The UK National Security and Investment (NSI) Act entered into force on 4 January 2022, introducing a new standalone UK regime for the review of qualifying transactions and investments on national security grounds (see our detailed briefing on the regime here).
On 19 July 2022, the UK Government published a set of Market Guidance Notes (Guidance) based on analysis and feedback from the first 6 months of the NSI Act’s operation. The Guidance addresses practical points in relation to notifications and acquisitions of control under the Act, and circumstances in which the Government may publish information going beyond its statutory obligations. It also provides helpful clarity in relation to certain issues that have caused uncertainty for investors and practitioners. The Government has indicated that it will publish a further tranche of Market Guidance Notes in early 2023, and has welcomed suggestions for topics to include in future publications. We set out in further detail below some of the key points covered by the Guidance:
Submitting a single notification for multiple acquisitions of control
- The Government has clarified that in the following instances it will accept a single notification for acquisitions of control over multiple qualifying entities and/or assets:
- Where a qualifying acquisition involves multiple qualifying entities or assets being acquired by a single acquirer from a single seller;
- Purely internal corporate restructurings.
The appointment of liquidators or other insolvency measures
- The appointment of liquidators or receivers may give rise to a qualifying acquisition under the Act (for example where a liquidated entity holds shares in a solvent entity, over which a liquidator / receiver gains voting rights).
Granting of security over shares
- The Government has clarified that the granting of share security is not a notifiable acquisition requiring mandatory notification under the Act, even if it involves an entity carrying on activities covered by the mandatory notification sectors. This issue in particular has caused considerable uncertainty for the lending and finance industry, and the additional guidance on this point is to be welcomed.
- Notwithstanding this, if legal title is transferred or control passes in some other way, and the relevant shares qualify under the mandatory notification sectors, a transaction must still be notified and cleared prior to completion. This includes in particular the creation of Scots law share pledges, where title to the shares is transferred to the secured lender or its nominee.
Different types of voting rights
- The Government has confirmed that the trigger event in Section 8(6) of the NSI Act (acquisitions of voting rights that enable a person to secure or prevent the passage of any class of resolution governing the affairs of the target entity) is targeted at companies and non-company entities that set alternative thresholds for resolutions (or their equivalent).
- The Government has reaffirmed that purely internal reorganisations can be qualifying acquisitions where they result in an acquisition of control over a qualifying entity, even if the ultimate beneficial owner of the entity remains the same.
- The Government has maintained that internal reorganisations may in its view raise national security risks, however it appears to have acknowledged that this would be rare in practice.
- This confirms the position in the NSI Act that companies operating in one or more of the 17 sectors where filings are mandatory need to secure NSI clearance before implementing any internal reorganisations.
Publication of information related to the NSI Act
- The Government notes that it is not obliged under the NSI Act to publish information about individual acquisitions prior to a final order being made (although it is required to publish notice of the fact that a final order has been made).
- The Guidance sets out scenarios in which the Government may exercise its discretion and make additional announcements in relation to call-in notices, clearances and interim orders (a recent example is the Government’s press release of 25 May 2022 announcing that the acquisition by Nexperia of Newport Wafer Fab had been called in).
Exemption of certain businesses / investors
- There are currently no specific plans to exempt certain businesses and investors from the mandatory notification requirements under the NSI Act. The Government states it is monitoring the operation of the Act to determine whether it would be appropriate to make any such exemptions (which would be subject to Parliamentary scrutiny).
For further information, please contact:
Veronica Roberts, Herbert Smith Freehills