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The UK National Security and Investment Act 201 (“NSIA”) received royal assent on 29 April 2021, and will come into force on 4 January 2022. From that date there will be a substantial expansion of the UK government’s ability to scrutinize investments. NSIA will be a stand alone UK foreign direct investment and national security screening regime. It will replace the current regime that links national security screening with UK merger control. It is fair to say that the UK government will be more likely to intervene in transactions under NSIA than it did under the Enterprise Act 2002, which will cease to apply when NSIA becomes effective.

The new regime will now significantly increase the UK government’s ability to review foreign direct investment (“FDI”) in UK businesses on the grounds of national security.

Companies will now be required to notify deals and obtain approval from the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) before completing their acquisitions in relevant sectors. Failure to do so could give rise to financial and criminal penalties.

NSIA brings in a mandatory notification regime for certain key sectors, and gives the Secretary of State BEIS the power to investigate and order remedies for other investments giving rise to national security concerns; and introduces retrospective powers pending the NSIA coming into force. As from 4 January 2022, the UK government will have the ability to impose remedies, potentially prohibit completion, and order a demerger (following completion) of certain transactions on national security grounds.

NSIA is divided into two parts, a hybrid mandatory regime and a voluntary regime. The mandatory regime requires qualifying transactions within any of the 17 specified “high risk” sectors to be notified for approval before they can proceed. The voluntary regime will enable parties to submit transactions for approval, and will also allow the new BEIS Investment Security Unit (“ISU”) to call in deals retrospectively.

A transaction will give rise to a mandatory filing obligation where it gives rise to (1) an increase in the shareholding or voting rights of a qualifying entity to over 25%, 50% or 75% or (2) the acquisition of veto rights over resolutions governing its affairs. The Secretary of State’s powers to call in a transaction for an investigation, as well as the parties’ ability to make a voluntary notification, will also arise if the investor (1) acquires so-called “material influence” over an entity, or (2) makes certain asset acquisitions.

The mandatory filing obligation arises with regard to investments in 17 sectors considered critical for national security purposes. Following a public consultation, the scope of the 17 key sectors was reduced in order to try to make the regime more targeted and proportionate. During the legislative process, the regime was also amended to remove the requirement to make a mandatory filing with regard to the acquisition of a 15% shareholding, or for certain asset acquisitions. However, parties to a share transaction giving rise to a shareholding of 25% or less, or to an asset acquisition (as opposed to a share acquisition), in a target that is active in one of the 17 sectors would be able to make a voluntary notification if the relevant conditions for a voluntary notification are satisfied, since the UK government would have the power to call in such a transaction for a national security review on its own initiative.

NSIA requires the Secretary of State for BEIS to publish a statement explaining how the power to call in acquisitions, under NSIA, is expected to be used. The statement will help parties to an acquisition to understand whether their acquisition is likely to be called in by the Secretary of State and to plan accordingly. The UK government is now consulting on the draft statement (published in July 2021) and is requesting views from shareholders (particularly business, investors and the legal community) by 30 August 2021. The final version of the statement will then be put before the UK Parliament for approval (obviously well before 4 January 2022).

The UK government presently anticipates up to approximately 1,800 notifications per year under the new regime, but estimates that less than 100 of these would be called in for a detailed national security assessment and that only around 10 would result in remedies.

As regards the timetable, the ISU will conduct an initial review within 30 working days of being notified; after the review they will either clear the transaction or call it in for a full national security assessment. The full assessment will itself take up to 30 working days and can be extended, initially, for a further 45 working days – and there is potential further voluntary extension if agreed with the parties. It should be noted also that the clock can be stopped on the review if further information is required by the ISU.

The high number of anticipated filings is due in part to the fact that parties to a transaction not subject to a mandatory filing requirement may wish to obtain greater deal certainty by making voluntary notification – particularly in light of the powers of the Secretary of State to call retrospectively call in, review, impose conditions on, and potentially unwind completed transactions.


1. The Mandatory Regime

Acquirers will need to notify certain tractions to the ISU. There will be a prohibition on closing until clearance is received for such investments. Transactions closed in breach of the NSIA will be void. In addition, if a transaction subject to mandatory notification closes before it is cleared, individuals may face criminal penalties including imprisonment of up to five years and/or possible director disqualification orders. The Secretary of State will also have the power to impose a financial penalty on the acquirer of up to 5% of the acquirer’s global group turnover or up to £10 million (whichever is higher). Where a transaction also meets the UK merger control filing thresholds, the UK competition agency, the Competition and Markets Authority, may also conduct a competition law assessment in parallel.

A transaction will be automatically subject to a mandatory notification if:

•  the acquirer would increase its shares or voting rights in the qualifying entity from (1) 25% or less to more than 25%, (2) 50% or less to more than 50%, or (3) 75% or less to more than 75%; or
•  the transaction would enable the acquirer to secure or prevent the passage of any class of resolution governing the affairs of the qualifying entity.

The mandatory filing regime will apply to transactions in 17 sectors related to UK national security. These 17 sectors are set out below. The final definitions will be set out in regulations to be adopted.

