The National Security and Investment Act 2021 come into force on 4 January 2022. What do the new rules mean for business acquisitions and what areas does it cover?
What is the National Security and Investment Act 2021?
The National Security and Investment Act 2021 allows the government to scrutinise and intervene in certain acquisitions that could harm the UK’s national security. The government will be able to:
- Impose conditions on an acquisition;
- Unwind an acquisition; or
- Block an acquisition.
What areas does the National Security and Investment Act 2021 cover?
A much broader range than you might think – there are 17 sensitive areas which are considered more likely to give rise to a national security risk:
- Advanced Materials;
- Advanced Robotics;
- Artificial Intelligence;
- Civil Nuclear;
- Computing Hardware;
- Critical Suppliers to Government;
- Cryptographic Authentication;
- Data Infrastructure;
- Military and Dual-Use;
- Quantum Technologies;
- Satellite and Space Technologies;
- Suppliers to the Emergency Services;
- Synthetic Biology; and
When does the National Security and Investment Act 2021 come into force?
The new rules come into force on 4 January 2022.
What will it mean for the acquisition planned for my business?
If the acquisition relates to the acquisition of shares or voting rights (above certain defined thresholds) then you may need to get approval from the government before you can complete it. This is called a notifiable acquisition. The purchaser is the party that needs to make the notification.
Are there any supply or turnover thresholds?
No – the NSI regime does not depend on the target of the acquisition meeting minimum turnover or share of supply thresholds.
Which transactions are within the scope of the Act?
The Act defines a range of trigger events that may be subject to government scrutiny. Each trigger event involves the acquirer acquiring control over either:
- A qualifying entity; or
- A qualifying asset.
A “qualifying entity” is any entity (other than an individual), whether or not a legal person and includes:
- Companies, LLPs and other bodies corporate; and
- Partnerships, unincorporated associations and trusts.
A “qualifying asset” is:
- Tangible moveable property; or
- Ideas, information or techniques which have industrial, commercial or other economic value, and which are used in connection with either activities carried on the UK, or the supply of goods or services to persons in the UK. Examples of the type of assets within this category include trade secrets, databases, source code, algorithms, formulae, designs, plans, drawings and specifications and software.
A “qualifying event” is the acquisition of a right or interest in (or in relation to) a qualifying entity which results in any one or more of the following outcomes:
- The percentage of shares in the qualifying entity held by the acquirer increasing to more than 25%, 50% or 75%;
- The percentage of voting rights in the qualifying entity held by the acquirer increasing to more than 25%, 50% or 75%;
- The acquisition of voting rights in the qualifying entity enabling the acquirer (whether alone or together with other voting rights it holds) to secure or prevent the passage of any class of resolution governing the affairs of the entity;
- The acquirer being able to exercise material influence over the qualifying entity’s policy. A shareholding of more than 25% (giving the ability to block special resolutions) is likely to confer material influence, but even shareholdings of less than 15%, when accompanied by other factors indicating the ability to exercise material influence over policy, may be considered to result in the ability to exercise material influences; or
- The acquirer gains control of a qualifying asset. This trigger event will occur where there is an acquisition of a right or interest in (or in relation to) an asset which gives the acquirer the ability to either:
- Use the asset, or use it to a greater extent than prior to the acquisition; or
- Direct or control how the asset is used, or direct or control how the asset is used to a greater extent than prior to the acquisition.
A notification has been made – now what happens?
If the notification is valid (i.e. contains all the necessary information) then the government has up to 30 working days to review your acquisition, ask for more information and decide whether to:
- Take no further action; or
- Further assess (“call in”) the acquisition.
What happens if a notifiable acquisition takes place without approval?
The acquisition will be void and the purchaser may be subject to civil or criminal penalties.
A civil penalty could require you to pay up to 5% of global turnover or £10million whichever is greater.
The criminal penalty is up to 5 years in prison.
It will be possible to apply for retrospective validation.