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The National Security and Investment Act 2021 (NSI) is a significant piece of new legislation which establishes a stand-alone statutory regime for government scrutiny of, and intervention in, acquisitions and investments for the purposes of protecting national security.

The government has indicated that the NSI will be fully implemented on 4th January 2022 and its new regime will replace the national security aspects of the government’s current powers of intervention under the Enterprise Act. The NSI will introduce both a mandatory and voluntary notification regime in respect of notifiable acquisitions concerning qualifying entities/assets, as well as “call-in” powers for the government to scrutinise transactions that it becomes aware of and which it believes pose a national security risk.   

The new regime includes the following:

A Mandatory Notification Procedure

A mandatory notification to obtain authorisation and approval from the Secretary of State for Business, Energy and Industrial Strategy (Secretary of State) will need to be made by acquirers of shares or voting rights of more than 25% in qualifying entities (see below) undertaking specified activities in the UK in 17 specific sectors (see below) of the economy before completing their acquisition. If a transaction (which was notifiable) is completed without being approved by the Secretary of State, the transaction will be void and of no legal effect. There is however, a mechanism which will allow the Secretary of State to retrospectively validate a non-approved notifiable transaction.

A Voluntary Notification Procedure

Parties will also have the ability to voluntarily notify the Secretary of State where they consider that their transaction may raise national security concerns. It is suggested that a voluntary notification should be made if it is likely that the transaction will be called in for review.

A Government Call-In Power

The Secretary of State will also be granted the power to call in for review any transaction within the scope of the act where there is a reasonable suspicion that it could give rise to a national security risk. A call-in notice may be issued at any time while the transaction is in progress or contemplation, or within six months of the Secretary of State becoming aware of a completed transaction, provided this occurs within five years of the transaction completing. The call-in power will also operate retrospectively to capture in-scope transactions raising national security concerns which were completed between 12th November 2020 and 4th January 2022.

What is a Qualifying Entity or Asset?

A qualifying entity for the purpose of the NSI will include:

  • UK companies, limited liability partnerships and any other bodies corporate; and
  • UK partnerships, unincorporated associations and trusts.

A qualifying asset for the purpose of the NSI will include:

  • Land;
  • Tangible moveable property; and
  • Ideas, information or techniques which have industrial, commercial or other economic value, and which are used in connection with either activities carried out in the UK, or the supply of goods or services to persons in the UK. Examples of the type of assets within this category include trade secrets, databases, source code, algorithms, formulae, designs, plans, drawings and specifications and software.

What transactions will fall within the scope of the NSI?

The NSI will apply to specified categories of transactions or investments that involve the acquisition of control over certain qualifying entities or qualifying assets. The following “trigger events” under the NSI will bring a transaction within the scope of the act:

  • The acquisition of votes or shares in a qualifying entity exceeding thresholds of 25%, 50% or 75%;
  • The acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of the qualifying entity;
  • The acquisition of material influence over a qualifying entity’s policy; or
  • The acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to:
    • use the asset, or use it to a greater extent than prior to the acquisition; or
    • direct or control how the asset is used, or direct or control how the asset is used to a greater extent than prior to the acquisition.

Key Sectors Relevant to Mandatory Notifications

A mandatory notification will be required in respect of notifiable acquisitions of qualifying entities (mandatory notifications do not apply to transactions of qualifying assets) in the following industry sectors:

Advanced MaterialsDefence
Advanced RoboticsEnergy
Artificial IntelligenceMilitary and Dual Use
Civil NuclearQuantum Technologies
CommunicationsSatellite and Space Technologies
Computing HardwareSuppliers to the Emergency Services
Critical Suppliers to GovernmentSynthetic Biology
Cryptographic AuthenticationTransport
Data Infrastructure 

If you would like further information in relation to the NSI, please see the Government guidance in preparation for the commencement of the act this coming January 2022.

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