Insolvency practitioners and buyers of distressed assets beware: although the National Security and Investment Act 2021 (NSI Act) will come into effect in the UK on 4 January 2022, it has retrospective power to examine transactions from 12 November 2020.

Mandatory notification

The NSI Act introduces a notification regime for transactions in 17 key sectors and enables the Secretary of State to "call-in" a transaction for a detailed review of any national security concerns. Mandatory notification applies to certain trigger events for a qualifying entity (eg acquiring more than 25%, 50% or 75% of the shares) in those sectors. However, as most insolvency sales are business and asset sales, they are more likely to be subject to only voluntary notification (although the Secretary of State will still have the same "call-in" power).

Clearance 

If a sale is subject to mandatory notification, then it cannot complete until clearance is obtained. This is likely to have a significant impact on any distressed M&A transaction in a relevant sector, where time is usually critical. While the notification obligation is on the buyer, parties should consider notification issues early and whether to seek pre-clearance from the Investment Security Unit. Ultimately, a transaction may be declared void (which would have significant implications for the insolvent estate, including on any distributions made) and there are civil and criminal sanctions.

Limited carve out 

Although there is an express carve-out for administrators and creditors in an administration, this is quite narrow. In particular, for any secured lender (including investors looking to execute a "loan-to-own" strategy), the notification regime will apply to enforcement of share security.

Find out more 

An in-depth review of the NSI Act is available here. To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.