Security bill poses risks to corporate deals

As if COVID-19, Brexit and the March budget weren’t enough, the National Security and Investment Bill currently passing through parliament could cause a major re-timetabling or rethinking of many corporate deals.

Contrary to the UK’s laissez-faire approach to date, the new law will give the government powers to block or impose conditions on transactions relating to a wide spectrum of activities which may have national security implications. The list is under consultation but likely to include not only defence, satellites and energy, but also such diverse sectors as advanced materials, semiconductors and nanotechnology, artificial intelligence, electronic communications, computing hardware, cryptographic authentication, engineering biology, ports and airports, data infrastructure, quantum technologies, and critical suppliers to government and emergency services.

Affected transactions can include land, as well as asset and share sales. There are thresholds to the amount of control changing hands, but no minimum size of transaction or market share. As well as international transactions, deals where all parties are UK-based are caught, and those where ownership is being brought into the UK.

There are sharp teeth too. Any in-scope transaction that isn’t notified to the Department for Business, Energy and Industrial Strategy (BEIS) may be void – ruinous for the parties and their lenders and investors, and a source of risk for professional advisers. The acquirer and its directors will also face hefty criminal and civil penalties.

Once notified, BEIS will have 30 business days to ‘call in’ the transaction for further investigation. This will need to be built into the timetable. If an investigation follows, that timetable will stretch considerably, and time and resources consumed even if no action is ultimately taken.

Hurrying to beat Royal Assent may not help – any transactions completed back to 12 November 2020 are liable to call-in. BEIS can also call in transactions outside the list of sectors if it perceives a national security risk.

The government believes that between 1,000 to 1,800 transactions annually will be affected. Many practitioners reckon this is a significant underestimate, and the ability of BEIS’ new Investment Security Unit to process notifications with the speed demanded by the market must be in doubt.