National Security and Investment Bill

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National Security and Investment Bill

Published 16 November 2020

On 11 November 2020, ministers introduced in the House of Commons the National Security and Investment Bill.

The Bill provides for a CFIUS-style regime granting the UK Government powers to scrutinise and intervene in a number of business transactions (for example, takeovers) on national security grounds.

Despite concerns that the City could see deal volumes drop, the Government considers the Bill a fundamental tool in preventing control of companies operating in sensitive sectors being handed over to foreign entities.

To avoid a rush to complete deals, the provisions provided for in the Bill will take effect from 12 November 2020, being the day after the Bill was introduced.

The Bill, yet to be debated, will have its second reading on 17 November 2020 and may be subject to amendments.

This alert briefly sets out the key provisions in the Bill.


1. Call-in notices

Under the Bill, the Secretary of State (“SoS”) may, on his own initiative, give notice if he suspects that a trigger event has taken place (or arrangements are in progress or contemplation which, if carried into effect, will result in a trigger event) in relation to a qualifying entity or a qualifying asset, and the event has given rise to or may give rise to a risk to national security.

The call-in notice will be addressed to the acquirer, the entity, and/or any other person that the SoS deems appropriate, and can only be issued once in relation to a trigger event.

The ability of the SoS to issue a call-in notice extends to five years beginning with the day on which the trigger event took place (so long as the five years do not reach back before 12 November 2020).


1.1 Meaning of Trigger Event

A trigger event will occur when a person gains control of a qualifying entity (including overseas entities in certain circumstances), or a person gains control of a qualifying asset, which includes land, tangible property, ideas, information or techniques which have industrial, commercial or other economic value (for example, trade secrets, databases, designs, etc.)

The absence of thresholds relating to the target’s market share or turnover means that this new regime will apply to most companies and investors doing business in the UK.

In relation to a qualifying entity, this includes where the percentage of shares or voting rights held increases:

(a) from 25% or less to more than 25%;

(b) from 50% or less to more than 50%;

(c) from less than 75% to 75% or more;

(d) the acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of the qualifying entity; or

(e) the acquisition of material influence over a qualifying entity’s policy.


In relation to a qualifying asset, this includes the acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to:

(a) use the asset, or use it to a greater extent than prior to the acquisition; or

(b) direct or control how the asset is used, or direct or control how the asset is used to a greater extent than prior to the acquisition,

but a person will not be regarded as gaining control of a qualifying asset by reason of an acquisition for purposes outside of his trade or business.


2. Notifiable acquisitions

A notifiable acquisition will take place when:

(a) a person gains control by virtue of an acquisition of more than (i) 25%, (ii) 50%, or (iii) 75% or more of shares or voting rights of a qualified entity;

(b) a person gains control by virtue of the acquisition of voting rights that enable or prevent the passage of any class resolution governing the affairs of the company; or

(c) a person acquires a right or interest in a qualifying entity of a specified description and as a result the percentage of the shares or voting rights that the person holds increases from less than 15% to more than 15%.


Asset deals will not, for the time being, be subject to the notifiable acquisition regime.

The Government is currently consulting on a list of 17 sectors, to be introduced and defined by subsequent regulations, which it considers sensitive and which will be subject to the notifiable acquisitions regime, including: advanced materials and robotics, AI, civil nuclear, communications, computing hardware, critical suppliers to Government, critical suppliers to emergency services, cryptographic authentication, data infrastructure, defence, energy, engineering biology, military and dual use, quantum technologies, satellite and space technologies, and transport.


2.1 Mandatory and Voluntary Notifications

Companies must give notice to the SoS of a notifiable acquisition before completion (unless the SoS has already issued a call-in notice on its own initiative).

Once notified, the SoS will have 30 working days to either:

(a) give a call-in notice in relation to the proposed notifiable acquisition, or

(b) notify each relevant person that no further action will be taken.

The Bill also includes a voluntary notification procedure encouraging parties to notify arrangements or trigger events which do not qualify as notifiable acquisitions.

The SoS may in certain circumstances retrospectively approve notifiable acquisitions which were completed without obtaining the adequate consent, but a notifiable acquisition that is completed without the approval of SoS is void.


3. Secretary of State’s investigative powers

The SoS may issue notices requiring persons to provide information in order for the SoS to determine, for example, whether the call-in notice should be issued or remedies imposed. The SoS will also have the power to summon witnesses to assist him in carrying out his functions under the Bill.

The investigative powers of the SoS will extend to overseas persons in certain circumstances.


4. Assessment Period: final orders and notices

Should the SoS decide to scrutinise the transaction by issuing a call-in notice to the acquirer, he will have 30 working days (which may be extended for a further 45 working days), referred to as the assessment period, to:

(a) make a final order to prevent, remedy or mitigate the risk, or

(b) give a final notification that no further action in relation to the call-in notice is to be taken.

It is particularly important to note that during the assessment period businesses will be able to continue to progress their deal unless ordered otherwise by the SoS.

A final order may:

(a) require a person to do or not to do particular things;

(b) appoint a person to conduct or supervise the activities of the transaction on such terms and with such powers as described in the order;

(c) require the contents of the order to remain confidential and/or

(d) include any consequential, supplementary or incidental provision.


5. Penalties

Completing a notifiable acquisition without the appropriate approval, or failing to comply with an interim or final order may lead to civil penalties (the higher of 5% of total value of worldwide turnover and £10m), or criminal sanctions (imprisonment of up to 5 years).



Yee Rou Quah

Yee Rou Quah

London - Walbrook

+44(0)20 7894 6268

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