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National Security and Investment Act 2021

The National Security and Investment Act 2021 (the ‘Act’) received Royal Assent on 29 April 2021, granting the UK Government new powers to scrutinise investments on national security grounds. The Act is expected to come into force by the end of 2021. In this briefing we recap the Act, review its entry into force including retrospective provisions and consider the Government’s proposed revised definitions of three of the Act’s 17 sectors for mandatory notification: transport, energy and defence.

The Act will overhaul the current national security review regime under the Enterprise Act 2002 through, among other things, establishing a new Investment Security Unit (within the Department for Business, Energy and Industrial Strategy) and the screening of transactions through a digital portal. For a detailed analysis of the Act’s provisions and likely implications for investors, please see our earlier briefing here.1

When will the Act come into force?

At the time of writing, the Government has not announced a specific date on which the Act’s provisions will come into force but has said that the new regime is expected to commence towards the end of 2021.2 Businesses are already able to send enquiries and requests for advice on the new regime to the Investment Security Unit. It should be noted that although the Government’s ‘call-in’ power has retrospective effect (as explained below), there is no obligation to notify the Investment Security Unit prior to the new regime commencing.

The Act’s retrospective effect

As explored in detail in our previous briefing, the Act allows the Secretary of State to intervene in an acquisition or transaction where it suspects that a ‘trigger event’ has taken place (or is in progress or contemplation). For example, trigger events include when an investor acquires 25%, 50% or 75% (or 15% in mandatory sectors) or more of the shares or voting rights in a qualifying entity. The Act allows the Secretary of State to intervene by way of a call-in notice for trigger events taking place up to five years in the past, but this is reduced to six months from the day that the Secretary of State became aware of the trigger event. Pursuant to Section 2(4) of the Act, transactions completed between 12 November 2020 (the date when the National Security and Investment Bill was introduced to the UK Parliament) and the day before the commencement date of Section 2 can be subject to call-in notices up to six months after the relevant commencement date.

At the time of writing, Section 2 is not yet in force. Section 66 of the Act lists the sections that came into force on the day the Act was passed (i.e. 29 April 2021). Section 2 is not listed, meaning it will come into force at a later date.

Investors should – as outlined in our previous briefing – now take action to identify any potential national security concerns in present and prospective transactions.

Revised draft definitions of key sectors

In March 2021, the Government published its response to the public consultation on the mandatory notification in specific sectors under the National Security and Investment Bill (opened in November 2020).3 We focus below on the revised definitions of transport, energy and defence, which are set out in the Annex below. The revised definitions aim to provide clarity and settle concerns raised in the public consultation. These included removing unclear terms such as “involved in” or “form part of” and ensuring terms were used consistently with prior legislation. The definitions are still in draft form and could therefore be subject to further amendment.

Transport

The originally proposed definition included an entity that owned or operated a port or harbour that handled “Category 1 goods” or “vessels capable of carrying at least 12 passengers”. The Government has removed these two criteria in the revised definition after industry feedback that they broadened the scope of the definition. The threshold criteria in the revised definition is limited to handling 1 million tonnes or more of cargo annually. The maritime definition still captures all 51 major ports in the UK and the Government made clear in its response that this was important due to the ports’ ability to handle a variety of goods and any narrower definition of ‘key ports’ would make it easier to circumnavigate the Act.

For airports, the Government maintained that the threshold requirements did not need to be the same as for the Network and Information Systems (NIS) Regulations 2018 as the regimes address separate aspects of national security.

Energy

Respondents to the consultation raised concerns that the original draft of the definition included “energy suppliers that provide energy to significant customer bases” as this seemed to cover many retail energy suppliers who would be administratively burdened if caught under the Act. The Government has removed this reference in its revised definition and in its response confirms that the policy intent was for retail energy suppliers to fall outside the scope of the Act, as they do not own any energy infrastructure.

The Government is also continuing to review the thresholds for oil infrastructure, in response to industry feedback that the thresholds in the definition are too low. The threshold capacity for downstream facilities has been revised from 20,000 tonnes to 50,000 tonnes whereas the threshold capacity for terminals and upstream facilities remains unchanged at 3,000,000 tonnes. In addition, the revised definition contains clarification on the application to prospective terminals, facilities and infrastructure.

Defence

The definition of the defence sector remains largely unchanged from the original definition published by the Government in November 2020. Respondents to the consultation generally agreed that the definition was clear and comprehensive. The only minor amendment that the Government has made is replacing the more generic description of an entity “involved in the research, development, design, production, creation or application of goods or services which are used or provided for defence or national security purposes” to “carries out activities that comprise or include” such activities. 

Conclusion

We await further announcements from the Government as to when exactly the Act’s provisions will come into force. As explained above, the definitions of the 17 key sectors subject to mandatory notification under the Act are still subject to change and will need to be finalised before the new national security and investment regime commences. Investors and relevant companies should already begin to review current and prospective transactions to determine if any notification ought to be made to the Investment Security Unit. In this regard, HFW has a dedicated team that can assist with advising on the implications of the Act. 

Please see the Annex in the PDF available above.

Assistance provided by Johanna Ohlman, Trainee Solicitor.

Footnotes:

  1. https://www.hfw.com/UK-introduces-National-Security-and-Investment-Bill-to-Parliament-to-increase-the-Governments-powers-to-review-transactions
  2. https://www.gov.uk/government/news/national-security-bolstered-as-bill-to-protect-against-malicious-investment-granted-royal-assent
  3. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/965784/nsi-scope-of-mandatory-regime-gov-response.pdf 

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