the shares in the listed company exceeding a pre-defined threshold of voting rights, (ii) management transactions within the listed company, which would have to be publicly disclosed, and (iii) ad hoc publicity in relation to any price-sensitive facts emanating from or to be expected by the listed company such as takeover bids or mergers as soon as the company is aware of the main points of such price-sensitive facts.
Disclosure of price-sensitive facts is a particularly important aspect for a SPAC when negotiating with a potential target and disclosure may only be postponed if (i) the fact is based on a plan or decision from the issuer, and (ii) its dissemination might prejudice the legitimate interests of the issuer.
3.9 Are there any disclosure requirements?
Purchasing additional shares that are listed on a Swiss stock exchange may trigger certain disclosure obligations. Any person who directly, indirectly or by acting in concert with third parties acquires shares of a company whose shares are listed and thereby reaches or exceeds a certain threshold of voting rights must inform both, the company and the stock exchange accordingly. The thresholds are as follows: 3%, 5%, 10%, 15%, 20%, 33 ⅓%, 50% and 66 ⅔%. The notification must be made within four business days after a certain threshold has been exceeded.
3.10 Are there any mandatory takeover provisions that might apply in a SPAC transaction?
If the shareholders of the target company are offered a certain portion of the shares in the public SPAC, the public takeover offer provisions might be affected if a single shareholder directly, indirectly or by acting in concert with others reaches a threshold of 33 1/3%of the voting rights. Yet, the provision to initiate a public takeover by exceeding the aforementioned threshold might be excluded in the SPAC's articles of association.
3.11 What are relevant attention points from a Swiss tax perspective for the fund-raising (second phase)?
Despite the fact that a Swiss SPAC could be structured in a way to be achieve a rather low corporate income tax (12‑16% effective rate on average in Switzerland), the fund-raising needs attention.
First, Switzerland levies a 1% stamp tax on equity contributions, providing for a (minimal) one-time exemption on the first CHF 1 million on nominal share capital. Equity injections can however be structured in a way to avoid the stamp tax.
Second, Switzerland also levies a 35% interest withholding tax on certain debt instruments if such instruments have been issued for collective financing and thus are deemed to be bonds or debentures for Swiss tax purposes. Even for non-Swiss sponsors in a jurisdiction with a double tax treaty providing for a 0% rate on interest, the withholding tax, if applicable, will lead to an actual cash-out of 35% as there is no exemption at source mechanism available under Swiss law. Therefore, if the initial fund-raising prior to the IPO would involve a (partial) debt financing from sponsors, tax structuring should be carefully reviewed to ensure that no interest withholding tax is triggered in the process.
3.12 What are relevant attention points for Swiss taxes in connection with redemption rights and the allocation of warrants?
A repurchase of shares from shareholders by a Swiss incorporated SPAC may trigger withholding tax in certain scenarios (e.g., repurchase for cancellation) if the repurchase is not fully covered and accounted for against nominal share capital or reserves from capital contributions (additional paid-in capital). Non-Swiss shareholders may be entitled to a full or partial refund of such tax depending on an applicable double tax treaty.
Similarly, the allocation of warrants by a Swiss SPAC to shareholders may also have withholding tax implications to the extent such warrants are allocated at a consideration below fair value.
3.13 What is to be considered with regard to a de-SPAC?
The shareholders of the IPO shares must approve the de-SPAC by a majority of all the votes of the shareholders of the IPO shares represented at a special meeting (investors’ meeting). In preparation of this vote, the SPAC must prepare and publish an information document for the shareholders.
This information document must contain information on the acquisition target as well as information on the de-SPAC. With regard to the acquisition, the following must be included in the information document: description of the acquisition target and its business, various financial information as well as information on corporate governance. The information on the de-SPAC, on the other hand, must include a description of the transaction, the repurchase offer, the material conditions, the financing and the banks involved. In addition, the information document must contain a report of a recognised auditing firm, confirming the appropriateness of the offer.
In case any new facts occur or are discovered between the publication of the information document and the vote on the approval of the de-SPAC and these could materially influence the decision of the investors, a supplement to the information document must be prepared and published.
3.14 What are the conditions for maintaining the listing after the completion of the de-SPAC?
In general, the conditions for maintaining the listing after the de-SPAC are the same as for a regular listing. These requirements consist amongst other things of an obligation to publish an annual report, produce a corporate calendar and rules about ad-hoc publicity.
However, in case of a de-SPAC, additional conditions must be met to maintain the listing. Following the execution of a de-SPAC, the issuer must publish quarterly financial statements in accordance with the applicable accounting standards, with the first financial statement being prepared for the first full quarter after the de-SPAC took place. These quarterly financial statements must be prepared for a maximum of two full financial years and be published no later than two months after the end of the reporting period and submitted to the SIX Exchange Regulation upon publication. The issuer is exempted from this requirement if the target has financial reporting of at least three years in accordance with a recognized financial reporting standard at the time of the de-SPAC.
Until one month after the end of the lock-up-period, in addition to the members of the board of directors and the executive committee, sponsors and founding shareholders of the SPAC are also subject to the reporting requirements of Art. 56 para. 2 LR. Accordingly, they must report transactions in the issuer's equity securities, or in related financial instruments, to the issuer no later than the second trading day after the reportable transaction has been concluded.
No later than three months after the de-SPAC took place, the company listed as a SPAC must submit a request for a change of the regulatory standard.
3.15 What is to be considered when liquidating a SPAC?
If a SPAC is not able to identify a target company, it needs to be dissolved and liquidated since the SPAC's purpose cannot be achieved anymore. In principle, the SPAC can be dissolved based on a respective resolution by the general meeting of shareholders to be passed by a qualified majority. Alternatively, to avoid convening a shareholders’ meeting, the articles of association may provide for specific reasons for dissolution or limit the existence of the SPAC to a specific period of time. Upon expiry of the pre-defined period, the SPAC would automatically enter the stage of dissolution and liquidation.
As for the liquidation, shares issued during the IPO must be granted privilege over all other classes of shares up to the amount paid in the IPO.
As a consequence of entering into liquidation, SIX Swiss Exchange may delist the shares of a SPAC upon written request by the liquidators or competent authority.
3.16 Do you expect Swiss law and practice to further develop in the near future?
Until today, one Swiss SPAC has been listed. Given that the SIX Exchange Regulation has supplemented the listing rules to facilitate the admission of SPACs to the Swiss market, it is to be expected that the tax and capital market practice will further develop.
We recommend reviewing the development of the capital market rules and regulations closely. If you have any question on the subject or if you are interested to receive more information, please do not hesitate to contact us.