Last month, the U.K. enacted the National Security and Investment Act 2021, which makes substantial changes to the U.K.’s foreign investment rules. According to this Crowell & Moring memo, the statute will ultimately result in a system of mandatory and voluntary national security notifications similar to the U.S. CFIUS regime. This excerpt provides an overview of the notification requirements:
– Acquisitions of certain levels of shares or voting rights – with the lowest level being 25% – of target companies active in 17 sensitive sectors are subject to mandatory notification to the Investment Security Unit (the “ISU”), which sits within the Department of Business, Energy and Industrial Strategy. A mandatory notification will also be required where there is an acquisition of voting rights in such a company which enables the acquirer to pass or prevent any class of resolution governing the company’s affairs. The 17 sectors include defence, energy, communications, AI and various other advanced technologies which are likely to be relevant to the activities of many tech and healthcare companies.
– Even below this 25% threshold, although not subject to the mandatory notification rule, the U.K. government will still have the power to review transactions if (at least) “material influence” is acquired in a target company where the Secretary of State reasonably suspects that the transaction may give rise to a risk to U.K. national security. Material influence is a concept taken from the regular competition merger control regime. Certain acquisitions of assets (e.g. land, moveable property and intellectual property) may also fall under this regime. This “call-in” power is not limited to the 17 identified sectors and transactions outside the mandatory regime which may pose a risk to national security can be retrospectively called in for review up to five years after closing, reduced to 6 months once the U.K. government becomes aware of the transaction (although what would amount to awareness here is subject to uncertainty).
Transactions subject to mandatory notification are falling under the mandatory regime will be void if completed without clearance. The new regime is expected to become effective by the end of the year. The memo says that although there is no mechanism to submit transactions for review prior to that time, the law does allow for the retrospective review of acquisitions completed after November 12, 2020 – so parties would be smart to factor the new legislation into their M&A planning process.
– John Jenkins