On 11 November 2020, the government announced the details of its proposals for national security-based review of investments in the UK, in the form of the National Security and Investment Bill ("NSIB").
Protectionism is a growing and global trend. In the UK we have been awaiting tighter legislation since the government first launched its national infrastructure and investment review in 2017. However, the substantial changes in terms of scope and powers proposed by the NSIB have surprised many market participants. In addition, the NSIB's retrospective powers and powers to unwind transactions or declare them void are a source of concern that mean all investors will need to start featuring NSIB analysis into their transaction planning even before the legislation comes into force. It remains to be seen whether such measures are practical and whether Business Secretary, Alok Sharma's statement that "the UK remains one of the most attractive investment destinations in the world and we want to keep it that way" will continue to be true.
For the first time, the NSIB will require mandatory notification and pre-clearance for the acquisition of voting or equity interests exceeding certain thresholds (starting at 15%) where deals are in designated "sensitive sectors. These sectors include defence, military or dual use technologies, and satellite and space technologies, as well as more general sectors such as energy, transport, and data infrastructure. The Department of Business Energy and Industrial Strategy has launched a consultation on the precise scope of these sectors, which will close in January 2021. Clearance will be focused on assessing the extent to which deals in these sectors are capable of posing a national security risk. Unlike the previous regime, no turnover or "share of supply" thresholds have been proposed to trigger a review on national security grounds; it will now largely depend on the nature of the target and the identity of the buyer. Deals that are not subject to mandatory notification will still be reviewable by the Secretary of State if deemed to pose a national security risk. Investors will also have the option of making a voluntary notification.
The NSIB takes clear inspiration from foreign direct investment regimes in other countries, notably the Committee on Foreign Investment in the United States, but is not restricted to foreign investors. Therefore UK-based investors will also face notification or review within the regime.
Although the regime is not yet in force, with implementation expected in the first half of 2021, it is still of relevance to investments being contemplated now. This is because the NSIB will have retrospective application in the form of the Secretary of State's ability to issue "call-in notices" for deals with a suspected national security risk, even if those deals are already closed. These notices could apply to all deals closed from 12 November 2020. The "look-back" period covered by this retrospective power extends for five years, or six months where the government has been "made aware" of the transaction.
National security review of transactions had previously been limited to the provisions of the Enterprise Act 2002, which required no mandatory notifications and only subjected twelve transactions to detailed review based on national security grounds since its introduction. By contrast, the government expects between 1,000 and 1,830 mandatory notifications a year, with between 70 and 95 transactions being called in for review. This is a substantial increase in the scale of review compared to the status quo.
Once the NSIB comes into force it will also come with powers to potentially block, unwind or impose conditions on transactions, for example, altering the level of equity that a particular shareholder is allowed to acquire, restricting access to certain commercial information, and/or controlling access to certain operational sites or works. There is also a sanctions regime for failure to make a mandatory notification that can see fines of up to £10 million or 5% of turnover (whichever is the greater) imposed for parties who fail to file when required.
› For more detail on any of the above, you can access our previous detailed client alert here.