New Bill proposing new and extensive FDI regime in the UK
On November 11th, the UK government introduced a National Security and Investment Bill, proposing a new and very extensive FDI screening regime. The Bill covers all investments that are found to involve certain ‘Trigger Events’ but prescribes mandatory notification for ‘key sector’ entities in the UK. If the Bill is adopted, the resulting Act will apply retrospectively, in principle catching any investment made from the date of the Bill’s introduction to Parliament.
The Bill proposes a new overarching law, the National Security and Investment Act, authorising the UK government to screen all investments capable of affecting national security by issuing what has been dubbed a ‘call-in notice’. It means an actual screening of the investment and of the parties to it. Such call-in notices may be issued up to five years after the investment was made. The right to do so even extends to investments implemented before adoption of the Bill but after its introduction to Parliament on 11 November 2020. It will be possible to discuss with the UK Department for Business, Energy & Industrial Strategy, in an informal setting, transactions scheduled for implementation before adoption of the Bill, to learn whether they are likely to be called in for review at a later time.
To ensure some measure of predictability and legal certainty, though, only investments in which certain ‘Trigger Events’ take place may be called in for review. The Bill defines Trigger Events as the acquisition of more than 25%, more than 50% and 75% or more of the voting rights in a British enterprise or any other transaction enabling a person materially to influence the activities of the enterprise. Whenever a Trigger Event occurs the parties will be free to notify the transaction voluntarily to avoid the risk of receiving a call-in notice later. In addition, notification will be mandatory for investments in 17 specific sectors, regardless of the parties’ turnover, their market shares and the value of the transaction. The above-mentioned Trigger Events notwithstanding, the mandatory notification requirement kicks in already on acquisition of 15% or more of the enterprise. Direct investments in holding companies are also comprised if by such investment a material influence is acquired over an underlying enterprise within one of those 17 key sectors. The purchase of assets (e.g. intellectual property rights) in those key sectors will also be covered ‒ whether those assets form a stand-alone part of a business or not.
The 17 key sectors currently proposed (all of which are listed in the government’s press release and may be subject to change through new regulations) include Communications, Data Infrastructure, Energy, Transport, Critical Suppliers to Government and Critical Suppliers to the Emergency Services. Not least for the last two, an exact definition is not necessarily straightforward: Will, for example, suppliers of food or pharmaceutical equipment to public authorities in the UK qualify for the mandatory notification requirement? The mandatory notification requirement will not take effect until the Act becomes effective ‒ unlike the government’s discretionary right to issue call-in notices.
Procedures and scope of the new regime
The new rules will authorise the relevant minister (the UK Secretary of State for Business, Energy and Industrial Strategy) to impose obligations that must be met in order for an investment to be implemented. These obligations will be imposed by the minister following a dialogue with the parties, but it is not for the parties to propose or even accept them. The bottom line is that if the minister deems it necessary, enterprises will be presented with a set of obligations in a take-it-or-leave-it proposition in which they can either accept or refuse them, but if they refuse them, the investment will be blocked, with no possibility for the enterprises to propose alternative obligations more acceptable to themselves.
The UK government therefore, expecting businesses to adopt an overly cautious approach for fear that the investment might fall through if called in for review, anticipates an initial wave of notifications shortly after adoption of the Bill.
If an investment is subject to the mandatory notification requirement it must not be implemented until cleared. Once notified, the authorities have 30 days to either clear it or call it in. Investments which although subject to the mandatory notification requirement are not notified are void.
All notifications will be made via digital platform to a newly established Investment Security Unit under the UK Department for Business, Energy & Industrial Strategy. Failure to comply with the new rules will be punishable by fines of up to 5% of the offender’s worldwide turnover or GBP 10 million and up to five years’ imprisonment.
An impact assessment presented along with the Bill shows that parties to as many as 14,480 investments a year will need to familiarise themselves with the rules to learn if they are subject to the mandatory notification requirement or see if they should opt for voluntary notification to avoid a call-in later on. The government estimates it will receive 1,830 notifications per year, of which up to 95 will be called in for review, and up to 10 will have to accept certain obligations to be approved.
Kromann Reumert's comments
Under the UK’s current FDI regime, the government can screen certain investments for purposes of safeguarding national security, financial stability, media pluralism and the UK’s ability to address public health crises. The current rules, however, enshrined in the Enterprise Act 2002, generally require the target of the investment to have an annual UK turnover of more than GBP 70 million or a share of the relevant market greater than 25%.
In all the years since the Enterprise Act was introduced in 2002 the UK government has intervened in only 12 investments, whereas with the new Bill, as explained above, expectations are that obligations will be imposed on around 10 investments each year. The Bill and the possibility of a call-in notice will therefore have a considerably broader scope, and will comprise all investments in any sector if a Trigger Event occurs or if material influence is obtained ‒ regardless of the value of the target company and regardless of its turnover and market shares. The Bill also means that investments in small startups may trigger a mandatory notification requirement if the startup is active in one of the 17 identified key sectors, or a call-in notice if the transaction is suspected of affecting national security ‒ irrespective of sector.
If the Bill is adopted, the resulting Act will apply retrospectively to all investments implemented after 10 November 2020, and so it will be prudent to consider already now if an investment in the UK might face intervention by UK authorities. Especially if the investment is in one of the sectors which the UK government expects will be subject to the mandatory notification requirement. It will be possible in that connection to contact the UK Department for Business, Energy & Industrial Strategy for an informal clarification of the likelihood of a call-in notice being issued later on.
Read the Bill
(Bill 210 2019-21, National Security and Investment Bill, as introduced).
Read the National Security and Investment Bill Guide
(containing flowcharts and an overview of the new rules).
Read the Bill’s Impact Assessment.
Read the UK government’s press statement on the Bill.
Read the UK government’s Policy paper; Overview of the National Security and Investment (NSI) Bill factsheet.