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The UK’s National Security and Investment Bill

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Clive Garston
DAC Beachcroft, London

Francesco Rosso
DAC Beachcroft, London

Yee Rou Quah
DAC Beachcroft, London

On 11 November 2020, ministers introduced the National Security and Investment Bill in the House of Commons. The Bill provides for a Committee on Foreign Investment in the United States (CFIUS)-style regime, granting the UK Government powers to scrutinise and intervene in a number of business transactions (for example, takeovers) on national security grounds.

Despite concerns that the City of London could see deal volumes drop, the Government considers the Bill a fundamental tool in preventing control of companies operating in sensitive sectors being handed over to foreign entities. To avoid a rush to complete deals, the provisions provided for in the Bill will take effect from 12 November 2020, being the day after the Bill was introduced. The Bill, yet to be enacted, may be amended as it goes through the legislative process.

This article briefly sets out the key provisions in the Bill.

Call-in notices

Under the Bill, the Secretary of State (SoS) may, on his own initiative, give notice if they suspect that a trigger event has taken place (or arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event) in relation to a qualifying entity or a qualifying asset, and the event has given rise to or may give rise to a risk to national security.

The call-in notice will be addressed to the acquirer, the entity, and/or any other person that the SoS deems appropriate. It can only be issued once in relation to a trigger event. The ability of the SoS to issue a call-in notice extends to five years, beginning with the day on which the trigger event took place (so long as the five years do not reach back before 12 November 2020).

Meaning of trigger event

A trigger event will occur when a person gains control of a qualifying entity (including overseas entities in certain circumstances), or a person gains control of a qualifying asset, which includes land, tangible property, ideas, information or techniques which have industrial, commercial or other economic value (for example, trade secrets, databases, designs, etc).

In relation to a qualifying entity, this includes where the percentage of shares or voting rights held increases:

  • from 25 per cent or less to more than 25 per cent;

  • from 50 per cent or less to more than 50 per cent;

  • from less than 75 per cent to 75 per cent or more; and/or

  • provides for the acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of the qualifying entity; and/or

  • provides for the acquisition of material influence over a qualifying entity’s policy.

In relation to a qualifying asset, this includes the acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to:

  • use the asset, or use it to a greater extent than prior to the acquisition; and/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 person will not be regarded as gaining control of a qualifying asset by reason of an acquisition for purposes outside of his/her trade or business.

The absence of thresholds relating to the target’s market share or turnover means that this new regime will apply to most companies and investors doing business in the UK. Loans, conditional acquisitions, futures and options may give rise to trigger events.

Reputable investors (eg, sovereign wealth funds, banks and pension funds) investing in entities operating in key sectors such as national infrastructure should not be overly alarmed. The risk, the government suggested, will be assessed ‘according to the practical ability of a party to use an acquisition to undermine national security’.

Examples set out by the SoS include, but are not limited to: (1) disruptive or destructive actions (corruptions of processes or systems); (2) espionage; and/or (3) inappropriate leverage (exploiting investment to influence the UK).

In his draft Statement of Policy Intent, the SoS explained that the acquirer risk will be assessed on a case-by-case basis. Any of the following may be considered in respect of an acquirer:

  • their beneficial or ultimate owner;

  • their track record, including whether they control other entities within a key sector; and

  • their criminal offences.

Notifiable acquisitions

A notifiable acquisition will take place when:

  • a person gains control by virtue of an acquisition of more than:

    • 25 per cent;

    • 50 per cent; or

    • 75 per cent or more of shares or voting rights of a qualified entity;

  • a person gains control by virtue of the acquisition of voting rights that enable or prevent the passage of any class resolution governing the affairs of the company; and/or

  • a person acquires a right or interest in a qualifying entity of a specified description,and as a result the percentage of the shares or voting rights that the person holds increases from less than 15 per cent to more than 15 per cent.

Asset deals will not, for the time being, be subject to the notifiable acquisition regime. The Government is currently consulting on a list of 17 sectors, to be introduced and defined by subsequent regulations, which it considers sensitive and which will be subject to the notifiable acquisitions regime, including:

  • advanced materials and robotics;

  • artificial intelligence;

  • civil nuclear;

  • communications;

  • computing hardware;

  • critical suppliers to government;

  • critical suppliers to emergency services;

  • cryptographic authentication;

  • data infrastructure;

  • defence;

  • energy;

  • engineering biology;

  • military and dual use;

  • quantum technologies;

  • satellite and space technologies; and

  • transport.

