Legal development

UK National Security and Investment Act to come into force in January 2022

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    On 20 July 2021, the UK Government announced that the substantive provisions of the National Security and Investment Act 2021 ("Act") will come into force on 4 January 2022 and published new guidance on the scope and application of the Act. The Act will significantly strengthen the UK Government's powers to scrutinise and intervene in acquisitions, that could harm the UK's national security.

    The new UK regime will have potentially significant impacts on deal timetables and deal certainty, and is relevant to transactions currently being negotiated. The Act will be administered by the Investment Security Unit ("ISU") within the Department for Business, Energy and Industrial Strategy ("BEIS"), and the decision maker will be the Secretary of State for BEIS. The ISU is operational and able to provide guidance on the regime and specific transactions.

    Key Features of the new regime

    Notification and enforcement: The Act establishes a new statutory regime for Government scrutiny of, and intervention in, investments and acquisitions for the purpose of protecting national security. Key features include:

    • a mandatory notification system for transactions involving the acquisition of a right or interest (typically a holding of more than 25%) in a qualifying legal entity in 17 key sectors ("notifiable acquisitions"), where clearance must be obtained before closing;
    • a regime with no or very limited thresholds. The range of transactions that are potentially caught is very extensive, as in most cases there will be no minimum UK turnover, volume or value in relation to the target businesses;
    • a power for the Secretary of State to "call in" transactions/investments that are not subject to mandatory notification to undertake a national security assessment for up to five years after they have taken place (reduced to six months where the Secretary of State becomes aware of the transaction);
    • voluntary notifications from parties to transactions not caught by the mandatory regime who consider that their transaction may raise national security concerns;
    • a wide range of remedies to address risks to national security, including the power to adopt interim "hold separate" orders; and
    • sanctions, including imprisonment (of up to 5 years) and fines (up to 5% of worldwide turnover or GBP10 million – whichever is greater) for non-compliance with the mandatory notification requirement, together with the transaction being void.

    For a more detailed description of the Act and the concepts in this update, please refer to our May 2021 publication.

     July 2021 guidance from the UK government

    The Government has confirmed that the Act will come fully into force on 4 January 2022. From that date:

    • a clearance will be required before completing notifiable acquisitions; and
    • the Secretary of State will be able to call in any acquisitions of control of legal entities and assets which took place on or after 12 November 2020.

    The government also published several documents clarifying the scope of the new regime.

    Draft notifiable acquisition statutory instrument

    This draft statutory instrument defines the 17 sectors that will be subject to the mandatory notification requirements set out in the Act. The Government previously consulted on the mandatory notification sectors and published a response in March 2021. The draft sector definitions have now been refined in response to stakeholder feedback. The Government expects to lay the final notifiable acquisition statutory instrument later this year, and the sector definitions remain subject to change.

    Draft statement on the use of the "call in" power

    The draft statement sets out how the Secretary of State expects to exercise the power to give a call-in transactions under the Act. During the Parliamentary passage of the Act, the Government committed to consult on this statement - the consultation is open until 30 August 2021. The draft statement explains that:

    • the call-in power may only be used in respect of acquisitions that give rise to or may give rise to a risk to national security. This is expected to be a small number of transactions and the Act is not a system for screening all transactions in the economy;
    • transactions in the 17 sectors of the economy covered by the mandatory notification regime are more likely to give rise to national security risks. Accordingly, where such transactions do not require mandatory notification (e.g. asset deals), they are more likely to be called in than transactions in other sectors. Similarly, transactions in areas of the economy which are closely linked to these 17 sectors, but are not subject to mandatory notification, could be more likely to be called-in;
    • the Secretary of State expects to call-in asset deals rarely, and significantly less frequently than acquisitions of entities;
    • the Secretary of State will consider three risk factors in order to assess the likelihood of a risk to national security: target risk; acquirer risk; and control risk (previously described as "trigger event risk"). The draft statement contains several hypothetical examples of this assessment, from which it appears that the acquirer risk is of particular importance. Any assessment will be made according to risks to national security at the point of the decision rather than at the time the transaction took place; and
    • acquisitions of qualifying entities and assets that are outside the UK are less likely to give rise to national security risks than those located within the UK and are less likely to be called-in. The Secretary of State will consider to what extent people in the UK rely on qualifying entities and assets located overseas and how this may affect national security risks.

    Guidance on how the Act might affect people or acquisitions outside the UK

    This guidance explains that, for the purposes of the Act, an entity formed outside the UK is a qualifying entity if it either carries on activities in the UK or supplies goods or services to people in the UK, and an asset situated outside the UK is a qualifying asset if it is either used in connection with activities carried on in the UK or used in connection with the supply of goods or services to people in the UK. The guidance explains the Government's ability to require information from, and take action in respect of, people or entities outside the UK.

    Guidance on the interaction of the Act and other regulatory requirements

    This guidance explains how the Act interacts with other regulatory requirements, noting that the Takeover Panel has no current plans to amend the Takeover Code as a result of the Act, and that the ISU will work closely with the CMA to manage cases that are being considered under both the Act and UK merger control.

    Guidance for the higher education and research-intensive sectors

    Sector-specific guidance has been published to assist higher education institutions, other research organisations and investors in this area. It explains how assets and entities within the higher education and research-intensive sectors might be subject to the regime.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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