The National Security and Investment Act 2021

This guide addresses 10 key questions on a voluntary notice under the Act. An introductory guide to the Act is available here.

1 What is a voluntary application?

The Act applies to the acquisition of a qualifying interest in an entity or an asset that has a connection with the UK. Certain qualifying transactions must be notified. If the mandatory pre-notification rules do not apply, the transaction can still be assessed by the government and the first step by the government would be the issuance by the government of a call-in notice (which it can issue if it has a reasonable suspicion that the transaction gives rise to a national security risk). If the parties consider it possible that a call-in notice would be issued, the parties can submit a voluntary notice.

2 When would you submit a voluntary notice?

A voluntary notice can be submitted either before or after completion of the transaction.

2.1 Submission before completion

If a voluntary notice is submitted prior to completion the process can be pursued to its natural conclusion before entering into the binding agreement to purchase the target business and the related consequences of doing so. Alternatively and more likely the parties would include a condition in the sale and purchase agreement, such that the voluntary notice is submitted after exchange (signing), with completion occurring only after the transaction is cleared by the government. The potential benefit to a purchaser in obtaining approval before completion is that they can complete the transaction safe in the knowledge that the government will not subsequently seek to review it on national security grounds.

2.2 Submission after completion

If it is submitted after completion and issues arise during the assessment by the government, the government can impose conditions on the businesses concerned, including divestment. The government can use its call-in power any time within six months of it being aware of a qualifying transaction or five years from completion of the qualifying transaction, which ever is the earlier. The precautionary approach, therefore, would be to submit a voluntary notice before completion. Importantly, in deciding whether or not to issue a call-in notice in relation to a completed transaction the government will make its assessment of the risk to national security at the time of its consideration, not at the time of completion of the transaction. A consequence is that the risk of a call-in notice may be triggered due to a change of circumstances. For example, P buys T (a chemical company) from S. Mandatory notification is not required, and although some consider there is a level of risk associated with P, a voluntary notice is not submitted. No call-in notice is issued (the parties doubt the government is aware of the existence of the transaction). Since the acquisition T’s research activities enter a closely related area, namely advanced materials, and three years after the acquisition it achieves a major breakthrough, with the result that T becomes an important player in the production of a key advanced material used for the latest generation of batteries. The government becomes aware of this and of the transaction and issues a call-in notice.

3 What are the key issues to consider?

If the parties consider it possible that a call-in notice would be issued, the parties can submit a voluntary notice. A call-in notice will be issued if the government is aware of the transaction and holds a reasonable suspicion that there would be a risk to national security. The government has indicated it expects to issue a call-in notice for between 70 and 95 transactions each year.

The most likely candidate acquisitions to be subject to a call-in notice are those that occur in any of the 17 sectors* of the economy that are subject to mandatory notice under the Act and in relation to which either (i) no notice has been received, or (ii) control by the purchaser is (to be) acquired not by the level of shares held, but by other interests such that the purchaser has a material influence over the target business, (transaction creating this form of control are not subject to the mandatory notification regime).

The most likely candidate acquisition to be subject to a call-in notice is the acquisition of an asset in any of the 17 sensitive areas of the economy, it being noted that mandatory notifications apply only where the target is an entity, not an asset.

The next most likely candidate transaction to be subject to a call-in notice is one that occurs in an area of the economy that is closely linked to one of the 17 sectors, for example, it can be said to be in the transport sector but does not strictly fall within the definition of transport under the relevant provisions.

The risk factors the government will take into account and thus the factors parties should consider when contemplating submitting a voluntary notice are: (i) the target risk – could the target be used in a way that poses a risk to national security; (ii) acquirer risk – does the acquirer have characteristics that suggest a risk to national security from it gaining control of the target; and (iii) the control risk – subject to the above a higher level of control over the target may increase the level of national security risk.

