Background
The National Security and Investment Act 2021 (the Act) came into force on 4 January 2022. The Act gives the government powers to scrutinise and intervene in acquisitions in order to protect national security. For more background information on the Act, please refer to our comprehensive guide here.
The Market Guidance Notes were published on 19 July 2022, with guidance already available and covering topics including: checking if you need to notify the government about an acquisition that could harm the UK's national security and providing details of the 17 types of notifiable acquisitions under the Act. The Market Guidance Notes are to be read in addition to the other guidance documents and do not supersede them.
The guidance is based on the analysis of the notifications received under the Act and feedback from stakeholders on their experience of the system since its introduction in January.
Significance of this guidance
This new guidance note should prove to be a useful tool to assist parties submitting notifications under the Act, helping to ensure that parties fully understand how the legislation applies to their particular transaction and that their notifications contain sufficient information. This is significant given that a notification may be rejected if it does not meet the requirements for notifications set out in the NSI Act and regulations, or if it does not contain sufficient information for the Secretary of State to make a decision whether to call in or clear the acquisition.
In its National Security and Investment Act 2021 Annual Report 2022, the Department for Business, Energy and Industrial Strategy published statistics relating to notifications made in the first three months of the Act's operation. From a total of 196 mandatory notifications and 25 voluntary notifications received, 7 mandatory notifications and 1 voluntary notification were rejected. The report states that several notifications were rejected because they did not include enough information about the acquisition or parties to it, or the notification covered multiple qualifying acquisitions that should instead have been submitted as two notifications.
It will be interesting to note if the percentage of notifications rejected drops as the new guidance provides clarification preventing such errors, misunderstandings and insufficient information being submitted in notifications.
Content of the guidance
The Market Guidance Notes provide advice on topics including:
Notifications- Avoiding common errors on notifications.
- Submitting a single notification for multiple acquisitions.
- Help for higher education institutions to decide whether to submit a notification.
Temporary acquisitions of control
- The appointment of liquidators or other insolvency measures.
- Whether certain types of acquisitions may be qualifying acquisitions under the NSI Act.
- The granting of security over shares.
- Indirect acquisitions of control.
- Different types of voting rights and mandatory notification.
- Internal corporate reorganisations.
How and when the government will publish information related to the NSI Act
- Review of the operation of the NSI Act processes.
Most interest has been focused on the mandatory notification system, therefore this first set of market guidance notes has a particular focus on whether commonly raised scenarios require mandatory notification.
Avoiding common errors on notifications
The guidance also covers other topics, such as practical advice on filling out the notification forms, with some general tips based on some common issues with the forms the government has received. It then goes on to provide more specific assistance on questions such as the question of which sector(s) are relevant to a notification, providing examples of sufficiently and insufficiently detailed answers. It also sets out similar examples for explaining which trigger events apply to the acquisition.
Submitting a single notification for multiple acquisitions
This section covers instances where the government will and will not accept a single notification for acquisitions of control over multiple qualifying entities and/or assets. For example, where an acquisition involves multiple qualifying entities being acquired by a single acquirer from a single seller, this can be notified to the government as one notification.
Help for higher education institutions to decide whether to submit a notification
The guidance encourages researchers or higher education institutions, who believe their work may be of relevance to the NSI Act and would like further advice, to contact the Research Collaboration Advice Team (RCAT).
The appointment of liquidators or other insolvency measures
The guidance sets out the scenarios where the appointment of a liquidator or a receiver may result in them holding a right or interest in another entity. Their appointment may then require mandatory notification if the notifiable acquisition criteria are met.
The granting of security over shares
The guidance explains that it is not mandatory to notify and receive clearance from the government before granting equitable share security because the granting of share security does not meet the criteria for acquisitions of control. However, if a legal title is transferred or control passes in some other way, and the shares qualify under the Notifiable Acquisition Regulations - a notifiable acquisition has taken place and must be notified.
Indirect acquisitions of control
This section provides examples illustrating that a single notification may be sufficient when an indirect acquisition means that an acquirer has made more than one qualifying acquisition at the same time.
Different types of voting rights and mandatory notification
There are circumstances where parties have contractual rights that may have the effect of securing or preventing the passage of a class of resolution; the government considers that such contractual rights are not covered by the NSI Act on the basis that such contractual rights are not themselves voting rights (provided that such contractual rights do not amount to control of such voting rights).
Internal corporate reorganisations
The government considers that 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. Additionally, the acquisition may be subject to mandatory notification if it meets the relevant tests in the NSI Act. The reason for this being that there may be rare cases where the acquisition of control over an entity by a person in the same business group may raise national security risks.
How and when the government will publish information related to the NSI Act
The government will not publish information regarding the receipt and the acceptance or rejection of individual notifications.
The government may choose to publish information regarding call-in notices or final notifications (clearances) following the review or assessment period – primarily either where the parties disclose such information, or the acquisition is otherwise in the public domain and the Business Secretary considers it is in the public interest to do so.
Review of the operation of the NSI Act processes
The government is monitoring closely how the NSI Act works in practice to determine whether it would be appropriate to make exemptions to the mandatory notification requirements. Any regulations which define exemptions to the mandatory notification system under the NSI Act would be subject to Parliamentary scrutiny.
Looking ahead
The Department for Business, Energy & Industrial Strategy welcomes suggestions for topics to include in future market guidance publications, with the next tranche of Market Guidance Notes scheduled for early 2023.
The guidance notes are available here.
Authors: Jonathan Branton, Dimitris Sinaniotis and Katie Hurst.
