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The UK National Security and Investment Act 2021

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The National Security and Investment Act 2021 (the Act) came into force on 04 January 2022. The Act creates a new screening regime that allows the Government to review (call-in) relevant transactions that may be a risk to national security and potentially prevent or undo them. In addition, under the Act, the Government has an expanded the call-in power in respect of relevant transactions that occurred after the date the Bill was published (i.e. transactions entered into or completing on or after 12 November 2020).

 

A headline point to note is that the significant expansion of the types of transactions covered by national security review has moved much beyond mergers and acquisitions to include a broader range of transactions including minority investments, acquisition of assets (including land and IP) and acquisition of voting rights.

 

The Act creates two separate, but related, regimes: a mandatory notification regime and a voluntary notification regime. Although under the Act it is strictly the Secretary of State (SoS) (within the Department for Business, Energy and Industrial Strategy (BEIS) who decides whether to call-in a transaction and the outcome of any review, notifications are made to the new Investment Security Unit (ISU).

The mandatory notification regime

Companies are now required to provide a registered email address and specify their intended future activities in the confirmation statement. If you need guidance ensuring compliance with the revised disclosure requirements, then you should seek advice.

The mandatory notification regime requires acquirers to notify and obtain approval from the SoS before a notifiable transaction takes place in 17 “sensitive” sectors of the UK economy. Notifiable transactions take place when a party acquires:
  1. a holding of votes/shares in an entity that increases its votes/shares to more than 25%, more than 50% or to 75% or more;
    1. for the purposes of the mandatory notification regime, the votes/shares must be acquired in an entity that “carries on activities in the UK” – so overseas incorporated entities may fall within its scope if their activities qualify (e.g. produce a specified category of sensitive product in the UK or they undertake research into).
  2. voting rights that allow the acquirer to enable or prevent the passage of any class of resolution governing the affairs of the entity being acquired.
The 17 sensitive sectors Advanced materials
Advanced robotics Artificial intelligence Civil nuclear Communications
Computing hardware Critical suppliers to government Cryptographic authentication Data infrastructure
Defence Energy Military and dual-use Quantum technologies
Satellite and space technology Suppliers to emergency services Synthetic biology Transport.

The voluntary notification regime

The trigger events described above also apply to sellers, acquirers and target entities that are not active in a qualifying sector. In those cases, the notification is voluntary rather than mandatory.

 

In addition, whether or not the transaction involves a target entity in a qualifying sector, there are trigger events which apply under the voluntary regime. These trigger events are as follows:

  1. The acquisition of “material influence” over a qualifying entity’s policy.
  2. The acquisition of an interest or right of an entity, or acquisition of a qualifying asset with the ability to use or control it either entirely or to a greater extent.

 

A trigger event can arise in relation to an entity which is established or recognised outside the UK, but only if it “carries on activities” or “supplies goods or services to persons” in the UK.

 

It must be noted that although a completion of the transaction could take place before the clearance is received, the Government has the power to impose interim orders to halt or reverse any transaction.

The call-in power

The call-in power provides the Government the authority to scrutinise transactions which were not notified to it, but which may ‘raise national security concerns’. Once the Government becomes aware of a trigger event, it will have six months to call in the transaction, subject to an overall five-year limitation period from the date of the trigger.   The SoS will consider the following risks when exercising its call-in power:
  1. “target risk” – whether the entity or asset being acquired is being used, or could be used, to pose a risk to national security.
  2. “acquirer risk” – whether the acquirer has characteristics that suggest there is, or may be, a risk to national security from the acquirer having control of the target.
  3. “control risk” – whether the amount of control that has been, or will be, acquired through the qualifying acquisition poses a risk to national security.
 

The clearance process

As stated above, notifications must be made via an online portal to a new ISU. The notification forms require an extensive disclosure of the transaction and the relevant parties. Upon acceptance of a notification, the SoS has a maximum of 30 working days to decide whether to

approve a transaction or to call it in for a detailed review. If the transaction is called in for a detailed review, the Government is entitled to another 30 working days to do this (extendable by 45 working days in exceptional circumstances). However, further extensions must be agreed with the acquirer.

Sanctions

The Act sets out both civil and criminal sanctions on the acquirer for noncompliance. Fine of up to 5% of global turnover or GBP 10 million (whichever is greater) can be imposed where a notifiable transaction is completed without the required approval. Individuals can also face imprisonment for up to five years. A notifiable transaction (mandatory) will automatically be void in the absence of an approval from the SoS.

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