Commercial | Risk
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Investors and businesses may be legally required to tell the UK Government about certain sensitive acquisitions under the National Security and Investment Act 2021 ("The Act"), which came into force on 4 January 2022.
The scope of the Act and the power to call a transaction in for a review is wide (and retrospective). However, the UK Government has made efforts to assure businesses across the globe that these powers will be used sparingly and that the UK is still an attractive place to do business.
Our view is that investors should hold fast to that assurance because whilst having to navigate regulatory hurdles is far from ideal, the powers in 'The Act' are unlikely to be used in the draconian way many feared when the draft Bill was going through the UK Parliament.
The National Security and Investment Act 2021 has come into force on 4 January 2022.
The UK Government has provided the link to the online notification form that parties must use when discharging their legal obligation to notify the UK Government about certain in scope transactions.
This notification must be accompanied by a 'Declaration' and allows for certain required information about the structure and nationality of pre-completion and post-completion entities (and shareholders) to be uploaded.
The power to call in a transaction is wide. The Government may call in any transaction where it reasonably believes there may be a risk to the UK national security.
We have previously outlined how the Act will operate here.
The Act is administered by the Investment Security Unit (ISU) in the Department for Business, Energy and Industrial Strategy (BEIS) and the decision maker is the Secretary of State for BEIS.
The Act creates a two-tiered system for notification.
Acquisition of sufficient control in an entity operating in one of 17 sectors of the economy adjudged to pose the greatest risk to the UK's national security, triggers the mandatory notification rule.
Acquisition of an asset or an entity operating beyond one of these 17 sectors means that notification may be made on a voluntary basis.
An acquisition is a qualifying acquisition if all the following apply:
If the Government reasonably suspects that an acquisition meets the above criteria and that it has given rise to, or may give rise to, a risk to national security, it can be scrutinised by the Government.
An acquisition is in scope of the mandatory regime if [you/your client’s] shareholding stake or voting rights increase:
If the entity has a share capital, the thresholds describe holding shares comprised in the issued share capital of a nominal value (in aggregate) of that percentage of the share capital.
The 17 areas of the economy are:
You or your clients will be asked to provide information on the structure and share ownership of the qualifying entity, the acquirer and the acquisition.
If an entity is formed or recognised under the law of a country or territory outside the UK, it is a qualifying entity if it either:
For land or a tangible moveable property situated outside the UK or its territorial sea, or for any intellectual property, it is a qualifying asset if it is either:
Read further guidance on how the rules work for entities and assets outside or not from the UK.
If your clients are acquiring a qualifying entity or asset that is from, in, or has a connection to the UK, you will need to check if the level of control they have acquired, or will acquire, over it could bring it in scope of the rules.
Your client's acquisition is in scope of the rules if they acquire a right or interest in, or in relation to, a qualifying entity or asset, and the level of control you acquire meets any of the following thresholds:
The Government has divided its analysis into two periods: the ‘review’ period and the ‘assessment’ period.
The process for review and, if required, assessment is the same for each type of notification, whether mandatory, voluntary or retrospective.
The review period and the assessment period each last up to 30 working days. The UK Government may extend the assessment period by an additional period of 45 working days, subject to certain tests being met. Any further extension beyond those 45 working days must be with the written agreement of the acquirer (known as the ‘voluntary period’). Within 30 working days of acceptance of the notification form the UK Government will either:
The Government has been anxious to try and assure businesses and investors that the UK is still very much ‘open for business’ and that most notifications will be cleared rather than called in, and you will be informed of the outcome of the government’s decision during the first 30 working day review period.
If the Government wishes to call in the acquisition to investigate further, you will be informed by email on or before the final day of the review period.
Information or attendance notices issued during the review period do not change the 30 working day deadline. This is different from information notices and attendance notices issued during the assessment period, which have the legal effect of ‘stopping the clock’.
Any deal completed without approval which was subject to the mandatory reporting regime will be void.
In our earlier article we highlighted the civil and criminal sanctions that will apply where a transaction has completed without approval where subject to the mandatory reporting requirement.
The UK Government has made it clear in the below that offences may be committed in respect of:
The responses available to the Government in dealing with non-compliance and offences range from supportive intervention through to penalties for individuals or businesses. These may include:
This is a significant development when it comes to the UK Government's power of supervision of a transaction. It would be understandable if overseas investors became anxious at the prospect of having to deliver up a great deal of information to the UK authorities prior to a transaction and, even after crossing that hurdle, face the risk of having the UK Government refuse to allow the deal to complete.
However, in our experience the Information Security Unit has been responsive and has struck a pragmatic note in their dealings with us and have gone to great lengths on behalf of the Government to re-assure businesses that the power of call in will in fact be deployed sparingly and in a targeted and focussed manner.