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The National Security and Investment Act, is a new regulatory regime, entered in force last 4th of January 2022, which allows the Government to scrutinise and intervene in certain acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security. The new National Security screening procedures are said to be the most significant security shake-up for 20 years.
The Business Secretary, Kwasi Kwarteng pointed out that the UK is globally accepted as a desirable place to invest, further commenting “The new investment screening process in place from today is simple and quick, giving investors and firms the certainty they need to do business, and giving everyone in the UK the peace of mind that their security remains our number one priority.”
In order to comply with the new Act foreign businesses or investors intending to buy a UK business or part of a UK business that falls into any one of the 17 sensitive areas of the economy (called ‘notifiable acquisitions’) with the potential to form a threat to UK security, will have to notify the Government of their plans. The new regulations apply to what is described as “change of control”. There will be mandatory filing obligations and clearance must be obtained before any deal can be finalised. Failure to observe the new rules carries a penalty of five years imprisonment for directors, executives and any other officers responsible for the transaction, together will heavy fines for the business and the transaction will be automatically void. Ministers will also be able to unravel deals that have taken place if untruthful or deceptive information was provided.
Vincenzo Senatore, a partner, commented “the National Security and Investment Act supersedes the Enterprise Act 2002 and will be applied retrospectively to transactions made from November 2020. The terms of the new Act have been made with a high degree of flexibility to allow for future evolving national security risks” Vincenzo further mentioned “the triggers for mandatory notification are very stringent and commercial entities will need to make a comprehensive review of any deals undertaken in the designated sensitive areas such as Energy, Communications, and Computing Hardware”.
The triggers related to “change of control” as follows:
- Acquiring over 25 per cent, over 50 per cent or over 75% percent of an entity deemed to be a qualifying entity
- Acquiring sufficient voting rights to prevent or secure a resolution at a shareholder meeting
- Change of control for assets applies if an interest or right to the asset enables the use or the ability to control or direct its use
Whilst the new Act is focused on the aspect of national security particularly related to the 17 sensitive sectors, any qualifying acquisitions has the potential to be reviewed regardless of the sector. However, such a transaction is unlikely to be called in unless the entity is closely linked to the sensitive sectors or falls within the following three risk factors:
- A target risk – the entity is being or could be used in a way that is a threat to national security.
- Acquirer risk – the acquirer may pose a risk to national security
- Control risk – if the control acquired (or will be acquired) threatens national security
Vincenzo warns “foreign acquisitive commercial entities must ensure that any transaction is meticulously reviewed and all legal aspects that could be deemed to comprise a national security risk are re-evaluated and reconsidered”.
Giambrone & Partners corporate and commercial team under Vincenzo Senatore can provide guidance and advice on new transactions as well as retrospective transactions caught by the new Act.