Credit Management October 2022

OPINION
the target entity or asset is in one of the 17 sensitive
sectors or a sector closely linked to one of those
sectors.
There are three risk factors that are also relevant
in particular in determining whether a transaction
is likely to be called in.
These are target risk – whether the target entity
or asset is being used, or could be used, in a way
that poses a risk to national security; acquirer
risk – whether the acquirer has characteristics
that suggest there is, or may be, a risk to national
security from the acquirer having control of the
target; and control risk – whether the amount of
control that has been, or will be, acquired poses a
risk to national security (a higher level of control
may increase the level of national security risk).
BEIS believes there will be around 1,000 to
1,830 transactions notified each year with 70 to 95
transactions called in for a full national security
assessment. Others think those numbers will be
exceeded.
But whatever the exact number of national
security reviews under the new regime, it is clear
the number will be significantly higher than under
the previous Enterprise Act regime. National
security reviews under the Enterprise Act were
relatively rare (fewer than 20 reviews since 2003),
even despite a notable increase in such reviews
after the Bill for the new regime was published in
November 2020.
WHEN THE REGIME TOOK EFFECT
While the full regime came into force at the start
of the year, the retrospective call-in power applies
from the day after publication of the Bill. This
means that trigger events that occurred during the
period 12 November 2020 to 3 January 2022 can also
see transactions called in for review.
Parties to transactions where a trigger event
occurred between those earlier dates had an
incentive to make the ISU aware of their transaction
before the Act came into force. Doing so limited
any retrospective call-in to six months from 4
January 2022 instead of up to five years from that
date (although any call-in subject to the five-year
deadline also needs to be within six months of
when the Secretary of State became aware of the
trigger event after the Act came into force).
The mandatory notification requirements have
applied from 4 January 2022 (including in relation
to any deals that were signed previously but where
a relevant trigger event takes place after the Act
came into force). Accordingly, parties to any deals
that might require mandatory notification need
to factor the process into their deal planning, and
likewise for transactions where parties decide to
submit a voluntary notification.
THE PROCESS
The ISU deals with notifications. It will conduct
an initial review within 30 working days of
notification, after which the transaction will either
be cleared or called-in for a full national security
assessment. A full assessment will itself take up to
30 working days, subject to an initial extension of
45 working days, and further potential voluntary
AUTHORS – Ian Giles and Mark Daniels
❝
The mandatory
notification
requirements
have applied
from 4 January
2022 (including
in relation to
any deals that
were signed
previously but
where a relevant
trigger event
takes place after
the Act came
into force).
❝
extension if agreed with the parties. The clock can
be stopped on the review during a full assessment
if further information is required.
For mandatory notifications, clearance must be
received before the transaction takes place. Where
a mandatory notification has not been made, the
Secretary of State may call-in the deal at any future
point, provided this is within six months of the
Secretary of State becoming aware of the trigger
event.
For voluntary notifications, the parties have the
option to notify, but the Secretary of State is able to
call-in a deal for up to six months after they become
aware of it, any time up to five years after the deal
takes place. A transaction under the voluntary
regime but not voluntarily notified will proceed
straight to a full assessment if called-in for review.
There are specific requirements for the content
of mandatory and voluntary notifications, which
are set out in the National Security and Investment
Act 2021 (Prescribed Form and Content of Notices
and Validation Applications) Regulations 2021.
Additional requirements in terms of the procedure
for submitting notifications and other documents
to BEIS, including use of the NSI electronic portal,
are in the National Security and Investment Act
2021 (Procedure for Service) Regulations 2021.
SANCTIONS FOR FAILING TO NOTIFY
If a deal requiring mandatory notification is not
approved the transaction will be legally void. In
addition, there are civil and criminal penalties,
including potential daily penalties for ongoing
breaches. Completing a transaction that is subject
to mandatory notification without approval will
risk a penalty of up to five percent of group worldwide
turnover or £10m (whichever is higher), and
imprisonment for individuals for up to five years.
Notably, the Secretary of State may retrospectively
validate a transaction that failed to gain approval.
The Secretary of State also has the power to
impose remedies to address any national security
concerns. These may include, for example,
conditions restricting access to sensitive sites,
access to confidential information and intellectual
property transfers.
IN SUMMARY
Ultimately the Secretary of State has the power to
block deals, or to require acquisitions that have
taken place to be divested or unwound.
However, the vast majority of transactions
reviewed under the new regime are expected to
be cleared without needing remedies. Despite
this, the new regime is far-reaching with serious
consequences for non-compliance and requires
parties to transactions in a much wider range
of situations to engage with a potential national
security review than under the previous Enterprise
Act regime.
Ian Giles is a partner and head of Norton Rose
Fulbright LLP’s antitrust and competition team in
Europe, the Middle East and Asia. Mark Daniels is
a senior knowledge lawyer at the firm.
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