The National Security and Investment Act 2021: An Overview

12 August 2021

Author: Owen Fearon
Practice Area: Corporate - M&A

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On 20 July 2021, the UK Government announced that the National Security and Investment Act (the “Act”) will enter into full force on 4 January 2022. To help businesses prepare for commencement of the regime, the Government has also published a series of further guidance notes and materials, which can be found here. The Act creates a new, standalone statutory regime for government scrutiny of, and intervention in, acquisitions and investments for the purposes of protecting national security. National security is an excepted matter and the Act extends to Northern Ireland. The Act is extremely broad in its scope and powers – companies and investors, even those with limited links to the UK, should ensure that they are familiar with the new rules now, particularly since the regime applies retrospectively to deals taking place currently.

Overview

1. The UK’s new investment review regime under the Act will enter into full force on 4 January 2022. The regime significantly expands the UK Government’s existing powers to screen investments on national security grounds.

2. From 4 January 2022, a mandatory notification regime under the Act will be in force for acquisitions in 17 key sectors, while it will also be possible to submit voluntary notifications outside these sectors. Notifications will be submitted to the Government’s Investment Security Unit via a new online portal. The 17 specified sectors are:

  • Advanced materials;
  • Advanced robotics;
  • Artificial intelligence;
  • Civil nuclear;
  • Communications;
  • Computing hardware;
  • Critical suppliers to government;
  • Critical suppliers to the emergency services;
  • Cryptographic authentication;
  • Data infrastructure;
  • Defence;
  • Energy;
  • Synthetic biology;
  • Military and dual use;
  • Quantum technologies;
  • Satellite and space technologies; and
  • Transport.

3. From this date, the Government will also be able to “call in” transactions for in-depth review where it reasonably suspects that they give rise to a national security risk, including in respect of transactions that have closed since 12 November 2020. At the end of an assessment period, the Government will either clear, impose conditions on, or unwind or block an acquisition.

4. There is no de minimis financial threshold for an acquisition in the 17 specified sectors. A mandatory notification must be made where an investor or buyer:

  • Acquires 25% or more of the shareholding or voting rights in a qualifying entity in one of 17 specified sectors;
  • Passes through the 25%, 50% and 75% shareholding or voting rights thresholds in a qualifying entity in one of the specified sectors; or
  • Acquires voting rights that enable or prevent the passage of any class of resolution governing the affairs of a qualifying entity in one of the specified sectors.

A “qualifying entity” is widely defined as any entity (including a company, LLP, any other body corporate, partnership, unincorporated association or trust) other than an individual. A foreign entity will be a qualifying entity if (whether alone or with others) it carries on activities in (or partly in) the UK, or supplies goods or services to the UK.

5. The jurisdictional criteria in the Act are extremely broad. The Act catches the acquisition of intangible assets such as IP, certain non-UK transactions and even internal corporate reorganisations.

6. Non-compliance with the mandatory regime risks significant criminal and civil sanctions, while mandatorily notifiable investments that complete without being cleared under the Act will be void.

7. Companies and investors should ensure that they are familiar with the new rules now, given the broad scope of the mandatory notification system and risk of retrospective call-in under the Act.

8. Further guidance is expected ahead of commencement of the regime. Other aspects of the new system, such as the content of the notification form, also need to be finalised before the regime starts.

Since the regime applies retrospectively to deals taking place currently, it is important for investors and buyers to ensure that they are familiar with the new rules now and to be aware of the potential for their transaction to be called in retrospectively once the regime fully commences. Going forward, buyers and investors will need to conduct careful due diligence to understand whether the target’s activities have national security implications and whether a mandatory notification will be required or a voluntary notification would be wise. Where there is genuine doubt about whether the transaction is caught by the notification regime, it is possible that draconian penalties may drive buyers to make precautionary notifications. Furthermore, the approval process will need to be factored in when considering a transaction’s timetable and feasibility.

If you would like any further information or advice, please do not hesitate to get in touch with the Corporate team at Carson McDowell.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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