The National Security and Investment Act

The National Security and Investment Act

The National Security and Investment Act came into force on 4th January 2022, and applies to acquisitions and actions which took place on or after 12 November 2020. Designed to strengthen UK national security, the Act enables the government to scrutinise and intervene in certain acquisitions across the entire business sector. However, the Secretary of State will only be able to use the call-in power enabled by the Act if they reasonably suspect that an acquisition may give rise to a risk to national security. [1]

In addition to voluntary notifications in certain circumstances, the Act also highlights seventeen business sectors for which mandatory notifications will be required. Ranging from advanced materials to transport, the mandatory list takes in areas such as communications and energy, as well as computing hardware and data infrastructure. Qualifying activities of businesses closely linked to these seventeen sectors are also more likely to receive scrutiny than other businesses. However it is anticipated that the vast majority of business transactions will not be caught by the Act.

Partially replacing the Enterprise Act 2002, this new Act not only covers straight business acquisitions but also actions which are likely to increase levels of control over the entity or some of its assets. For example, provisions under the Act will be triggered if an individual or organisation’s stake or voting rights in a qualifying entity exceeds 25%, or if an individual or entity is able to materially influence certain actions or policies of another entity.

For the purposes of the Act, qualifying entities cover every form of structure other than an individual. So as well as companies and partnerships, trusts and unincorporated associations also fall under the provisions of the Act. [2] Qualifying assets include land and tangible moveable property, as well as ideas, information or techniques which have industrial, commercial or other economic value.

Interestingly, the Act also draws in some overseas entities which either carry on activities in the UK or supply goods or services to people in the UK. For example, intellectual property registered overseas counts as a qualifying asset if it is used in connection with the supply of goods or services to the UK. Business groups can also fall under the scope of the Act if internal reorganisations result in a potential change of control across different entities.

Commenting on the new Act the Business Secretary Kwasi Kwarteng said: “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.”

 

[1] https://www.gov.uk/government/publications/national-security-and-investment-statement-about-exercise-of-the-call-in-power/national-security-and-investment-act-2021-statement-for-the-purposes-of-section-3

[2] https://www.gov.uk/guidance/national-security-and-investment-act-guidance-on-acquisitions

Alison Griffiths
alison@gerranium.co.uk
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