On December 21st, 2009, the Korean government amended the Enforcement Decree of the Financial Investment Services and Capital Markets Act (hereinafter referred to as “CMA”) and introduced the Special Purpose Acquisition Company (hereinafter referred to as “SPAC” ) in order to invigorate M&A and restructuring of corporations. Accordingly, the first SPAC in the Asian financial markets went public with an Initial Public Offering (hereinafter referred to as “IPO”) on February 22nd, 2010.
This article reviews the origin, development process, and basic structure of the SPAC in the U.S. and explores how the CMA introduced it to the Korean legislative system. Ultimately, the article concludes with some recommendations about the legislative improvements under the current regulatory environment for the SPAC.
Although, the Korean government introduced the SPAC on the basis of the U.S. system and maintained the basic legislative intents, it modified and supplemented the U.S. style SPAC considering our legislative framework and financial environment. Thus, this article recommends:
First, regarding securities issued at IPO, we'd better consider amending our regulation so that the SPAC can issue warrants in addition to their common stocks in order to attract sound sponsor(s) as management. Second, regarding the ways of M&A which the SPAC performs, it is desirable for us to approve various ways such as business transfer and acquisition of shares as well as mergers. Third, in spite of the current regulatory framework which excludes the SPAC from the application of the CMA, it seems necessary to apply the CMA’s important investor protection system to the SPAC. Lastly, regarding taxation issues, the apparent direction of construction of the tax law regarding the SPAC or addition of special case in taxation for the SPAC investment are needed in order to secure the predictability of tax system.
As such, we need to consider that our legislative system, market conditions, and the background of the introduction of the SPAC are a bit different from those of the U.S. and other advanced countries. Therefore, we still need to improve our regulatory framework for the SPAC with idea and suggestions from the academia and practice sector.