National Security and Investment Act granted Royal Assent
The National Security and Investment Act received Royal Assent on 29 April 2021 and is expected to come into force towards the end of this year.
The Act establishes a new regime for the review of mergers, acquisitions and other types of transactions that could threaten national security.
Under the new regime, certain acquisitions of businesses active in sensitive sectors will require mandatory notification to and clearance by the Government before they can be completed. Other transactions will be 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 will replace the current regime, under which only transactions that qualify as a merger for the purposes of the UK merger control rules can be investigated.
The Act will have retrospective application in relation to transactions completed in the period between the introduction of the National Security and Investment Bill on 12 November 2020 and the Act coming into force later this year. The Government will have the ability to call in for investigation such transactions for a period of five years after the Act comes into force.
What are the new powers?
The new Act will:
- enable 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.
- require mandatory notification of certain types of acquisitions of shares or voting rights in companies and other entities operating in sensitive sectors of the economy, such as quantum technologies or nuclear. In such cases, completion of the acquisition will be prohibited unless and until approval has been given by the Government.
- render void any transaction subject to mandatory notification which is completed without approval. Such action will also constitute a criminal offence.
- introduce a voluntary notification system for transactions that do not require mandatory notification but which may still raise national security concerns.
- allow 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 will require mandatory notification?
The mandatory notification regime will apply to acquisitions of companies or other entities operating in certain sensitive sectors, where the acquirer will acquire 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 will retain 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 precise scope of the sectors falling within the mandatory notification regime will be set out in regulations in due course.