A new investment screening mechanism introduced by the National Security and Investment Act 2021 will enter into force on 4 January 2022. The mechanism will allow the government to scrutinise and intervene in certain acquisitions to protect national security. The Act is of general application and not specific to foreign investors. It will not apply to acquisitions completed before 12 November 2020. Under the Act, certain acquisitions in one of the defined sensitive areas of the economy will require prior approval and be subject to a mandatory notification requirement. According to a Draft notifiable acquisition statutory instrument (published on 20 July 2021), the 17 sectors of the economy that will be subject to the mandatory notification requirements are the following:
Advanced Materials, Advanced Robotics, Artificial Intelligence, Civil Nuclear, Communications,Computing Hardware, Critical Suppliers to Government, Cryptographic Authentication,Data Infrastructure, Defence, Energy, Military and Dual-Use, Quantum Technologies, Satellite and Space Technologies, Suppliers to the Emergency Services, Synthetic Biology, Transport.
On 4 January 2022, the National Security and Investment Act 2021 and its implementing regulations entered into force. The Act sets investment screening in the United Kingdom on a new footing and replaces the previous mechanism under the Enterprise Act. The new rules allow the United Kingdom’s authorities to scrutinise, impose conditions on, and block acquisitions that pose an undue risk to the country’s national security interests. Among others, the new framework also requires mandatory notification for acquisitions of certain entities in seventeen areas of the United Kingdom’s economy and gives the competence to the Secretary of State to exercise a call-in power regarding certain acquisitions and under certain conditions.
"PART 1 - Call-in for national security [...]
Call-in power
1Call-in notice for national security purposes
(1)The Secretary of State may give a notice if the Secretary of State reasonably suspects that—
(a)a trigger event has taken place in relation to a qualifying entity or qualifying asset, and the event has given rise to or may give rise to a risk to national security, or
(b)arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event taking place in relation to a qualifying entity or qualifying asset, and the event may give rise to a risk to national security.
(2)For the purposes of this Act, in considering whether a trigger event has taken place, or whether arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event taking place, the effect of section 13(1) (notifiable acquisitions that are void) must be disregarded.
(3)A notice under subsection (1) is referred to in this Act as a call-in notice.
[...]
2 Further provision about call-in notices [...]
(2)Subject to subsections (3) and (4), a call-in notice given on the grounds mentioned in section 1(1)(a)—
(a)may not be given after the end of the period of 6 months beginning with the day on which the Secretary of State became aware of the trigger event, and
(b)may not be given after the end of the period of 5 years beginning with the day on which the trigger event took place.
(3)Subsection (2)(b) does not apply where the trigger event is one in relation to which section 13(1) has effect.
(4)In relation to a trigger event taking place during the period beginning with 12 November 2020 and ending with the day before commencement day, a call-in notice given on the grounds mentioned in section 1(1)(a)—
(a)if the Secretary of State became aware of the trigger event before commencement day, may not be given after the end of the period of 6 months beginning with commencement day,
(b)if the Secretary of State became aware of the trigger event on or after commencement day—
(i)may not be given after the end of the period of 6 months beginning with the day on which the Secretary of State became aware of the trigger event, and
(ii)may not be given after the end of the period of 5 years beginning with commencement day.
(5)In this section “commencement day” means the day on which this section comes into force.
[...]
CHAPTER 2
Interpretation
5Meaning of “trigger event” and “acquirer”
(1)For the purposes of this Act, a “trigger event” takes place when—
(a)a person gains control of a qualifying entity, as set out in section 8, or
(b)a person gains control of a qualifying asset, as set out in section 9.
(2)In this Act “acquirer” means the person who gains the control referred to in subsection (1) (or in relation to a trigger event that has not yet taken place, would gain that control).
6Notifiable acquisitions
(1)The Secretary of State may make regulations for the purposes of this section (“notifiable acquisition regulations”).
(2)A notifiable acquisition takes place when a person gains control, by virtue of one or more of the cases described in subsection (2), (5) or (6) of section 8, of a qualifying entity of a specified description.J11
(3)But a notifiable acquisition does not take place if complying with the requirement to give a mandatory notice under section 14(1) would be impossible for the person within subsection (2).
(4)A description of qualifying entity that is specified must include provision that the entity carries on activities in the United Kingdom which are of a specified description (whether or not it also carries on other activities).
[...]
(8)In this section “specified” means specified in notifiable acquisition regulations.
7Qualifying entities and assets
(1)This section defines “qualifying entity” and “qualifying asset” for the purposes of this Act.
(2)A “qualifying entity” is (subject to subsection (3)) any entity, whether or not a legal person, that is not an individual, and includes a company, a limited liability partnership, any other body corporate, a partnership, an unincorporated association and a trust.
(3)An entity which is formed or recognised under the law of a country or territory outside the United Kingdom is a “qualifying entity” only if it—
(a)carries on activities in the United Kingdom, or
(b)supplies goods or services to persons in the United Kingdom.