*The 17 sectors

• Advanced Materials
• Advanced Robotics
• Artificial Intelligence
• Civil Nuclear
• Communications
• Computing Hardware
• Critical Suppliers to Government
• Cryptographic Authentication
• Data Infrastructure
• Defence
• Energy
• Military and Dual-Use
• Quantum Technologies
• Satellite and Space Technologies
• Suppliers to the Emergency Services
• Synthetic Biology
• Transport

4 What is a national security risk?

The Act does not define or describe what is a national security risk. The government’s intention in doing so is to give itself sufficient flexibility to protect the nation.

There has historically been scope for the government to intervene on national security grounds under the merger control rule. In describing when it would use that intervention power, the government has identified it would be used where it considers the acquisition could put lives and protecting the UK way of life at risk in three different manners:

• the greater opportunity to undertake disruptive or destructive actions or an increase in the impact of such action;
• increased access (to businesses, physical assets, people, operations or data) and ability to undertake espionage; and
• the ability to exploit an investment to dictate or alter services or to utilise ownership or control as inappropriate leverage in other negotiations.

This offers an indication of the government’s consideration of an acquisition. As cases are assessed under the Act, it is expected that additional insights will be obtained.

5 Can guidance be obtained in advance?

Informal discussions with government can occur and this may provide some comfort to the parties that their concerns are more theoretical than real. However, such discussions do not constitute guidance and are not binding on the government.

6 What aspects of the process are public information?

Public statements by the parties to a transaction concerning a publicly listed company usually includes a basic statement that a transaction is conditional on obtaining regulatory consents. It is possible that statements specifying the Act will be included, particularly in order to manage comment or speculation by journalists. Often for private transactions, particularly large transactions, such statements are also made by the parties.

Information obtained by the government during its assessment may be disclosed to other public authorities in the UK and to the public authorities of other countries. A constraint on this is that data protection legislation must not be contravened.

Should the government decide there is a national security concern and so issue a final order that blocks or imposes conditions on a transaction, the government will publish a summary of the final order.

7 How long does the process take?

Prior to the submission of a voluntary notice, the parties may wish to consult informally with the government. 

The voluntary notice is submitted and the government, as soon as reasonably practicable, will accept it unless it rejects it because it is incomplete. If accepted, the government will inform the applicant and, within 30 working days of this communication, it will either consent to the transaction by issuing a no-further action notice or it will issue a call-in notice.

If a call-in notice is issued, the government has an initial assessment period of 30 working days, by which time it will either issue a no-further action notice so ending the matter or subject the transaction to an additional assessment of up to 45 working days. By the end of this additional assessment period the government will either issue a no-further action notice, agree with the purchaser a voluntary extension in time, or issue a final order blocking the transaction or imposing conditions on the transaction.

The time periods above are suspended at any point when the government issues an information notice and resumes when the government confirms that the notice has been complied with or the time given to comply has passed. The same applies to notices to attend meetings.

The timeline is typically between 30 to 60 working days (that is, six to twelve weeks) and up to 105 working days for atypical cases (that is, almost five months). In practice the timeline can be longer due to suspensions of the timeline.

8 What does a voluntary application involve?

A form must be completed and submitted via an online portal that the government has established. The completeness of the notification will be checked by the government and if not complete, the notification may be rejected. The form requires information around three subjects:

• The first subject is factual information about the parties to the transaction, including the purchaser and whether any government has a role in the purchaser. It also requires a description of the transaction.
• The second subject is a description of the target entity or asset, whether any technology of the target has military applications and whether the entity is included on a government protected list (e.g., list X site, being a non-government site that is listed as ‘secret’ typically because it is involved in defence research or manufacturing).
• The third subject is information that might be relevant to the government’s assessment of the transaction.

This last subject is the most sensitive. It is also the most difficult. Parties do not wish to raise hypothetical concerns or otherwise suggest there is an issue when they believe there is none. Downplaying possible concerns will be a common approach. Not including elements that are relevant, however, raises the serious risk of financial and criminal penalties for providing false or misleading information.

9 Is there a notification fee?

No.

10 Do I need to notify the transaction to any other bodies?

Notification under the Act is in addition to any notifications that should be made. For example, a notification under the Act and under the competition merger control provisions of the Enterprise Act 2002 may be appropriate. A consent obtained in relation to a transaction under another regulatory regime does not mean that approval can be assumed under the Act.