In response to criticisms being raised that the number of sectors falling within the new regime are too wide, and to provide some comfort to foreign investors, the Government stated that the ‘vast majority of the transactions will not be called in, and this process can therefore provide more certainty and confidence for businesses and investors that the Government will not intervene in their investment’.

Mandatory and voluntary notifications

Companies must give notice to the SoS of a notifiable acquisition before completion (unless the SoS has already issued a call-in notice on his own initiative).

Once notified, the SoS will have 30 working days to either:

  • give a call-in notice in relation to the proposed notifiable acquisition, or

  • notify each relevant person that no further action will betaken.

The Bill also includes a voluntary notification procedure encouraging parties to notify arrangements or trigger events which do not qualify as notifiable acquisitions. The SoS may, in certain circumstances, retrospectively approve notifiable acquisitions which were completed without obtaining the adequate consent, but a notifiable acquisition that is completed without the approval of SoS is void.

What should businesses do now?

The Bill is intended to replace the current regime under the Enterprise Act 2002 (EA 2002), pursuant to which the government may intervene, with the aid of the Competition and Markets Authority in certain circumstances, in mergers or acquisitions which are: (1) public interest cases; (2) special public interest cases; or (3) European merger cases.

The provisions of the EA 2002 and the Bill are different in a number of respects; for example, the application financial thresholds. Under the EA 2002, certain mergers may be scrutinised where the company taken over has a UK turnover of more than £70m. The threshold was reduced to £1m for companies active in the fields of military or dual used goods subject to export control, computer processing, or quantum technology. At the time of writing this article, the EA 2002 continues to apply to businesses investing in the UK.

The ability of the government to scrutinise acquisitions that have taken place from 12 November 2020 onwards has left numerous businesses asking what they should now do, if anything, since the Bill is not yet law.

The government has recommended businesses to assess whether an ‘informal representation’ should be made under the provisions of the Bill via a designated email address. The benefits of making informal representations, the government suggested, include early business planning and receiving assistance from the SoS.

Since foreign-to-foreign deals may be caught under the Bill, overseas lawyers advising on acquisitions with UK elements should also, where appropriate, lodge informal representations. The call-in power of the SoS will not be, in any event, exercisable before the Bill is enacted.

The Secretary of State’s investigative powers

The SoS may issue notices requiring persons to provide information in order for the SoS to determine, for example, whether the call-in notice should be issued or remedies imposed. The SoS will also have the power to summon witnesses to assist him in carrying out his functions under the Bill. The investigative powers of the SoS will extend to overseas persons in certain circumstances.

Assessment period: final orders and notices

Should the SoS decide to scrutinise the transaction by issuing a call-in notice to the acquirer, he will have 30 working days (which may be extended for a further 45 working days), referred to as the assessment period, to:

  • make a final order to prevent, remedy or mitigate the risk; or

  • give a final notification that no further action in relation to the call-in notice is to be taken.

A final order may:

  • require a person to do or not to do particular things;

  • appoint a person to conduct or supervise the activities of the transaction on such terms and with such powers as described in the order;

  • require the contents of the order to remain confidential; and/or

  • include any consequential, supplementary or incidental provision.

It is particularly important to note that, during the assessment period, businesses will be able to continue to progress their deal unless ordered otherwise by the SoS. In addition, the procedure is not intended to be a lengthy one: according to the Government, ‘the vast majority of transactions will require no intervention and will be able to proceed quickly and with certainty in the knowledge that the government will not revisit a transaction once cleared unless inaccurate information was provided’.

Interim orders

The SoS will have the authority to issue interim orders to restrict acquirers from taking any actions which could prejudice his ability to investigate and assess a trigger event. The obligations on acquirers pursuant to interim orders may take the same form as final orders (described above).


Completing a notifiable acquisition without the appropriate approval, or failing to comply with an interim or final order, may lead to civil penalties (the higher of five per cent of total value of worldwide turnover and £10m), or criminal sanctions (imprisonment of up to five years).

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