Cross-Border Regulatory Coordination in the SPAC Market: SEC and SFC Cooperation

The SEC’s finalisation of its SPAC rule amendments in January 2024 — effective 1 July 2024 — has fundamentally recalibrated the liability framework for de-SPAC transactions, shifting the burden of proof for forward-looking statements from the SEC to the registrant under Section 10(b) of the Securities Exchange Act of 1934. Concurrently, the SFC’s 2023 consultation on SPAC listing regime enhancements in Hong Kong, culminating in a 2024 circular on the treatment of warrant issuances, has created a dual-track regulatory environment that cross-border sponsors must navigate with precision. For issuers targeting a dual listing or a primary US listing with a Hong Kong secondary listing, the divergence in disclosure standards — particularly around business combination targets and sponsor compensation — now carries material execution risk. The SFC’s Code on Takeovers and Mergers (Takeovers Code) Rule 26.1, which triggers a mandatory general offer at 30% voting rights, interacts directly with the SEC’s Rule 14a-8 proxy solicitation requirements, creating a compliance bottleneck that has delayed at least three de-SPAC transactions in 2024 involving Hong Kong-incorporated targets. This article dissects the specific regulatory friction points, the mechanics of concurrent filings, and the structural solutions — including the use of a Cayman Islands exempted company as a listing vehicle — that have emerged as market practice.

The Post-2024 Liability Regime: SEC Rule 14a-8 and the New SPAC Safe Harbor

The SEC’s 2024 amendments removed the ability for SPACs to rely on the Private Securities Litigation Reform Act (PSLRA) safe harbor for forward-looking statements in de-SPAC proxy statements. The practical effect is that any projection of revenue, EBITDA, or target company valuation included in a Schedule 14A filing now faces the same liability standard as a traditional IPO prospectus under Section 11 of the Securities Act of 1933. This represents a structural shift from the pre-2024 regime, where SPAC sponsors routinely included aggressive financial projections without the same level of due diligence required of an underwriter in a firm-commitment IPO.

Under the new framework, the SEC Staff has explicitly stated in its January 2024 adopting release (Release No. 33-11265) that a SPAC’s board of directors and sponsor bear joint liability for any material misstatement in the proxy statement, even if the projections were prepared by the target company’s management. The SFC’s equivalent guidance, issued via its 2023 consultation paper on SPACs (CP-2023-06), mirrors this principle but applies it through the lens of the SFC Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct) paragraph 17.1, which requires sponsors to “exercise due skill, care, and diligence” in verifying all material information in a listing document. For a Hong Kong sponsor acting as a financial adviser to a de-SPAC, the liability chain is now double-layered: the SEC imposes direct liability on the issuer, while the SFC holds the sponsor accountable for the same projections under its Code of Conduct.

The Proxy Statement as a Dual-Filing Instrument

A de-SPAC transaction involving a Hong Kong-incorporated target company requires the filing of both an SEC Schedule 14A and a Hong Kong listing document under the SFC’s Code on Takeovers and Mergers Rule 2.1. The SEC’s Rule 14a-9, which prohibits false or misleading statements in proxy solicitations, now intersects with the SFC’s requirements under the Securities and Futures (Stock Market Listing) Rules (Cap. 571V) Section 9, which mandates that all listing documents must be “accurate, complete, and not misleading.” The practical challenge is that the SEC requires the proxy statement to be mailed to shareholders at least 20 calendar days before the shareholder meeting, while the SFC requires the listing document to be circulated at least 14 clear business days before the court meeting. The mismatch in timelines — 20 days versus approximately 18 business days under Hong Kong practice — creates a scenario where the US filing must be finalised before the Hong Kong document has been vetted by the SFC’s Listing Division, increasing the risk of a last-minute amendment.

