The National Security Investment Act 2021 (“NSIA“) gives the UK government power to scrutinise and intervene in – and potentially block – transactions in certain sectors which may impact national security. It came into force on 4 January 2022 and applies to transactions completing on or after 12 November 2020.

The scope of the legislation is broad and is not restricted to high-value and high-profile transactions: there is no minimum threshold for an entity’s turnover or an asset’s value, and the regime can apply to UK and overseas acquirers or investors.

Part 2 of our Guide to the National Security and Investment Act explored qualifying acquisitions and notification procedures in more detail. In Part 3, Senior Associate – Suzanne Whiteman explores the consequences of non-notification and the impact of the Act on transactions.

Consequences of non-notification

An acquisition notifiable under the mandatory regime that completes before approval is granted by the government would be rendered void.

For non-compliance an acquirer may face civil or criminal penalties, including a fine of up to 5% of total worldwide turnover or £10 million, whichever is higher, or up to five years’ imprisonment for an individual.

It is possible to apply for retrospective validation, if an acquisition is completed without prior approval.

Impact on transactions

The legislation is potentially applicable to a wide range of transactions, not just typical mergers and acquisitions. Transactions that could be caught either by the mandatory or voluntary regimes include internal corporate reorganisations, indirect acquisitions of control, minority investments or the acquisition of control over intellectual property or other assets, such as real estate or land.

Acquisitions of entities based outside the UK can also be caught by the legislation, if the entity carries on activities in the UK or supplies goods or services to people in the UK.

Timing

The notification and assessment processes can obviously be time consuming, and have the potential to delay completion of the acquisition. It would therefore be prudent to submit the relevant notification at an early stage of the transaction, when the parties are able to evidence good faith intention to proceed, such as where heads of terms have been agreed or financing arrangements are in place. This would enable the parties to progress any due diligence and the relevant documentation, whilst the government is considering the notification. However, notifications should not be submitted prematurely as potential negative consequences could include delays caused by further information request(s) or even the notification being rejected, necessitating the submission of a further notification at a later stage.

If you would like to discuss any of the points raised in this note, or you would like assistance with the notification process, please reach out to Suzanne Whiteman in our Corporate Team.