On 16 June 2022, the department of Business, Energy and Industrial Strategy (BEIS) published its first report on the UK’s new National Security and Investment Act 2021 (NSIA), covering the first three months following its entry into force on 4 January 2022. During this period, the Investment Security Unit (ISU) received 222 notifications, of which 17 were called in for further assessment. Three of these were cleared, with the other 14 cases still being assessed at the date of the report. The report concludes that the new system has been successful and encourages businesses to explore the guidance available regarding their legal obligations.
The report was swiftly followed by Market Guidance Notes, issued on 19 July 2022, providing guidance on key aspects of the regime based on the first six months of the operation of the NSIA. The government also updated its guidance and information document in August and September, including a memorandum of understanding (MoU) between the Competition and Markets Authority (CMA) and BEIS.
The Reed Smith team has extensive experience in helping clients navigate through the notification process and obtain clearance for their transactions. We set out below some of the key observations and lessons learnt from our experience when examining transactions for the purpose of voluntary or mandatory notifications.
The government has been proactive in examining transactions that may raise national security concerns. This has led to interventions in transactions involving both foreign and UK entities, resulting in prohibitions, clearance with conditions or remedies, as well as retrospective call-ins, where the target company (the qualifying entity) deals in critical sectors or has assets that may raise national security concerns.1 To avoid surprises, it is therefore paramount to ensure that notifications submitted to the ISU are detailed, complete and clear. This will help to ensure that transactions can be assessed without delay and acquisitions can proceed smoothly.
Help us to help you: Key observations and lessons learnt
- Ultimate responsibility lies with the acquirer – The acquirer is ultimately responsible for the completeness and correctness of the notification. Knowingly or recklessly providing false or misleading information is a criminal offence under section 34 of the NSIA and can result in a fine, imprisonment or both. It is important that the person signing the declaration is fully aware of the contents of the notification, as they are ultimately liable if there are errors or omissions.
- Notifications submitted to overseas investment screening regimes within the last 12 months – Where the acquirer is an individual or a new company is being set up specifically to acquire the qualifying entity, it is advisable to provide information regarding any notifications that have been made by entities linked to the acquirer (e.g. a parent company or group). This is to ensure that it is not seen as a way to circumvent NSIA requirements.
- Relevant sectors related to qualifying entity activities – Given the wide scope and uncertainty around the 17 sectors, it is advisable to explain in detail the specific activities of the target company that put the acquisition within scope. Providing pertinent information to explain why the transaction is captured under the NSIA helps to outline a more complete picture for the ISU. In our experience, it is effective to have the target company draft the information needed about activities in order to ensure accuracy. Clarity regarding the scope of sectors can also be sought from the ISU through informal conversations.
Similar considerations will need to be taken into account when submitting a notification in relation to qualifying assets.