(4)A “qualifying asset” is (subject to subsection (6)) an asset of any of the following types—
(a)land,
(b)tangible (or, in Scotland, corporeal) moveable property,
(c)ideas, information or techniques which have industrial, commercial or other economic value.
(5)Examples of assets within subsection (4)(c) include—
(a)trade secrets,
(b)databases,
(c)source code,
(d)algorithms,
(e)formulae,
(f)designs,
(g)plans, drawings and specifications,
(h)software.
(6)Land or moveable property situated outside the United Kingdom or the territorial sea, or any asset within subsection (4)(c), is a “qualifying asset” only if it is used in connection with—
(a)activities carried on in the United Kingdom, or
(b)the supply of goods or services to persons in the United Kingdom.
8Control of entities
(1)For the purposes of this Act, a person gains control of a qualifying entity if the person acquires a right or interest in, or in relation to, the entity and as a result one or more of the cases described in this section arises.
(2)The first case is where the percentage of the shares that the person holds in the entity increases—
(a)from 25% or less to more than 25%,
(b)from 50% or less to more than 50%, or
(c)from less than 75% to 75% or more.
(3)In subsection (2), the reference to holding a percentage of shares is—
(a)in the case of an entity that has a share capital, to holding shares comprised in the issued share capital of the entity of a nominal value (in aggregate) of that percentage of the share capital,
(b)in the case of an entity that does not have a share capital, to holding a right to a share of that percentage of the capital or profits of the entity,
(c)in the case of a limited liability partnership, to holding a right to a share of that percentage of any surplus assets of the partnership on a winding up.
(4)For the purposes of subsection (3)(c), to the extent that rights to share in any surplus assets of the limited liability partnership on a winding up are not expressly provided for, each member of the partnership is to be treated as holding the right to an equal share of such assets.
(5)The second case is where the percentage of the voting rights that the person holds in the entity increases—
(a)from 25% or less to more than 25%,
(b)from 50% or less to more than 50%, or
(c)from less than 75% to 75% or more.
(6)The third case is where the acquisition is of voting rights in the entity that (whether alone or together with other voting rights held by the person) enable the person to secure or prevent the passage of any class of resolution governing the affairs of the entity.
(7)In subsections (5) and (6), a reference to the voting rights in an entity is—
(a)in the case of an entity that has a share capital, to the rights conferred on shareholders in respect of their shares to vote at general meetings of the entity on all or substantially all matters,
(b)in the case of an entity that does not have a share capital, to the rights conferred on members to vote at general meetings of the entity on all or substantially all matters,and, in the case of an entity that does not have general meetings at which matters are decided by such votes, includes any rights in relation to the entity that are of the equivalent effect.
(8)The fourth case is (subject to subsection (9)) where the acquisition, whether alone or together with other interests or rights held by the person, enables the person materially to influence the policy of the entity.
(9)Subsection (8) does not include a case where the person already holds any interest or right that enables the person materially to influence the policy of the entity.
9 Control of assets
(1)For the purposes of this Act, a person gains control of a qualifying asset if the person acquires a right or interest in, or in relation to, the asset and as a result the person is able—
(a)to use the asset, or use it to a greater extent than prior to the acquisition, or
(b)to direct or control how the asset is used, or direct or control how it is used to a greater extent than prior to the acquisition.This is subject to section 11.
(2)In this section, references to the use of an asset include references to its exploitation, alteration, manipulation, disposal or destruction.
[...]
11Exceptions relating to control of assets
(1)For the purposes of this Act a person is not to be regarded as gaining control of a qualifying asset by reason of an acquisition made by an individual for purposes that are wholly or mainly outside the individual’s trade, business or craft.
(2)Subsection (1) does not apply in relation to an asset that—
(a)is land, or
(b)falls within any of the following (as it has effect from time to time)—
(i)the Schedule to the Export of Radioactive Sources (Control) Order 2006 (S.I. 2006/1846),
(ii)article 4A of, or Schedule 2 or 3 to, the Export Control Order 2008 (S.I. 2008/3231),
(iii)Annex I or IV to Council Regulation (EC) No 428/2009 of 5 May 2009,
(iv)Annex I to Regulation (EU) No 258/2012 of the European Parliament and of the Council of 14 March 2012,
(v)Annex II or III to Regulation (EU) 2019/125 of the European Parliament and of the Council of 1 January 2019.
[...]
CHAPTER 3
Approval of notifiable acquisition
13Approval of notifiable acquisition
(1)A notifiable acquisition that is completed without the approval of the Secretary of State is void.
(2)The Secretary of State may approve a notifiable acquisition by—
(a)giving a notification under section 14(8)(b)(ii),
(b)making a final order under section 26, subject to subsection (3),
(c)giving a final notification under section 26.
(3)A notifiable acquisition, in relation to which a final order has been made, that is completed otherwise than in accordance with the final order, is void.