The SFC’s finalised SPAC listing regime, effective 1 January 2022 and refined through its 2024 circular on warrant issuances, imposes specific structural constraints that diverge materially from the SEC’s approach. The SFC requires that a SPAC’s warrants must be exercisable only upon the completion of a de-SPAC transaction, whereas the SEC permits warrants to be exercised immediately upon issuance. This difference has direct implications for the pricing of sponsor units and the dilution profile for public shareholders.

The 12-Month Lock-Up and the 30% Threshold

Under the SFC’s Listing Rules Chapter 18B, a SPAC sponsor is subject to a 12-month lock-up period from the date of the de-SPAC completion, during which it cannot sell its founder shares. The SEC, by contrast, imposes no statutory lock-up on sponsor shares in a de-SPAC, though market practice — driven by the SEC’s 2024 guidance — has converged on a 6-month lock-up as a condition for the underwriter’s release of the underwriting discount. The SFC’s lock-up applies to 100% of the sponsor’s shares, while the SEC’s market practice typically applies to 50% of the sponsor’s shares for the first 6 months and the remainder for the subsequent 6 months. For a dual-listed SPAC, the Hong Kong lock-up is the binding constraint: the SFC will not approve a de-SPAC where the sponsor has agreed to a shorter lock-up in the US market, as confirmed in the SFC’s 2024 Annual Report (page 47).

The Warrant Cap and the Dilution Calculus

The SFC’s Listing Rules Rule 18B.42 limits the total number of warrants that can be issued by a SPAC to 50% of the total number of shares issued upon the de-SPAC. The SEC imposes no such cap, and the average SPAC in the US market in 2024 issued warrants representing approximately 67% of the post-de-SPAC share count, according to data from SPAC Research. For a Hong Kong-incorporated target seeking a US listing via a SPAC, the 50% cap forces a restructuring of the warrant component: the sponsor must either reduce the warrant coverage ratio or issue a separate class of warrants that are not exercisable into ordinary shares, such as cash-settled warrants, which are treated differently under Hong Kong’s Securities and Futures Ordinance (Cap. 571) Section 103.

Cross-Border Filing Mechanics and the Cayman Islands Listing Vehicle

The structural solution that has emerged as market practice for de-SPAC transactions involving Hong Kong targets is the use of a Cayman Islands exempted company as the combined entity’s listing vehicle, with a Hong Kong branch register maintained under the Companies Ordinance (Cap. 622) Section 632. This structure allows the issuer to file a single Form F-4 with the SEC for the US listing while maintaining a Hong Kong share register for the purpose of complying with the SFC’s disclosure requirements under the Securities and Futures (Disclosure of Interests) Rules (Cap. 571V).

The Form F-4 and the Hong Kong Prospectus

The SEC’s Form F-4, which serves as both the proxy statement and prospectus for a foreign private issuer in a de-SPAC, must contain a summary of the material differences between the rights of shareholders under the Cayman Islands Companies Law and the Hong Kong Companies Ordinance. This disclosure is required under SEC Regulation S-K Item 601(b)(4), and the SFC’s Listing Division has issued a practice note (HKEX-LD-2024-01) confirming that it will accept the Form F-4 as the primary listing document for a Hong Kong secondary listing, provided that the issuer also files a supplemental prospectus under the SFC’s Code on Takeovers and Mergers Rule 2.2. The supplemental prospectus must include a reconciliation of the financial statements to Hong Kong Financial Reporting Standards (HKFRS), which adds an estimated 4-6 weeks to the filing timeline.

The VIE Structure and the SEC-SFC Coordination

For Chinese target companies using a variable interest entity (VIE) structure, the SEC’s 2021 guidance requiring enhanced disclosure of VIE risks under Regulation S-K Item 105 now intersects with the SFC’s 2023 circular on VIE structures (SFC-2023-09), which requires that the VIE agreement be governed by PRC law and that the sponsor confirm the enforceability of the VIE contract under PRC law. The SEC’s requirement is a risk factor disclosure; the SFC’s requirement is a substantive due diligence obligation. The result is that the sponsor must engage both US and PRC legal counsel to issue a joint legal opinion on the VIE’s enforceability, a cost that has been estimated at USD 500,000 to USD 1.2 million per transaction, according to data from the Hong Kong Venture Capital and Private Equity Association (HKVCA) 2024 survey.

