13 November 2020
On 11 November 2020, the UK government introduced the National Security and Investment Bill, which establishes a new screening regime for transactions that might raise national security concerns.
The Bill is likely to impact a significant number of transactions in key sectors of the economy. The scope of the new regime is striking: there will be a mandatory notification in 17 sectors, there will be no safe harbours on the basis of turnover thresholds and companies will face substantial fines in case of breaches.
It also has retrospectively an impact on certain transactions from the date of its introduction in Parliament, a move prompted to prevent companies taking pre-emptive action.
Notification will be mandatory for transactions in 17 designated sensitive sectors:
The government is currently consulting on the appropriate definition to use in each of those sectors. We recommend you get involved in this consultation as this is an opportunity to proactively influence the impact of the Bill in your sector.
For other sectors of the economy that are not among those 17 designated sectors, notification will be voluntary if the transaction raises national security issues.
The Bill captures not just the acquisition of control but also what the Bill calls "trigger events" such as:
Notably, the new regime will not only apply to investors from any country looking to invest in the UK, it also has extraterritorial effects as it covers acquisitions of non-UK entities if they carry out activities in the UK or supply goods or services to persons in the UK.
The Secretary of State for Business, Energy and Industrial Strategy (BEIS) will be responsible for the review. Once a notification has been submitted, the Secretary of State has 30 working days to make a decision whether to clear the transaction or to call it in for a more in-depth review.
The Secretary of State will make its assessment based on:
Upon notification, several outcomes are possible: approval, approval with conditions or prohibition (or unwinding the transaction). The government has wide powers to impose conditions, for example altering the amount of shares an investor is allowed to acquire, restricting access to commercial information etc.
Furthermore, the government will have the power to call in transactions that were not notified but raise national security concerns for a period of five years following the date of the investment as long as the Secretary of State acts within six months of becoming aware of the transaction (for example from the press). For acquisitions subject to mandatory filing and that were not notified, the five-year limit does not apply.
There will be extensive powers to request information and during the national security review the Secretary of State can issue interim orders to prevents the parties from completing a transaction: transactions subject to mandatory filing cannot be completed until approval has been given.
The CMA, the UK Competition Authority, will continue to be competent for transactions that raise competition law issues if the thresholds for a competition law assessment are met. This and the national security vetting will proceed in parallel but with different timeframes and might have a significant impact on the timing of completion of deals.
Although the Bill is now going through Parliament (and so the mandatory regime will not be introduced as law until early next year), the government will be able to retroactively call-in transactions for review when they occur after the introduction of the Bill to Parliament (ie from today). They can do so for a period of five years.
We therefore need to treat the regime as if it is operational from today. The government invites parties to share information with the relevant unit at BEIS to have informal discussions so that parties can get a bit more certainty that there will not be a call-in. Although the advice given by BEIS is not binding, it should provide some comfort to companies.
Completing an acquisition subject to mandatory notification, or not notifying a transaction where notification is mandatory, carries heavy fines (5% of total worldwide turnover or £10 million (whichever is greater) and imprisonment up to five years). Transaction where notification is mandatory will be void without clearance.
In a year of many challenges, the severity and scope of this new regime may come as a surprise to international businesses but it is part of a trend we have seen in many countries, including in Europe, to strengthen national security rules.
A government estimate of receiving around 1000-1800 notifications a year seems conservative in our view and it is certain that the process will necessitate increasingly diligent consideration to avoid costly mistakes.
Although the government acknowledges that many transactions will be approved without conditions, recent high profile cases demonstrate the government’s resolve to vet transactions that raise national security concerns.
The new regime will involve considerable costs for businesses: the large number of sectors affected and the serious consequences for not notifying as well as the suspensory effect of the new regime will impose increased challenges for foreign investments in the UK and create delays in transactions.
Additionally, the power to call in transactions covered by the Bill and entered into from 12 November 2020 means that many companies should start requesting informal advice even before the Bill becomes law, in order to avoid possible scrutiny later.
Our expert Competition, EU & Trade team has been involved in several clearances for national security law under the current regime and we stand ready to advise clients on the implications of this stricter regime for your investments.
We would also advise that you take advantage of the limited consultation period to help shape the definition of the sectors where notification will be mandatory.
Please get in touch if you think a conversation concerning the impact on your organisation would be of use to you.
by multiple authors