National Security and Investment Act comes into force

The National Security and Investment Act came into force on 4 January 2022.

The Act has established a new regime for the review of mergers, acquisitions and other types of transactions that could threaten national security.  This includes transactions involving the acquisition of assets, such as land or intellectual property.

Under the new regime, certain acquisitions of businesses active in sensitive sectors require mandatory notification to and clearance by the Government before they can be completed. Other transactions are subject to voluntary notification or being called in for investigation where no notification is made.

The new regime represents a significant extension of the UK Government’s powers to review transactions on national security grounds and replaces the previous regime, under which only transactions that qualified as a merger for the purposes of the UK merger control rules could be investigated.

What are the new powers?

The new Act:

• enables the Government to investigate transactions which involve the acquisition of control or influence over an entity or asset, whether or not the transaction has been notified to the Government.
• requires mandatory notification of certain types of acquisitions of shares or voting rights in companies and other entities operating in sensitive sectors of the economy. In such cases, completion of the acquisition will be prohibited unless and until approval has been given by the Government.
• renders void any transaction subject to mandatory notification which is completed without approval. Such action will also constitute a criminal offence.
• introduces a voluntary notification system for transactions that do not require mandatory notification but which may still raise national security concerns.
• allows the Government to investigate non-notified transactions up to 6 months after becoming aware of them, provided this occurs within 5 years of completion (the 5 year time limit does not apply to non-notified transactions that are subject to mandatory notification).
• has retrospective application in relation to transactions completed on or after 12 November 2020.
• allows the Government to impose remedies to address risks to national security (including prohibiting a transaction where considered necessary) and sanctions for non-compliance with the regime.

What type of transactions require mandatory notification?

The mandatory notification regime applies to acquisitions of companies or other entities engaging in certain activities in a sensitive sector[1], where the acquirer acquires at least 25% of the votes or shares of the target - or sufficient voting rights to enable or prevent the passage of any class of resolution.

The Government had originally proposed that any stake of 15% or more would be caught, but increased this to 25% in view of concerns that the lower level would bring too many transactions within the scope of the mandatory notification regime.

Despite this change, the Government retains the power to review of its own accord transactions involving a stake lower than 25%, where the stake is considered to confer material influence.

The Government has published guidance on the application of the new Act, including the scope of the activities and sectors falling within the mandatory notification regime.

[1] The 17 sensitive sectors are: Advanced Materials, Advanced Robotics, Artificial Intelligence, Civil Nuclear, Communications, Computing Hardware, Critical Suppliers to Government, Cryptographic Authentication, Data Infrastructure, Defence, Energy, Military and Dual-Use, Quantum Technologies, Satellite and Space Technologies, Suppliers to the Emergency Services, Synthetic Biology and Transport.