Investors take note: NSI Bill brings in major change to UK investment screening regime

The much anticipated National Security and Investment Bill has introduced a major change in the screening of investment into UK businesses and could impact almost all types of business and investment.

This proposed increase in screening of investment by the UK Government (with the overall aim of protecting national security) follows a global trend towards more regulation in relation to foreign investment. The proposed regime is similar to CFIUS in the US and the FDI rules in France and Germany and follows a more recent FDI regime imposed at the EU level. The breadth and depth of the Bill go much further than was anticipated and, given its retrospective application to 12 November 2020, it needs to be considered now.

For a full summary of the key provisions of the Bill, see our client note.

For a quick read here are the key takeaway points:

• Timescales: transactions that complete between 12 November 2020 and the commencement date of the Bill (expected late summer 2021) can be called-in retrospectively; so investors need to consider this for current transactions;
• Mandatory pre-notification and clearance are required in 17 key sensitive sectors (still to be fully defined); any breach of this can render the transaction null and void;
• Voluntary notification where there is a national security risk is also required;
• There are defined trigger events for the notification (both mandatory and voluntary), based around control;
• The voluntary part of the regime applies not only to M&A deals but also to the purchase of assets including IP and land, so a wide range of investments, including property, can also be caught; and
• The Secretary of State will have wide powers including the power to ‘call-in’ transactions after completion where there is a national security risk, and also wide powers to request information;
• Actions the Government can take include blocking a deal, approving it but with conditions, or giving clearance;
• Sanctions for non-compliance are severe and include: for individuals – up to 5 years in prison and disqualification as a director; and for companies – fines of the higher of 5% of worldwide turnover and £10m;
• The Bill is not restricted to investors or purchasers outwith the UK – it does not distinguish between international and domestic investors and applies to any business in the UK (or which supplies goods or services in the UK);
• Until the Bill is passed as law the current rules under the Enterprise Act 2002 apply, but given that the Bill can be applied retrospectively, both will need to be considered in this interim period.

Practical tips:

• BEIS is welcoming informal discussions on current transactions that may fall within the regime. This may be useful to give comfort for current deals;
• Increased diligence on purchasers or investors can be expected;
• Increased deal timescales and costs can also be expected; and
• More conditional deals will be required – to allow for notification and clearance.

The Government has made clear that the purposes of this Bill is to facilitate investment in the UK by creating a clear process for notification and screening, whilst also protecting national security. However it is yet to be seen how this will be enforced in practice, and some parts of the Bill require more clarity. In the meantime, investors would be wise to take advice on how this impacts their UK investments.

If you have any questions or would like to discuss the impact that the regime could have on your business, please contact Catriona Macallan here.

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