The National Security and Investment Act: a Bill no more
30 April 2021
On 29 April 2021, the National Security and Investment Act 2021 (the Act) received royal assent. The Act dramatically expands the UK Government’s powers to scrutinise investments. The regime that the Act puts in place has not yet commenced, but, upon commencement, will have retrospective effect, as the UK Government will have the ability in certain circumstances to call-in relevant transactions that did not complete before 12 November 2020.
In this article, we outline the key developments in relation to the Act during its Parliamentary passage and look at the next steps that are anticipated ahead of the Act being commenced later in the year. Full details in relation to the background to the Act and its content can be found in our publication available here.
Key developments in relation to the Act during its Parliamentary passage
During the Act’s Parliamentary passage it was not fundamentally amended, despite a number of stakeholders raising concerns about its breadth of application and potential to adversely impact on the UK’s attractiveness as a destination for investment.1 A limited concession made by the UK Government was to remove the 15% threshold in relation to the mandatory notification regime. The threshold for notification in the 17 mandatory notification sectors now starts at acquisitions of over 25% of the shares or voting rights in a company. However, this was a relatively modest concession given that the UK Government will still be able to call-in for review transactions falling below this 25% threshold where material influence is acquired, so voluntary notifications may be advisable in some instances that fall below the 25% threshold in any event. Furthermore, a mandatory notification is still required where the acquisition is of voting rights in a relevant entity that enables an acquirer to secure or prevent the passage of any class of resolution governing the affairs of the entity.
Certain amendments were also made in relation to the UK Government’s annual reporting requirements. The effect of these amendments is to enhance the level of transparency around the regime. By way of example, the UK Government’s annual reports will now specify the average number of working days from receipt of a mandatory notice to notification of a decision to accept that notice and from receipt of a mandatory notice to giving written reasons for a decision to reject that notice.
Perhaps most importantly, on 2 March 2021, the UK Government published its consultation response in relation to the definition of the 17 mandatory notification sectors, revising a number of those definitions. The consultation response is available here. The revised definitions have provided some additional clarity in relation to the scope of the mandatory notification regime (although many sectors remain very broadly drafted).
In immediate terms, the text of the Act is expected to be published imminently. Thereafter, the UK Government has stated that the Act is expected to be commenced towards the end of this year. In the meantime, the UK Government is expected to publish guidance on a number of different issues (including guidance on the extraterritorial scope of the regime) and a significant amount of secondary legislation will also need to be put in place. The suite of secondary legislation will include regulations finalising the scope of the mandatory notification regime and setting out the form and content of the various notices envisaged by the Act. The final statement of policy intent describing how the Secretary of State expects to use the call-in power in the Act will also need to be laid before Parliament.
The UK Government, upon the Act receiving royal assent, has been at pains to emphasise that it is intended to give “investors additional certainty and clarity as [the UK] enshrine[s] [its] status as a global champion of free trade and investment” and that “the UK remains one of the world’s most open, attractive and welcoming destinations for foreign investment”.2 However, although the regime created by the Act will primarily concern investors in UK companies and UK-based assets, its reach means that many companies doing business involving the UK, including lenders to UK companies, will need to consider carefully its potential application to a wide range of M&A and debt transactions.
Please get in touch with your usual Allen & Overy contact if you would like to discuss the implications of the new regime for your business.
1See, for example, the written evidence of the Joint Working Party of the Company Law Committees of the City of London Law Society and the Law Society of England and Wales and the Alternative Investment Management Association Ltd available here.
2See the statements of Business Secretary Kwasi Kwarteng and International Trade Secretary Liz Truss available here.