The UK shuts 'the back door' to hostile foreign investment: the new UK national security regime

On 11 November 2020, the UK Government published its long-awaited National Security and Investment Bill (the Bill) in a significant departure from the 2018 White Paper (see our previous briefing).

We set out details on the features of the Bill and the impact on investors in our client briefing here, but have extracted some initial key points below.

The Bill establishes a new screening regime for investments in a wide range of sensitive and strategic sectors, giving the UK Government powers to investigate a broad range of transactions on national security grounds. In a marked departure from the previous UK regime, and in line with stricter regimes in countries such as US and others in Europe, the Bill introduces for the first time in the UK mandatory filing and pre-approval requirements for deals involving specified sectors. This mandatory regime will sit alongside a voluntary notification process, and following notification (or not as the case may be) a UK Government ‘call-in’ power for in-depth national security review to ensure 'there is no back door into the UK' (Alok Sharma, Business Secretary).

The Bill is not expected to become law until Q1-Q2 2021 at the earliest, depending on parliamentary time, and consultation on the precise scope of sectors subject to the mandatory regime is open until 6 January 2021. However, investors involved in deals which may raise national security concerns should already start thinking about the implications of this new regime on deal certainty and timing. Although expected to be used rarely, the Government will be able retrospectively to call-in deals which complete between 12 November and the commencement of the Bill if these give rise to national security concerns and have not been subject to a public interest intervention under the current regime. In addition, deals which have not completed by the time the new regime comes into force, and which satisfy the mandatory notification requirement will need to be notified and cleared before closing.

Additional key features of the new regime

• Statutorily defined timelines for review: unlike the current regime where the Secretary of State enjoys significant discretion on timing, once a deal is notified and the UK Government accepts the notification, the Secretary of State is subject to statutory timelines for their review (namely an initial 30 working day screening period to decide whether to issue a 'call-in' notice and a further 30 working days (extendable by an additional 45 working days or longer by agreement with the acquirer) to decide whether to clear a transaction or whether to impose remedies).
• Minority and asset acquisitions are in scope (note that asset acquisitions are only in scope of the voluntary regime).
• No financial or share of supply thresholds apply.
• Sanctions for non-compliance include fines of up to 5 per cent of worldwide turnover or £10m (whichever is greater) and imprisonment of up to five years.

What do investors need to think about now?

• Deal timeline: if a deal subject to the mandatory regime has not closed before the Bill has commenced, closing will not be permitted until clearance is received and deals will be legally void. Investors must therefore self-assess whether deals may fall under the mandatory regime and build this process into any deal timetable.
• Deal documents: investors currently negotiating deals that may not complete prior to the new regime coming into force should ensure that they include appropriate conditionality, risk allocation measures and long-stop dates for a potential notification and review period.
• Early engagement with UK Government: if the investment involves a business active in a relevant sector or otherwise may raise national security concerns and the Government has not exercised its power under the current regime, parties should assess the risk of intervention and, if appropriate, contact the new Investment Security Unit for informal advice (investment.screening@beis.gov.uk). Early engagement maximises the chances of a shorter review period and an acceptable outcome.

Now is a crucial time to engage with discussions and understand the scope of the final regime in order to anticipate the likely impact on any live transactions and your forward-looking M&A strategies.

Please get in touch with a member of our antitrust, competition and trade team for more information.