Maitland Walker Briefing Note
NATIONAL SECURITY AND INVESTMENT ACT 2021
Pre-merger notification requirement for defence, space & new technologies
1. The National Security and Investment Act 2021 (“NSIA”) came into force on 4 January 2022 following receipt of Royal Assent on 29 April 2021.
2. The purpose of the NSIA is to provide a mechanism for government to scrutinize and potentially intervene in certain acquisitions which they deem may pose a risk to national security and to permit hostile actors from acquiring significant influence or control over UK entities & assets.
3. The NSIA replaces the previous regime under the Enterprise Act 2002 (“EA”) and provides the Government with sweeping powers of investigation, allowing them to investigate an extensive range of transactions not previously covered by the EA. Only the public interest provisions of the EA now continue in force, the national security aspect have been entirely replaced by NSIA.
4. Whilst the NSIA came into full force on 4 January 2022, all transactions which have taken place since publication of the National Security and Investment Bill on 11 November 2020 may also be caught by the NSIA’s far reaching ambit.
5. The regime is broadly split into two areas, mandatory notification and voluntary notification.
6. Under section 6 NSIA, a transaction will require mandatory notification if it is a notifiable acquisition. A notifiable acquisition is one where the following ‘trigger events’ are satisfied and the acquisition is in any of the 17 specific sensitive sectors covered by NSIA (see below):
i) There is a qualifying entity involved within a specified sector of the UK economy
ii) After the transaction the acquirer either holds more than 25%, more than 50% or at least 75% of the percentage of share or votes in the qualifying entity; or
iii) after the transaction the acquirer holds voting rights which enable or prevent the passage of any class of resolution governing the qualifying entity’s affairs.
What is a qualifying entity?
7. A qualifying entity is further defined at section 7 of the NSIA and will broadly cover companies, LLPs, partnerships and trusts. However it is important to note that this section is not exhaustive and there may be other forms of corporate body that will be caught as a qualifying entity.
What is a qualifying sector?
8. The qualifying sectors that a qualifying entity must be involved in to fall within the mandatory notification regime are set out in in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (“the Regulations”). As one would expect these include sectors such as defence, satellite and space technology and the civil nuclear sector. However it is prudent to note that there are many ‘new’ technology sectors which parties must be aware of such as ‘the advanced materials and data infrastructure’ sectors and broad categories like “critical suppliers to emergency services” are also included.
9. If parties are concerned that the acquisition may involve a qualifying entity acquiring a significant interest in a qualifying sector, BEIS has published a guidance note which will assist in assessing whether a qualifying entity falls within the scope of the Regulations.
The 17 sectors referred to in the Regulations are:
- Advanced materials;
- Advanced robotics;
- Artificial intelligence;
- Civil nuclear;
- Computing hardware;
- Critical suppliers to the government;
- Cryptographic authentication;
- Data infrastructure;
- Military and dual use;
- Quantum technologies;
- Satellite and space technology;
- Suppliers to emergency services;
- Synthetic biology; and
10. Voluntary notification should be considered if a qualifying entity which is not involved in a qualifying sector satisfies either of the following:
i) A trigger event has taken place in relation to a qualifying asset; or
ii) Arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event taking place in relation to a qualifying entity or a qualifying asset.
Who should be notified?
11. BEIS has created a new Investment Security Unit who will receive the notification. This will be via electronic portal.
12. On acceptance of a notification, the Secretary of State will take a period of 30 working days to either clear the transaction or call it in for a full national security assessment of the transaction.
13. If no call in is to be undertaken, the Secretary of State must give notice of this to the relevant party.
14. If a full national security assessment is required the Secretary of State has an initial 30 working day period to do so. This can be extended by an additional 45 working days. The Secretary of State can also agree with the parties to extend the period.
15. Any mandatory notifications must have received clearance before completing the transaction. If this has not been received, the deal risks being called in at any point in the future.
16. Voluntary notifications, if notified to the Secretary of State, may be called in up to 6 months after the Secretary of State becomes aware of the deal but this must be within 5 years of the completion of the transaction.
17. The Government retains call in powers retrospectively and this applies to any deals that have taken place since 12 November 2020. Parties who actioned a deal since this date should consider whether to notify the Government. Should a party notify the Government, this shortens the time limit for the Government to call in a transaction. If notified, the Government have six months to call in a deal. This is extended to five years if no notification has been received. However, parties should note that the mandatory notification has only been in force since January 2022.
18. The offences and sanctions under the NSIA are costly. A transaction that is subject to the requirement of mandatory notification and does not comply will be void.
19. The financial penalties are also high with fixed penalties up to £10 million or 5% of worldwide turnover, whichever is higher.
20. Individuals will also be subject to potential criminal sanctions with conviction on indictment leading to imprisonment of up to 5 years.