The NSIA represents the most significant change to corporate legislation for some time and realises the Government’s desire to investigate and, potentially, intervene in potentially hostile foreign investment in UK businesses.
- The National Security and Investment Act 2021 (“NSIA”) adds another box to tick for investors in deals relating to “qualifying entities” and “qualifying assets” being acquired in the context of “trigger events” and “notifiable acquisitions”
- The Secretary of State for Business, Enterprise and Industrial Strategy (“BEIS”) has the power to call-in deals on national security grounds within changing time frames.
- BEIS’ ability to call-in deals applies retrospectively to any deal which contains a “trigger event”.
- Investors will need to bear mind to the two notification regimes of the NSIA, one of which contains a mandatory requirement to notify BEIS.
- The NSIA can determine deals statutorily void and enforce civil and criminal sanctions, including financial penalties.
Who and what can it catch?
The ‘who’ is translated simply to “qualifying entities” and “qualifying assets” in the context of the ‘what’, being “trigger events” or “notifiable acquisitions”.
Entities and assets
‘Qualifying entities’ are defined as any corporate entity that is not an individual and includes companies, LLPs any other body corporate, as well as partnerships, unincorporated associations and trusts.
‘Qualifying assets’ are defined as land, tangible moveable property or ideas, information or techniques which have industrial, commercial or other economic value.
Trigger events and notifiable acquisitions
A trigger event takes place when a person “gains control” of a qualifying entity or a qualifying asset. Using the example of share purchase, any transaction where the acquiring party would hold more than 25% of the shares following the acquisition would class as gaining control. This is a wide definition but, as the explanatory notes to the NSIA confirm, only applies where the parties involved consider that there are national security concerns.
A notifiable acquisition applies only to a person gaining control of a qualifying entity of a ‘specified description’. This is the first nod towards required follow-up legislation, which the Government are well underway in producing. In their response to consultation published in March 2021, it is clear that ‘specified description’ means an entity operating in defined ‘sensitive sectors’. These are currently 17 in number and include:
- Advanced Materials
- Critical Suppliers to Government
- Data Infrastructure
- Synthetic Biology
It is important to highlight the NSIA’s retrospective reach too. It can catch deals that completed from 12 November 2020 until the commencement day of the NSIA. BEIS has the ability to exercise its call-in power, detailed below, on a deal in the 6 month window from the NSIA’s commencement day if it was aware of said deal, or for 5 years from the commencement day if it was unaware of the deal.
How will the NSIA regime work?
In brief, the NSIA regime will turn on BEIS’ ‘call-in’ power which is their ability to intervene in transactions – how the power will actually be used remains unclear.
Some transactions have to be notified to BEIS, whereas others may be to reduce the risk of being exposed to the long reach of the call-in power. The Government can choose to exercise its power, if it deems necessary and subject to the power’s time constraints, on deals notified to it or deals it becomes aware of.
The power itself is limited in numerous ways, but most importantly it is subject to time constraints. BEIS can only give a call-in notice within a 6-month period from the date which it is made aware of a trigger event. Where BEIS is not aware, the power can be exercised for up to 5 years after the trigger event took place. This would apply to deals notified to BEIS under either of the NSIA’s notification regimes, detailed below.
Importantly, investors have the comfort of knowing that BEIS cannot exercise its call-in power until it produces a statutory statement setting out how BEIS expects to exercise its power – another key publication to follow. Hints of what this will entail have been issued under a ‘Statement of policy intent’ which was last updated on 2 March and outlines three considerations it will have when exercising the power: the target risk; the trigger event risk; and the acquirer risk.
Mandatory and voluntary notification
The requirement of mandatory notification kicks in when there is a notifiable acquisition, where the acquirer must notify BEIS before it gains control of the asset or entity in question. Submitting a voluntary notice to BEIS relates to circumstances that do not involve a notifiable acquisition, but where there is or may be a trigger event that could raise national security concerns.
Both a mandatory and a voluntary notice will have a prescribed form which is to be confirmed in follow up regulations.
In either case, BEIS can accept or reject the notification and once BEIS accept the notification, then, in both cases, they are required to either (a) issue a call-in notice in respect of the notifiable acquisition or trigger event, or (b) notify each relevant person that no further action will be taken under the NSIA.
When is this all going to kick in?
As we’ve looked at, there are a number of items that need to be followed up on:
- A statutory statement regarding use of the call-in power
- The ‘notifiable acquisition’ regulations
- Regulations to confirm the prescribed form of notice for both the mandatory and voluntary regimes.
However, this does not detract from the fact that the NSIA has been passed and its retrospective reach is now in play. Parties currently have the option of seeking informal advice from the Government and/or making BEIS aware of any transaction on a voluntary basis which completes in the interim period.
The Government are keen to have the NSIA fully operational before the end of the year and, as we have seen, have taken steps to deal with the follow up points in line with that timescale.
For more information, please contact a member of our Corporate Team.