The Wilkes Partnership LLP
The National Security and Investment Act 2021 (The NSI Act) came into force on 4 January 2022. The act strengthens the UK Government’s power to scrutinise transactions on grounds of national security. Parts of the act will apply retrospectively between 12 November 2020 and the 4 January 2022.
Mandatory and voluntary notifications
The NSI Act falls into two parts which are mandatory and voluntary notifications.
Mandatory notifications require approval from the Secretary of State before a transaction can take place. The regime is primarily focused on transactions in 17 sensitive areas of the economy which are classed as mandatory sectors. These qualifying sectors are:
Mandatory notifications also apply to direct or indirect acquisitions in certain ‘trigger events’. These are the acquisition of more than 25 per cent of the shares in the company or the acquisition of voting rights enabling or preventing the passage of any class of resolution governing the affairs of the company.
The act also covers scenarios where shareholding percentages and/or voting rights move through certain thresholds: an increase from 25 per cent or less to more than 25 per cent; 50 per cent or less to more than 50 per cent; or from less than 75 per cent to 75 per cent or more. For example, an investor in one of the 17 areas holding 30 per cent of the shares in a relevant company buying a further 25 per cent, moving their threshold to 55 per cent, would trigger a mandatory notice under the act.
Voluntary notifications allows parties to notify transactions to the Secretary of State on a voluntary basis. Although parties to transactions falling outside of the mandatory regime should weigh up the risks of not notifying, as they could be called-in if the government deems it as a national security risk.
Trigger events stated above, as well as acquisitions of material influence over a qualifying entity’s policy and the acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to use or control that asset, could be called-in for review. It also covers asset purchases. One way to best ascertain whether a voluntary notification is required is to see whether a share purchase structure would have triggered a mandatory notice.
The Secretary of State has the power to call-in any transaction that falls within the act, regardless of whether it has been notified or not. If the Secretary of State reasonably suspects that the transaction gives or may give rise to a national security risk, they can call-it in.
The call-in power can be exercised for up to six months after the Secretary of State becomes aware of the transaction, provided that is within a long-stop of five years after completion. If the transaction is mandatory, the five-year long-stop does not apply.
If a transaction is deemed mandatory and is either not notified or is not approved, it will be void. It can also lead to civil and criminal penalties being imposed.
The National Security and Investment Act 2021 is one of the most significant legislation changes in recent times that acquirers, sellers and investors of companies should be aware of. The relevant parties to a transaction need to ensure that they have met the requirements of the act before proceeding with a sale, purchase or investment of a company as the transaction can result in being legally void if approval is not obtained. Parties should seek to start the process of obtaining approval at the early stages of the transaction to avoid delay.
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