The UK Government has recently strengthened and extended its regulatory and supervisory powers in relation to corporate transactions. This new legislation has posed an urgent and complex question for many businesses - Could this affect our next acquisition or disposal?
The new National Security and Investment Act 2021 (the Act), due to come into full effect on 4 January 2022, seeks to facilitate government supervision of transactions on the basis of national security. However, the Act has caused quite a stir in the business community, with particular concerns expressed over the retrospective effect of some of its provisions.
Broadly, the Act will enable the government to scrutinise and intervene in deals posing, an unacceptable risk to UK’s national security.
The Act will establish a new standalone regulatory regime for acquisitions, which will include:
- A power for the secretary of state to assess and intervene in transactions where it is considered national security could be affected;
- a mandatory notification and approval requirement for certain transactions involving entities operating in particular sectors, where it is considered that national security could be affected; and
- the creation of an Investment and Security Unit - responsible for dealing with national security risks to the UK arising from transactions.
The Act does not define national security for the purposes of the new transaction screening and notification regimes, and the factors that the Secretary of State will take into account when deciding whether to exercise the review power will be set out in a statutory statement, that must be published and laid in Parliament before the power can be used.
To an extent, the Act also has retrospective effect, with any transaction completed from 12 November 2020, up until 4 January 2022 at risk of being called in by the Secretary of State for review. The Act does not however grant the Secretary of State review powers for any deals which completed prior to 12 November 2020.
The mandatory notification regime does however give us an idea of the areas the government is interested in when assessing national security risks in corporate transactions. This mandatory notification regime will apply to certain transactions involving companies that operate in the following sectors:
- Advanced Materials;
- Advanced Robotics;
- Artificial Intelligence;
- Civil Nuclear;
- Computing Hardware;
- Critical Suppliers to Government;
- Cryptographic Authentications;
- Data Infrastructure;
- Military and Dual-Use;
- Quantum Technologies;
- Satellite and Space Technologies;
- Critical Suppliers to the Emergency Services;
- Synthetic Biology and
If you are a party acquiring a qualifying entity, you will be legally required to tell the government about certain acquisitions in these 17 sensitive areas of the economy. These areas are considered most likely to give rise to national security risks.
Impact on transactions
Many corporate transactions will remain unaffected by the new legislation. However, those that fit the criteria established under the Act will need careful consideration.
Despite the stated aim of protecting national security, the Act does not distinguish between foreign and national investment. There are also no financial or market share thresholds which trigger supervision or regulation under the Act. This is unlike the previous competition regulation under the Enterprise Act 2002 and means any deal deemed to be a national security risk will need careful consideration, regardless of the deal value or the parties’ identity, nationality or country of origin.
Parties to transactions will therefore need to seek advice from their lawyers as to the impact (if any) the new regulatory regime will have on their contemplated transactions. This will be particularly important for those companies involved in, or looking to become involved in, the 17 sectors singled out under the Act as of particular interest for national security purposes.
Here at Berry Smith, we have a dedicated and specialist Transactional Business Services Team. Our team provides the right level of expertise and experience, at a realistic cost and our service is always matched to the scale and complexity of the deal. If you need advice on any anticipated corporate transactions or wish to discuss matters on a confidential, no-obligation basis, then please contact us on email@example.com or call 029 2034 5511 and ask for the Corporate team.