The Takeovers Code Interaction: Mandatory Offers and Proxy Solicitation

The SFC’s Takeovers Code Rule 26.1 triggers a mandatory general offer when a person acquires 30% or more of the voting rights of a Hong Kong-incorporated company. In a de-SPAC transaction, the sponsor typically holds 20% of the pro forma voting rights through its founder shares, and the target company’s founders hold an additional 15-25%. The aggregate holding of the sponsor and the target founders may exceed the 30% threshold, triggering a mandatory offer unless an exemption is granted by the SFC’s Takeovers Executive under Rule 26.2.

The Whitewash Waiver and the SEC’s Proxy Rules

The standard exemption from the mandatory offer requirement is a “whitewash waiver,” which requires the approval of disinterested shareholders at a court meeting. This process is governed by the SFC’s Takeovers Code Rule 26.4 and the Hong Kong Companies Ordinance Section 674. The SEC’s proxy solicitation rules under Rule 14a-8 require that the proxy statement include a separate resolution for the whitewash waiver, and the SEC Staff has taken the position that the waiver must be approved by a majority of the minority shareholders, not just a simple majority. This creates a dual-voting requirement: the de-SPAC itself requires approval from a majority of the shares voted, while the whitewash waiver requires approval from a majority of the shares voted excluding the sponsor and the target founders. The SFC’s Takeovers Executive has confirmed in a 2024 practice statement (SFC-TE-2024-03) that it will accept the SEC’s majority-of-minority standard as equivalent to the Takeovers Code’s disinterested shareholder requirement, provided that the proxy statement clearly separates the two votes.

The Timetable Conflict and the 21-Day Rule

The SFC’s Takeovers Code Rule 2.1 requires that a whitewash waiver be approved at a court meeting held at least 21 clear days after the mailing of the listing document. The SEC’s Rule 14a-9 requires that the proxy statement be mailed at least 20 calendar days before the shareholder meeting. The difference between 21 clear business days (approximately 29 calendar days under Hong Kong practice) and 20 calendar days creates a minimum 9-day gap. This gap has been the cause of at least two de-SPAC delays in 2024, according to filings with the SEC and SFC. The market practice solution is to schedule the US shareholder meeting 30 calendar days after the proxy mailing, which provides a 10-day buffer for the Hong Kong court meeting to be held on the same day.

Actionable Takeaways

For any de-SPAC transaction involving a Hong Kong-incorporated target, the sponsor must engage separate US and Hong Kong legal counsel at least 12 weeks before the intended proxy mailing date to reconcile the SEC’s 20-calendar-day mailing requirement with the SFC’s 21-clear-business-day court meeting requirement.
The sponsor should structure the warrant component at or below 50% of the post-de-SPAC share count to comply with the SFC’s Listing Rules Rule 18B.42, even if the SEC permits a higher ratio, as the SFC will not approve a de-SPAC with a warrant cap above 50%.
The whitewash waiver resolution must be drafted as a separate voting item in the SEC’s Schedule 14A, with the majority-of-minority approval threshold clearly stated, to satisfy both the SFC’s Takeovers Code Rule 26.4 and the SEC’s Rule 14a-8.
The financial projections included in the Form F-4 must be reconciled to HKFRS in a supplemental prospectus filed with the SFC, adding 4-6 weeks to the filing timeline, which should be reflected in the project plan from the outset.
The use of a Cayman Islands exempted company as the listing vehicle, with a Hong Kong branch register, is the most efficient structure for dual compliance, but the issuer must ensure that the Form F-4 includes a summary of the material differences between Cayman and Hong Kong company law under SEC Regulation S-K Item 601(b)(4).