M&A: National Security and Investment Act 2021

M&A: NATIONAL SECURITY AND INVESTMENT ACT 2021

The National Security and Investment Act 2021 came into full force on 4^th January 2022 and its purpose is to strengthen the government’s power to scrutinise and intervene in business transactions that could harm the UK’s national security.

While protecting national security, the Act seeks to gives businesses and investors certainty and transparency that they need to conduct business in the UK.

Key features of the new regime

The new regime under the Act falls into two parts: (1) mandatory notification and (2) voluntary notification. Mandatory notification will require qualifying transactions to be notified for approval before they take place. Voluntary notification will allow parties to submit transactions for approval.

 Mandatory notification

The trigger events for mandatory notification are:

• The acquisition of a right or interest, more than 25 per cent, more than 50 per cent, or 75 per cent or more of the votes or shares in a “qualifying entity target”; or
• The acquisition of voting rights enabling or preventing the passage of any class of resolution governing the affairs of the qualifying entity; and
• The qualifying entity is active in any of the 17 qualifying sectors.

The 17 qualifying sectors are set out in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. These include sectors such as Artificial Intelligence, Communications, Energy and Defence.

Voluntary notification

Voluntary notifications are from parties to transactions not caught by the mandatory notification regime, who consider that their transactions may raise a national security concern. The trigger events set out above also apply to entities that are not active in a qualifying sector.

 Whether or not the transaction involves an entity in a qualifying sector, there are trigger events that apply to the voluntary regime. These include:

• The acquisition of material influence over a qualifying entity’s policy.
• The acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to the acquirer to use or control the asset at a greater extent than prior to the acquisition.

Connection to the UK

The acquired entity must be from, in or have a sufficient connection with the UK. It must carry on activities in the UK or supply goods or services in the UK. A qualifying asset must be used in connection with activities carried out in the UK or supplies goods or services within the UK.

An entity formed outside the UK is a qualifying entity if it conducts the above activities within the UK.

Sanctions

For non-compliance with the mandatory notification requirement, the transaction will be void, alongside criminal sanctions including up to 5 years imprisonment and fines of up to 5% worldwide turnover or £10 million – whichever is greater.

Guidance

The government have provided this flowchart for guidance on whether you need to notify them about an acquisition.

For more information, please call us on 020 4571 8631 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

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