As we previously reported here, in November 2020, the Government published in draft the new National Security and Investment Bill (Bill). If passed, the Bill will introduce a new regime for screening investments for national security concerns and give the Government the power to vet, and in some instances block, transactions that are subject to the new wide-ranging set of notification requirements.
The first draft of the Bill introduced a mandatory notification regime, which is to apply where a transaction falls within one of 17 industry sectors (Mandatory Notification Sectors) and involves either (i) the acquisition of 15% or more of the voting rights or shares in an entity, (ii) an increase in a holding of voting rights or shares in an entity to more than 25%, 50% or 75%, or (iii) an acquisition of voting rights that enables the acquiror to secure or prevent the passage of any class of resolution governing the affairs of the entity.
Change to the Minimum Threshold
On 8 April 2021, an amendment to the Bill was tabled in the House of Lords which would remove the 15% threshold described in (i) above for mandatory notification. If adopted as amended, this means that the lowest entry point to trigger a mandatory notification will be a 25% stake, which is a welcome change and aligns with that of other major foreign direct investment regimes. The amendment does not, however, affect the position as regards the ‘trigger events’ to which the Government’s retrospective ‘call-in’ powers apply. Trigger events are less tightly defined than mandatory notifiable events, and include the acquisition of ‘material influence’ over an entity, which could still involve the acquisition of a shareholding of 15% (or even lower in certain circumstances).
Mandatory Notification Sectors
The Government has also recently published its response to the consultation on the definitions of the Mandatory Notification Sectors in an attempt to provide clarity to businesses that will be affected by these sector definitions.
What deal-makers need to do
While no formal notification process will be available until the enactment and commencement of the Bill, investors, buyers and businesses are encouraged to contact the Department for Business, Energy & Industrial Strategy (BEIS) for informal discussions about transactions that may fall within the scope of the new regime by email at email@example.com. BEIS will then give a non-binding view of whether a transaction is likely to be retrospectively called in once the regime has commenced. We have begun assisting clients with this process.
Early action by investors, buyers and businesses, and their advisers, will be key in order to:
- review and identify transactions that might fall into one of the Mandatory Notification Sectors or be subject to the Government’s call-in powers;
- consider how the Bill may affect transaction timelines, particularly if notification may be required;
- review and update standard investment and acquisition documentation, including template term sheets and precedent contracts, to identify amendments that might be required in light of the Bill (now and when it comes into force); and
- seek further professional advice, where required.
We remain on hand to discuss, and assist with, any of these pre-planning measures.
Overall, these changes head in the right direction – towards a less widely applicable notification regime, with tighter definitions and scope. Concerns about the Bill remain, however, particularly surrounding how the notification and call-in related delays will affect the investment landscape in the UK. We are continuing to work with the BVCA on their efforts to lobby the Government, with a view to minimising the detrimental impact of the Bill.
The Bill was passed by the Lords in its Third Reading, which took place yesterday (22 April 2021). The amendments tabled in the Lords, including to the Minimum Threshold, will next be sent to the Commons to agree, before the Bill receives Royal Assent. The new regime is expected to become operational in Autumn 2021, once secondary and implementing legislation has been passed.