On 4 January 2022 the National Security and Investment Act 2021 (“NSI Act”) came into force. The purpose of this legislation is to allow the UK Government to scrutinise and intervene in certain business transactions to protect national security.
The context is controversy over a continuing trend of UK companies that are regarded as important assets falling into foreign ownership. While foreign ownership is nothing new, there has been an increase in takeovers where ultimate control rests with owners in countries that are regarded as potential security threats. But this new law does not only apply to foreign takeovers and investments, it applies to purely domestic transactions as well.
This note will look at the key points of the NSI Act and consider the implications of this new regime. It covers a wide range of sectors, all sizes of businesses, and failure to notify can result in a transaction being void and criminal penalties.
The NSI Act brought in a hybrid notification system that allows two routes to notify the Government of certain acquisitions, or investments, that are within the scope of the NSI Act. If a transaction is notifiable, then the authorisation of the Government will be required before it can complete.
The legislation also allows the Government to “call in” for review any in-scope transaction it deems may give rise to a national security risk. It also has retrospective effect, which means the Government can call in any transaction for review that completed after 11 November 2020.
The mandatory notification requirement will be met if the transaction falls within a sensitive sector and the ‘trigger events’ criteria are met:
The acquirer gains control of its target by either:
- the acquisition of more than 25 per cent, more than 50 per cent, or 75 per cent or more of the votes or shares in the target.
- the acquisition of voting rights enabling or preventing the passage of any class of resolution governing the affairs of the target.
If the trigger criteria are met and the business being acquired, or invested in, sits within one of 17 sectors, the transaction will need to be notified to the Government, and their consent given before the it can be completed:
Advanced Materials Cryptographic Authentication
Data Infrastructure Transport
Defence Advanced Robotics
Energy Artificial Intelligence
Military and Dual-Use Civil Nuclear
Quantum Technologies Communications
Satellite and Space Technologies Computing Hardware
Suppliers to the Emergency Services Critical Suppliers to Government
Importantly there are no financial thresholds that must be met, so a minority investment in a small company which operates in one of these sectors would be caught by the legislation
If the transaction is not caught by the mandatory notification requirement, consideration should still be given to whether you will need to voluntarily notify the Government if you believe there to be a risk to national security.
In addition to the trigger events above, the following separate trigger events apply in respect of the voluntary notification regime:
- The acquisition of material influence over a qualifying entity’s policy.
- The acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to use or control the asset (either entirely or to a greater extent).
Failure to notify
If a transaction requires mandatory notification, and it does not get approval to complete, the transaction will be void. There may also be civil and criminal penalties, with possible fines up to £10 million.
If a transaction is called in for review, and it is decided there are national security risks, the Government can impose necessary and appropriate remedies in order to mitigate the risk.
Timescales and implications for transactions
Within 30 working days of notifying the Government, which can be done through a dedicated website, they will either:
- clear the acquisition and tell you it can go ahead
- call in the acquisition for a full national security assessment
- require further information, which you should provide as soon as possible, to help complete the assessment
- require you or people involved in the acquisition to attend a meeting
The Government advise that they expect most notifications to be cleared rather than called in.
If the notification is called in, a further assessment period of 30 working days could take place, subject to any extensions to this.
The notification and approval process will need to be factored into any transaction that will be caught by the provisions on this legislation.
If you wish to discuss the provisions of this legislation or any matters you have in connection with your business, speak to a member of the Blackadders Corporate & Commercial team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
Richard Wilson, Senior Solicitor
Corporate & Commercial
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