CHAPTER 4
Procedure
Procedure in respect of notifiable acquisition
14Mandatory notification procedure
(1)Subject to subsection (2), a person must give notice to the Secretary of State before the person, pursuant to a notifiable acquisition, gains control in circumstances falling within section 6(2).
(2)Subsection (1) does not apply if the Secretary of State has already given a call-in notice, which has not been revoked, in relation to the proposed notifiable acquisition.
(3)A notice under subsection (1) is referred to in this Act as a mandatory notice.
(4)The Secretary of State may by regulations prescribe the form and content of a mandatory notice.
(5)As soon as reasonably practicable after receiving a mandatory notice, the Secretary of State must decide whether to reject or accept the notice.
(6)The Secretary of State may reject the mandatory notice on one or more of the following grounds—
(a)it does not meet the requirements of this section,
(b)it does not meet the requirements prescribed by the regulations,
(c)it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice in relation to the proposed notifiable acquisition.
(7)If the mandatory notice is rejected, the Secretary of State must, as soon as practicable, provide reasons in writing for that decision to the person who gave the notice.
(8)If the mandatory notice is accepted, the Secretary of State must—
(a)as soon as practicable, notify each relevant person, and
(b)before the end of the review period—
(i)give a call-in notice in relation to the proposed notifiable acquisition, or
(ii)notify each relevant person that no further action will be taken under this Act in relation to the proposed notifiable acquisition.
(9)The “review period” is the period of 30 working days beginning with the day on which the notification under subsection (8)(a) is given to the person who gave the mandatory notice.
(10)In this section “relevant person” means the person who gave the mandatory notice and such other persons as the Secretary of State considers appropriate.
[...]
18Voluntary notification procedure
(1)This section does not apply in relation to—
(a)arrangements which would result in a notifiable acquisition,
(b)a trigger event that is, or includes, a notifiable acquisition.
(2)A seller, acquirer or the qualifying entity concerned may give a notice to the Secretary of State stating that —
(a)a trigger event has taken place in relation to a qualifying entity or a qualifying asset, or
(b)arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event taking place in relation to a qualifying entity or a qualifying asset.
(3)A notice under subsection (2) is referred to in this Act as a voluntary notice.
(4)The Secretary of State may by regulations prescribe the form and content of a voluntary notice.
(5)As soon as reasonably practicable after receiving the voluntary notice, the Secretary of State must decide whether to reject or accept the notice.
(6)The Secretary of State may reject the voluntary notice on one or more of the following grounds—
(a)it does not meet the requirements of this section,
(b)it does not meet the requirements prescribed by the regulations,
(c)it does not contain sufficient information to allow the Secretary of State to decide whether to give a call-in notice,
(d)there is no reasonable prospect of being able to give a call-in notice due to the operation of the time-limits in subsection (2) or (4) of section 2.
(7)If the voluntary notice is rejected, the Secretary of State must, as soon as practicable, provide reasons in writing for that decision to each relevant person.
(8)If the voluntary notice is accepted, the Secretary of State must—
(a)as soon as practicable, notify each relevant person, and
(b)before the end of the review period—
(i)give a call-in notice in relation to the trigger event, or
(ii)notify each relevant person that no further action will be taken under this Act in relation to the trigger event.
(9)The “review period” is the period of 30 working days beginning with the day on which the notification under subsection (8)(a) is given to the person who gave the voluntary notice; but this does not affect the operation of the time-limits in subsections (2) and (4) of section 2.
(10)In this section—
“relevant person” means the person who gave the voluntary notice and such other persons as the Secretary of State considers appropriate,
“seller”, in relation to a trigger event, means a person who has ceded control of the qualifying entity or a qualifying asset (or in relation to a trigger event that has not yet taken place, would cede that control).[...]" (National Security and Investment Act 2021 (UKPGA 2021 c. 25), original, as enacted, Sections 1, 2, 5, 6, 7, 8, 9, 11, 13, 14 and 18)
National Security and Investment Act 2021 (UKPGA 2021 c. 25), original, as enacted, Sections 1, 2, 5, 6, 7, 8, 9, 11, 13, 14 and 18
[<a href="https://www.legislation.gov.uk/ukpga/2021/25/contents/enacted">Act</a>],[<a href="https://www.gov.uk/government/publications/national-security-and-investment-act-draft-notifiable-acquisition-statutory-instrument">Other</a>],[<a href="https://www.gov.uk/government/publications/national-security-and-investment-act-prepare-for-new-rules-about-acquisitions/national-security-and-investment-act-prepare-for-new-rules-about-acquisitions-which-could-harm-the-uks-national-security">Other</a>],[<a href="https://www.gov.uk/government/publications/national-security-and-investment-act-guidance-on-notifiable-acquisitions/national-security-and-investment-act-guidance-on-notifiable-acquisitions">Other</a>],[<a href="https://www.gov.uk/government/publications/national-security-and-investment-act-2021-guidance-for-new-build-downstream-gas-and-electricity-assets/applicability-of-the-national-security-and-investment-act-2021-to-new-build-downstream-gas-and-electricity-assets">Other</a>]