Manchester, UK

Buyers in the UK beware – and sellers too!

By Ammarah Shamim and Paul Johnson, Ward Hadaway LLP

What’s happened? On 04 January 2022, the UK introduced a new set of rules known as the National Security and Investment Act 2021 (the “Act”). This gives the government the right to investigate and sometimes ban certain business transactions that involve sectors of the economy seen as ‘sensitive’ to national security.

Why

The Act has been introduced to protect the UK’s national security from hostile foreign parties using their influence or ownership over UK businesses and assets wherever situated. It equally applies to domestic acquirers and investors.

Who is affected?

The new rules apply to qualifying acquisitions in certain ‘sensitive’ sectors which are described as “trigger events” in the Act. An example of one of many listed trigger events is the acquisition of voting rights which allows or prevents the passing of a company resolution governing company affairs. The significant thresholds are 25%, 50% and 75%.

What sectors are ‘sensitive’?

There are 17 ‘sensitive’ sectors which are notifiable in accordance with the Act. Some of these would appear to be fairly obvious such as Civil Nuclear Defence, Energy and Satellite and Space Technologies. But others are potentially more broad ranging in their scope, such as Advanced Materials, Computing hardware and Transport. A complete list of the sectors together with exceptions can be found at National Security and Investment Act: guidance on notifiable acquisitions - GOV.UK (www.gov.uk).

How does it work?

If an acquisition falls within one or more of the ‘sensitive’ sectors and does not fall under one of the exceptions, a mandatory notification will be required to the Investment Security Unit (ISU). There is a legal requirement to tell the government about the acquiring entities. In the event that a transaction does not trigger a mandatory notification, but a threat to a national security interest exists, a voluntary notification may still be required to enable the ISU on behalf of the government to form assessments as to whether to exercise its ‘call in’ powers.

What are “call in” powers”?

The Act, somewhat unusually for UK legislation, has retrospective effect giving the government the power to “call in” any transaction which completed on or after 12 November 2020 and which raises national security concerns. “Call in” powers can be exercised for up to 6 months from the Secretary of State becoming aware of the transaction, within a 5 year longstop period (this long-stop period shall not apply to mandatory notifications).

What is the ISU?

The ISU is a new operational unit which has been set up to process notifications relating to national security concerns. The ISU has 30 working days from notification to carry out an initial assessment of the transaction. Thereafter, if a more detailed review is deemed necessary, a second 30 working day period begins, which can be further extended by an additional 45 working days.

Are there sanctions for non-compliance?

Yes there are stringent sanctions. Any qualifying acquisition taking place without prior consent shall be void. Failure to comply with the Act could also lead to heavy penalties and criminal liability, including hefty fines and imprisonment for individuals.

What to do next?

Anybody contemplating a sale or an acquisition in the UK needs to be alert to these new rules. Parties should consider the impact of the Act on any pending/current transactions falling within the ‘sensitive’ sectors. Sellers should anticipate extensive due diligence by buyers, with time specifically built into transaction timetables to allow for the ISU to complete its review. The subsequent consequences of getting this wrong are serious therefore, specific advice should be taken where there are concerns about the sector in which a transaction takes place.


Paul Johnson

Paul Johnson

GGI member firm
Ward Hadaway LLP
Advisory, Law Firm Services
Newcastle upon Tyne, Leeds, Manchester, UK
T: +44 (0)330 137 3200
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Ward Hadaway is one of the largest full-service law firms in the north of England, with a reputation for quality, innovation, and a practical approach to meeting their clients’ needs. With 90+ partners and over 425+ staff, the firm’s approach of partner-led relationships with all clients is supported by a wealth of expertise and experience.

Paul Johnson is Corporate Partner in Ward Hadaway’s Manchester office. He deals with a wide range of corporate matters including Mergers and Acquisitions and Private Equity, acting for management and institutions. Paul regularly acts for ownermanaged businesses and has a particular interest in family-owned companies.
Ammarah Shamim

Ammarah Shamim

GGI member firm
Ward Hadaway LLP
Advisory, Law Firm Services
Newcastle upon Tyne, Leeds, Manchester, UK
T: +44 (0)330 137 3200
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Ammarah Shamim is Corporate Solicitor in Ward Hadaway’s Manchester office. She assists clients with various transactional matters including Mergers and Acquisitions, Private Equity Investments and Corporate Restructures.


Published: M & A Newsletter, No. 02 Spring 2022 l Photo: dudlajzov - stock.adobe.com

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