National Security and Investment Act 2021: Does it apply to your acquisition?
The National Security and Investment Act 2021 (NSI) came into force this year to allow the UK government the opportunity to oversee and moderate certain acquisitions and investments which could potentially damage our national security. Under the NSI, the government has the power to place conditions on an acquisition or prevent or reverse an acquisition altogether (those having completed prior to 12 November 2020 being exempt).
Is your acquisition within the scope of the NSI?
The NSI refers to ‘Trigger Events’ which may come under the scrutiny and permit the intervention of the UK government. The Trigger Events each relate to an acquiror gaining rights or control over either a qualifying entity or a qualifying asset.
A qualifying entity includes UK companies, LLPs, and other corporate bodies, UK partnerships, unincorporated associations and trusts. Non-UK entities may also be caught if they carry on activities in the UK or supply goods or services to persons in the UK.
The NSI defines a qualifying asset as:
- tangible (or, in Scotland, corporeal) moveable property; or
- ideas, information or techniques which have industrial, commercial or other economic value.
Any such assets situated outside the UK will only be a qualifying asset if it is used in connection with activities carried on in the UK or the supply of goods or services to persons in the UK.
The NSI describes the following Trigger Events where an acquiror of a qualifying entity gains control:
- an increase in the percentage of shares held from 25% or less to more than 25%, from 50% or less to more than 50% or from less than 75% to more than 75%;
- an increase in the percentage of voting rights that the person holds from 25% or less to more than 25%, from 50% or less to more than 50% or from less than 75% to more than 75%;
- where the acquisition is of voting rights which enable the acquiror to guarantee or avert the passing of any class of resolution managing the entity’s affairs; or
- where the acquisition allows the acquiror to materially influence the policy of the entity (whether as a result of the acquisition along or combined with other rights already held by the acquiror).
The final Trigger Event involves the acquiror obtaining control over an asset.
The requirement to notify a transaction
If an entity being acquired is a qualifying entity operating in one of the seventeen high-risk categories of the economy (including energy, defence, artificial intelligence and suppliers to the emergency services, to name a few) a ‘Mandatory Notification’ will need to be made by the acquiror to the Secretary of State, and cleared prior to completion of the transaction where the acquiror will be gaining control.
Acquirors can also make a notification under the voluntary notification regime whereby acquisitions falling outside the mandatory notification regime can still be voluntarily notified in order to obtain a decision as to whether there are any national security issues.
Where a transaction is mandatorily notifiable but is completed without the approval of the Secretary of State, the transaction will be void and therefore it is if high importance to check whether an acquisition comes within the scope of the NSI prior to completion.