The National Security and Investment Law of 2021 (NSI Law) entered into force on Tuesday, January 4, 2022, establishing a new autonomous statutory regime for the control and intervention of the government in acquisitions and investments for the purpose of the protection of national security (NSI Regime). The new regime will replace the national security review regime under the Enterprise Act 2002.
Unlike the Enterprise Act regime, the powers of the government to intervene in transactions under the INS regime do not depend on the target of the acquisition reaching thresholds for revenue or share of procurement. minimum.
Application of the INS regime
The INS regime applies not only to certain categories of transactions or investments that involve the acquisition of control over eligible entities (i.e. any entity other than an individual) or assets. eligible, including land and movable property, but also ideas, information or techniques that have industrial, commercial or other economic value.
Relevant transactions (or “trigger events”) include:
- The acquisition of votes or shares in a qualified entity exceeding a threshold of 25% or 50%, or 75%.
- The acquisition of voting rights which allow or prevent the adoption of any class of resolution governing the affairs of the qualifying entity.
- The acquisition of significant influence over the policy of an eligible entity.
The acquisition of a right or an interest in, or in connection with, a qualifying asset offering the capacity to:
- Use the asset, or use it to a greater extent than before the acquisition; Where
- Directing or controlling how the asset is used, or directing or controlling how the asset is used to a greater extent than before the acquisition.
Applicants to acquire shares or voting rights (beyond defined thresholds) in companies and other entities which carry out specified activities in the United Kingdom in certain sensitive sectors of the economy will need to apply for authorization and obtain the approval of the Secretary of State before finalizing their acquisition. An operation which falls within the criteria of a compulsory notification and where the purchaser does not seek the approval of the Secretary of State before the realization will be null and without legal effect. In addition, the purchaser may be liable to criminal or civil penalties if he has carried out the transaction without having obtained the authorization.
Remedies and sanctions
The Secretary of State will have the power to impose remedies to address national security risks, including the imposition of conditions, or the prohibition or unwinding of the transaction. Sanctions for non-compliance with the NSI regime will also be imposed, including fines of up to 5% of worldwide turnover or £ 10million (whichever is greater) and imprisonment of up to go up to five years.
There are two avenues for acquirers to notify acquisitions to the Secretary of State for a decision on whether the transaction raises national security concerns:
This applies to acquisitions of certain types of control over qualifying entities which operate in specified high risk sectors of the economy in the UK (Section 14 of the NSI Act).
Parties are encouraged to notify trigger events which, while not falling under the mandatory regime, may nevertheless raise national security concerns (Article 18 of the NSI Act).
Transaction notifications (whether mandatory or voluntary) must be submitted to the Investment Security Unit (ISU) via a digital platform.
Transactions covered by the mandatory notification regime
The mandatory notification regime applies to transactions that meet the definition of an acquisition to be notified, as set out in article 6 of the NSI Act. This provides that a reportable acquisition takes place when the following criteria are cumulatively fulfilled:
- The object of the acquisition is a qualifying entity which carries on business in the United Kingdom in a specified high risk economic sector.
- Following the acquisition, the acquirer acquires control of an eligible entity either:
- Increase the percentage of shares (or votes) in the entity from: (i) 25% or less to more than 25%; (ii) 50% or less to more than 50%; or (iii) less than 75% to 75% or more; Where
- Acquire voting rights in the entity which enable it to obtain or prevent the adoption of any category of resolution governing the affairs of the entity.
However, it should be noted that the NSI law does not currently provide that acquisitions of qualifying assets fall under the mandatory notification regime. This may change in the future.
Sectors subject to the mandatory notification regime
An eligible entity falls under the scope of the mandatory notification regime if it undertakes any of the activities, in any of the sectors in the United Kingdom, which are specified in Annexes 1 to 17 of the Notifiable Acquisitions Regulations. . These include:
- Advanced materials
- Cryptographic authentication
- Emergency service providers
- Advanced robotics
- Data infrastructure
- Artificial intelligence
- Civil nuclear
- Synthetic biology (formerly called engineering biology and renamed following consultation)
- Military and dual use
- Quantum technologies
- Critical government suppliers
- Satellite and space technology
For more information on the INS regime, the government has published guidance which can be viewed here.
Despite detailed guidance, many aspects of the INS regime remain unclear, for example whether it remains possible to seek government advice when in doubt about qualifying an agreement as a mandatory notification event. What is clear, however, in light of the dire consequences of error, is that the new INS regime will result in a plethora of new notifications, whether on a mandatory or voluntary basis.