National Security & Investment Act 2021: Could your transaction be subject to closer scrutiny?

Mandatory notification of business transactions

On 4 January 2022, the National Security & Investment Act 2021 (NSI Act) came into force. For the first time, this introduced a statutory regime for governmental scrutiny of, and potential intervention in, certain business transactions, including acquisitions and investments.

The main purpose of the NSI Act is the protection of national security. However, the breadth of the scope of the ‘qualifying entities’ and ‘notifiable acquisitions’ which are subject its provisions could leave businesses caught unawares.

If a transaction falls within the scope of the NSI regime, a mandatory notification needs to be made, seeking the Secretary of State’s approval to the transaction proceeding. Failing to obtain prior approval will result in the transaction being void and of no effect, and the acquirer may be subject to criminal or civil penalties, including fines or imprisonment.

What transactions are subject to scrutiny under the Act?

In order to be caught, there must be a transaction in which someone acquires rights or interests giving them an element of control over a ‘qualifying asset’ or over a ‘qualifying entity’ which undertakes particular economically higher risk activities in the UK.

What is a qualifying asset?

A ‘qualifying asset’ can be:

• Land
• Tangible moveable property or
• Ideas, information and know how techniques which have economic value

What is an economically higher risk activity?

To be subject to the NSI mandatory notification regime, a qualifying entity must carry on activities in the UK, in one of the following sectors:

• Advanced materials 
• Advanced robotics 
• Artificial intelligence 
• Civil nuclear
• Communications 
• Computing hardware 
• Critical suppliers to the government 
• Cryptographic authentication 
• Data infrastructure 
• Defence
• Energy 
• Military & dual use 
• Quantum technologies 
• Satellite and space technology 
• Suppliers to emergency services 
• Synthetic biology 
• Transport 

Further details of specific activities within these sectors that are caught by the NSI regime are set out on the gov.uk website.

What degree of control needs to be acquired for the NSI regime to be triggered?

The following transactions or events will trigger the NSI regime:

• The acquisition of votes or shares in a qualifying entity which results in the acquirer holding more than 25%, more than 50% or at least 75% of the shares/voting rights
• The acquisition of voting rights that enable or prevent the passing 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 a qualifying asset, granting the ability to use that asset (or to use it to a greater extent than before) or to direct how that asset is used.

If, therefore, you are acquiring a significant interest in a qualifying asset or in a qualifying entity which works in one of the sectors above, it is likely that a ‘notifiable acquisition’ will take place, and a mandatory notification will need to be made.

Mandatory notifications

Mandatory notifications have to be made to the Investment Security Unit through its online portal. Responsibility for making the notification rests with the ‘acquirer’ and they must make it prior to completion of the notifiable acquisition.

Each notification will be either accepted or rejected by the government as soon as practicable after receipt.  A notification will usually be accepted provided it complies with all notification requirements and includes all necessary information. If a notification is rejected, the person making the notification will be notified of the reasons and may be asked to resubmit the notification with the additional requested information. Once a notification is accepted for consideration, the Secretary of State will then have 30 working days to either clear the transaction (and notify the applicant accordingly), or to exercise its call-in power to initiate a full national security assessment of the transaction.

If you would like more information about any of the above, or if you think that a proposed acquisition might fall within the scope of the NSI Act, please do get in touch with our corporate and commercial team for more information.