(1) Advanced Materials (2) Advanced Robotics (3) Artificial Intelligence (4) Civil Nuclear (5) Communications (6) Computing Hardware (7) Critical Supplies to Government (8) Cryptographic Authentication (9) Data Infrastructure (10) Defense (11) Energy (12) Military and Dual-Use (13) Quantum Technologies (14) Satellite and Space Technologies (15) Suppliers to the Emergency Services (16) Synthetic Biology (17) Transport

2. The Voluntary Regime

As set out above, parties will have the ability to make a voluntary preclosing notification, if the transaction is likely to have UK national security implications. However, where the transaction does not meet the relevant mandatory notification thresholds and/or is not within one of the 17 sectors requiring mandatory notification, parties to a transaction will be able to make a voluntary notification in the following circumstances;

•  the acquirer would increase its shares or voting rights in the qualifying entity from (1) 25% or less to more than 25%, (2) 50% or less to more than 50%, or (3) 75% or less to more than 75%;

•  the transaction would enable the acquirer to secure the or prevent the passage of any class of resolution governing the affairs of the qualifying entity;

•  the acquirer would obtain so-called “material influence” over the entity. In practice, this may arise from the acquisition of as little as 15% (or less) of the entity’s votes or shares. So, for example, where an investor invests in a target that is active in one of the 17 sectors that would give rise to a mandatory filing but its shareholding is under 25% (such that the mandatory filing obligation is not triggered), the parties would be able to make a voluntary filing if the acquirer would be able to exercise material influence over the target.)

•  acquisitions of qualifying assets, enabling an acquirer as a result of the transaction to (1) use such asset, or use it to a greater extent than prior to the acquisition; or (2) direct or control how the asset is used or direct or control how it is used to a greater extent than prior to the acquisition. Qualifying assets include (1) land (including land outside of the United Kingdom if such land is used in connection with activities carried on in the United Kingdom); (2) tangible moveable property; and (3) ideas, information, or techniques with industrial, commercial, or other economic value (including trade secrets, databases, source code, algorithms, formulae, designs, plans, drawings and specifications and software). Even though asset acquisitions are not caught by the mandatory notification requirement, they may be notified voluntarily.

If the parties do not make a voluntary notification, the ISU may decide to call in the transaction for a national security review.

Paragraph 11 of the July 2021 draft statement also makes clear that acquisitions in areas of the economy closely linked to these 17 areas could be of interest to the Secretary of State and acquisitions in these areas could be more likely to be called in than other areas of the economy. The draft statement also makes clear that each acquisition will be treated on a case by case basis.

The Secretary of State may call in transactions for investigation within five years after the qualifying event takes place, or within six months of the Secretary of State’s becoming aware of the transaction (e.g., as a result of coverage in a national news publication).

The Secretary of State may, within a period of five years of the NSIA coming into force, call in for review transactions that closed on or after 12 November 2020 but before the NSIA comes into force, or within six months of the NSIA coming into force if the Secretary of State had been made aware of the transaction. As regards transactions with potential UK national security implications that have close or will close between 12 November 2020 and 4 January 2022, the UK government encourages parties to liaise informally with BEIS for business planning purposes and in order to obtain informal guidance on whether the transaction would likely be subject to a call-in notice after 4 January 2022.

3. Application to UK and Non-UK Investors

The NSIA will apply to FDI, and also to both UK and non-UK investors. However, the affiliations of the investor will be relevant for the purposes of the substantive national security review as well as in deciding whether to exercise the call-in power with regard to transactions not giving rise to the mandatory filing obligation.

4. No Minimum UK Turnover, Asset Value, or Share of Supply Thresholds

The mandatory and voluntary filing regime under the NSIA does not include generally applicable minimum turnover, asset value, or share of supply thresholds.


The U.K. government also published helpful guidance on various aspects of the new regime, including how the Act could affect people or acquisitions outside the U.K. The potentially wide extraterritorial scope of the Act – it applies to transactions affecting entities formed under the laws of territories outside the U.K. that carry on activities in the U.K. or supply goods or services to people in the U.K., and to assets (including land) situated outside of the U.K. that are used in connection with activities carried on in the U.K. or with the supply of goods or services to people in the U.K. – has been of particular concern to a number of stakeholders, so the clarifications provided by this guidance will be welcome. The guidance specifies that an overseas entity that carries out research and development in the U.K. or has an office in the U.K. from which it carries on activities would likely be within the scope of the new rules. Conversely, an entity whose sole connection with the U.K. is that it has owners or investors who are based in the U.K., buys goods or services from the U.K.-based suppliers, or has a parent company that has other subsidiaries that carry on activities in the U.K. would likely not be within the Act’s scope. Examples are provided in the draft statement.


The new national security regime means that many companies, including lenders to UK companies will have to consider carefully its potential application to a wide range of M&A and debt transactions. With NSIA applying to investments by domestic and foreign acquirers, certain public and private M&A transaction documents will henceforth need to include a condition for closing. More guidance from the government will follow later this year.

It should also be noted that a dedicated hub within BEIS - the ISU - is open to businesses seeking advice, including ahead of commencement.

As from 4 January 2022, notifications are to be made to the ISU through a digital portal. Subject to statutory timelines, the ISU will review transactions and coordinate cross- government work “to identify, assess and respond to national security risks arising from foreign direct investment”.

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