In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, reviews the latest developments in SPAC-related Delaware Chancery Court proceedings, in light of the recent resurgence in SPAC transactions in the financial marketplace. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
****************************
In March 2024, the D&O Diary reported on the Northern Genesis Acquisition Corp. (NGA) and Lion Electric Co. (Lion) de-SPAC securities litigation (Lion SCA). The lawsuit, stemming from the once public company NGA’s business combination with Canadian electric vehicle company Lion, was one of several securities class actions filed that highlighted structural conflicts and disclosure risks stemming from certain SPAC transactions completed during the 2020–21 SPAC boom.
While the Lion SCA was recently voluntarily dismissed, a December 2025 Law360 article reported that, on December 19, 2025, Vice Chancellor Morgan T. Zurn refused to dismiss certain fiduciary-duty and unjust enrichment claims brought against NGA’s sponsor, directors, and officers in the Delaware Court of Chancery. The following will briefly discuss the Lion SCA and Lion’s insolvency proceedings as well as the Delaware Chancery ruling and potential takeaways for D&O underwriters.
LION SCA
As D&O Diary readers may recall, the Lion SCA, filed in 2024, alleges that NGA and its founders solicited investor approval of the merger through a proxy statement that was materially misleading in several respects. Among other things, the complaint asserts that the proxy characterized already-materialized supply-chain disruptions as hypothetical risks, relied on overly optimistic financial projections, and failed to disclose the true economic value of sponsor shares that public stockholders were effectively being asked to contribute to the transaction.
According to the Lion SCA, sponsor economics and incentives favored completing any transaction over returning trust assets to investors, even if the resulting deal proved unfavorable to public stockholders.
The Lion SCA allegations later intersected with Lion Electric’s financial distress, including Canadian insolvency proceedings commenced in late 2024. The insolvency filings triggered an automatic stay in the Delaware breach of fiduciary duty action, which resulted in the dismissal of claims against Lion itself from the Delaware Chancery Court case. A subsequent Chapter 15 recognition proceeding in the United States followed, leaving the litigation focused squarely on the NGA SPAC sponsor, directors, and officers.
In November 2025, the lead plaintiff in the Lion SCA voluntarily dismissed the federal securities class action without prejudice, before any defendant answered or moved for summary judgment. As one subsequent filing in the SDNY action indicated, the Canadian court deferred ruling on proposed directors’ and officers’ releases tied to the restructuring, leaving unresolved questions about the ultimate treatment of class claims against individual defendants.
The Delaware Court of Chancery De-SPAC Ruling
The Delaware Chancery Court case against NGA sponsors and executives alleged disclosure failures during the Lion de-SPAC, a steep post-closing decline in share price as operational problems emerged, and subsequent insolvency proceedings that refocused claims on SPAC fiduciaries rather than the operating company.
In allowing most claims to proceed in the Delaware Chancery Court, Vice Chancellor Zurn emphasized allegations that NGA’s board was not independent of conflicted controllers. The court found it reasonably inferable that directors expected to be considered for future SPAC board positions, a factor that allegedly undermined their independence in approving the transaction.
The court was also unpersuaded by NGA’s purported generic disclosure disclaimers. In particular, the Vice Chancellor noted allegations that the proxy failed to convey the magnitude of dilution facing public stockholders or the actual value of sponsor shares. At the pleading stage, the court accepted allegations that sponsor shares were worth more than 25% less than their stated redemption value, and that this information was not adequately disclosed to stockholders asked to approve the merger.
Thus, the surviving claims in the Delaware Chancery Court action against NGA’s sponsors and executives include breach of fiduciary duty counts against five of six sponsor-affiliated directors, claims against two officers and controllers, an unjust enrichment claim against the sponsor, and related fiduciary allegations that will now proceed into discovery.
Discussion
Despite a notable history of SPAC-related litigation, in 2025, the SPAC (Special Purpose Acquisition Company) market experienced a bit of a resurgence. 144 SPAC IPOs were priced on U.S. exchanges in 2025, representing more than a 150% increase over 2024, when only 57 SPAC IPOs were completed. This renewed activity may signal that SPACs, despite recent contraction, remain a meaningful feature of the capital markets, and that the litigation risks associated with earlier-vintage de-SPAC transactions have not entirely dissipated.
Against this backdrop, the recent Delaware Court of Chancery decision allowing certain allegations against NGA’s sponsors and executives to go forward may serve as a reminder that SPAC-related fiduciary and disclosure claims continue to work their way through the courts, as new SPACs come to market.
In particular, the Lion and NGA de-SPAC litigation demonstrates how SPAC-related D&O exposure can evolve rather than disappear, even when a federal securities class action is dismissed. In particular, the recent Delaware Court of Chancery ruling that SPAC sponsors, directors, and officers may continue to face substantial fiduciary-duty and unjust-enrichment exposure long after the transaction has closed warrants consideration. Thus, at least in Delaware, courts may continue to scrutinize SPAC governance structures and sponsor incentives.
The Delaware Chancery Court decision further highlights the continuing centrality of sponsor economics and board independence to SPAC-related D&O risk. Vice Chancellor Zurn credited allegations that NGA’s directors were not independent of conflicted controllers due to sponsor incentives and the expectation of participation in future SPAC transactions. For D&O underwriters, this aspect of the ruling may reinforce carefully evaluated sponsor-promote structures, overlapping SPAC board service, and the presence of genuinely independent directors.
Disclosure risk related to SPAC deals may also persist. The Delaware court’s unwillingness to accept generic risk disclosures may reflect judicial skepticism toward boilerplate disclaimers in the de-SPAC context. Allegations that dilution and sponsor-share value were not adequately disclosed by NGA’s executives, despite general warnings, were sufficient to defeat dismissal. For D&O insurers, understanding dilution mechanics, redemption economics, and also how sponsor value was explained to stockholders may inform the likelihood of fiduciary claims and possible coverage disputes involving conduct exclusions or misrepresentation carve-backs.
Finally, Lion’s insolvency proceedings further illustrate how SPAC-related litigation risk can shift once a de-SPAC company enters financial distress. From a D&O perspective, this may heighten the likelihood of Side A coverage exposure, the potential unavailability of indemnification, and the increased likelihood that D&O insurance becomes one of the last meaningful sources of recovery once a de-SPAC company enters insolvency.
The views expressed on this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This site is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.