On 29 April 2021 the UK National Security and Investment (NSI) Bill received Royal Assent. The NSI Act 2021 introduces significant legislative reforms which will overhaul the review of transactions and investments on national security grounds in the UK, against a backdrop of tightening of foreign direct investment (FDI) regimes globally. The new regime represents an important new execution risk factor, with a similar risk profile to merger control rules.
We have been very closely involved in the passage of this legislation through Parliament, including giving evidence before the Bill Select Committee and Foreign Affairs Select Committee, suggesting amendments to the Bill, and successfully assisting members of the House of Lords in arguing for specific changes to the proposed regime.
Broadly speaking, the new regime will apply to any acquisition of “material influence” in a company (which may be deemed to exist in relation to a low shareholding, potentially even below 15%), as well as the acquisition of control over assets (including land and intellectual property), which potentially gives rise to national security concerns in the UK. It will apply equally to both UK and non-UK investors (although the Government has acknowledged that UK investors will be less likely to give rise to national security concerns in practice), and may capture acquisitions of non-UK entities or assets in certain circumstances.
A mandatory notification obligation (and a corresponding prohibition on completion prior to clearance) will apply to certain transactions involving target entities which carry out specified activities in the UK in 17 sectors (including energy, transport, communications, defence, artificial intelligence and other tech-related sectors). Such transactions include the acquisition of a shareholding/voting rights of more than 25% (increased from 15% or more in the original NSI Bill).
This mandatory notification obligation will be combined with an extensive call-in power enabling the Government to call-in qualifying transactions for review, which extends to any sector and is not subject to any materiality thresholds in terms of target turnover or transaction value. Acquirers will also have a corresponding option to voluntarily notify a qualifying transaction to obtain clearance, which may be advisable in the interests of legal certainty where potential national security concerns arise.
Formal commencement of the new regime will be delayed until later this year (exact date to be confirmed). However, the Government will have retroactive powers to call in for review at the commencement date (or potentially up to five years thereafter) any qualifying transaction completed between 12 November 2020 and the commencement date. This means that it is critical for investors to consider the potential application of the new regime for all transactions completed from 12 November 2020 onwards which could potentially raise national security concerns (broadly defined).
Further to our earlier briefing issued when the NSI Bill was originally tabled in November 2020, in this briefing we set out:
- our updated key practical takeaways for investors;
- a summary of the key amendments made to the NSI Bill as originally tabled;
- our updated detailed analysis of the key elements of the NSI regime; and
- a summary of the next steps between now and formal entry into force of the NSI regime.
Please click here to read the full briefing.