The UK’s National Security and Investment Act (NSIA) comes into force in two months. The legislation will introduce a mandatory notification and review system on 4 January 2022. As a transitional matter, this will make it challenging to complete acquisitions of businesses caught by the legislation at the start of the new year. With many deals aiming for a year end close, the implications of even small delays could therefore be more significant than usual. Dealmakers should already consider whether there is a material risk of closing slipping into the new year, and how best to mitigate any potential delays.
The NSIA provides the UK Government with the power to impose conditions, prohibit, or even unwind investments that present a risk to national security. Amongst other things, it will introduce a mandatory filing obligation for certain investments in businesses active in 17 defined sectors including defence, energy, various advanced technologies, communications, and suppliers to government and the emergency services (Qualifying Transactions). Completing a Qualifying Transaction without obtaining approval from the Department for Business Energy and Industrial Strategy (BEIS) is a criminal offence; the maximum penalty is five years in prison and substantial fines for individuals, and corporate fines up to the higher of £10m or 5% worldwide turnover; the underlying transaction would also be void as a matter of UK law.
The mandatory filing requirement will apply to all Qualifying Transactions that complete after 4 January 2022; this will have an unfortunate transitional impact on pending deals, as it is not possible to formally notify a transaction prior to that date. BEIS have 30 working days to review a deal after they accept a filing; and it may be challenging to secure clearance as BEIS is likely to receive a significant number of notifications as soon as the regime comes into force. Accordingly, the implications of missing a 31 December 2021 closing may extend beyond disappointment at not getting the deal done before the year end.
Accordingly, if dealmakers see a material risk of a Qualifying Transaction closing on or after 4 January 2022, they might act start to (a) prepare any necessary filings, and (b) informally engage with BEIS. This would enable the agency staff to make progress ahead of the legislation’s enactment, including to (a) ensure they have sufficient information to accept a filing in short order, and (b) consider any substantive issues. Whilst this may not guarantee an expedited process, it would give merging parties the best possible opportunity to limit delays that might occur when the NSIA comes into force.