Competition law

Recent developments

National Security and Investment Act – three years on

The National Security and Investment Act (NSIA), introducing the UK's new investment scrutiny regime, took effect on 4 January 2022. Given the nature of the regime, the annual reporting (covering 1 April to 31 March) and the Final Order publications, only limited insight is available on the reviews. Nevertheless, there are some important takeaways from the first three years since the Act was introduced, and its impact and reach should not be underestimated.

Scope of the regime

Any proposed investment, whether an acquisition of shares/voting rights or an acquisition of assets (including IP licences) and irrespective of the deal size, should be reviewed for the application of the NSIA. In the absence of minimum thresholds, the regime does not only capture the highest profile and value acquisitions.

Similarly, intra-group reorganisations, even if ultimately there is no change of control and which often occur as a preliminary step for a deal, and also the appointment of liquidators/receivers can still potentially trigger mandatory notifications.
Unlike many FDI regimes, the focus is on the activities of the target (and whether they fall within one of the 17 specified sectors) rather than on the identity/nationality of the acquiror, when determining whether a notification is required. The investment origin and the level of control are relevant to the questions of the likelihood of the acquisition being called in and ultimately raising national security concerns. 61% of accepted notifications in the reporting period to March 2024 related to acquirors associated with the UK (with the next highest being associated with the US (26%)).

Given the wide scope of its reach and of certain sector definitions, eg defence, the NSIA can capture acquisitions involving targets with limited activities on the very periphery of some of these sectors. Care therefore needs to be exercised by both the acquiror and the seller during the due diligence process to establish whether the NSIA applies.

Timing

There is no fast-track process, even for acquisitions which clearly do not raise national security concerns. Once the filing has been accepted (a process which can take a week or more), clearance decisions are issued close to the full thirty-working day statutory review period.

For more complex acquisitions, the called-in phase can be a lengthy and uncertain one. The statutory timetable provides for an initial 30 working days with a possible 45 working-day extension, after which mutually agreed voluntary extensions are possible. Average review times from call in to Final Order in the 2024 Report were significantly less than in the previous period, but it is too soon to show a definite downward trend (as acknowledged by government due to fewer call-ins and Final Orders).
The corporate timetable needs to take account of the NSIA review period. It is recommended to submit NSIA notifications as early as possible, but only once the acquisition parameters are clear to avoid the risk of having to renotify.

The first two full years of reporting

Notifications increased in the year to March 2024 (906 compared to 865), but this is below the lower end of the impact projections of 1,000-1,830. The impact assessment had estimated 70 to 95 call-ins per year. In practice, there were 41 call-ins up to March 2024 (including four not notified) and 65 in the year before (including 10 not notified).
Of the 41 call-ins in the year to March 2024, 41% related to acquirors associated with China, 39% with the UK and 22% with the US, with associations to a further 20 countries. This follows a similar pattern to the previous year. In the year to March 2024, of the 38 called-in acquisition decisions, there were 33 Final Notifications and five Final Orders, all imposing conditions rather than prohibitions, with the acquirors being associated with the UK, the US, Canada, France and the UAE. In the year to March 2023, there were 57 Final Notifications and 15 Final Orders (one revoked), of which five were prohibitions with acquirors associated with China or Russia. In both years, a similar number of acquisitions were withdrawn resulting in a Final Notification (ten in the 2024 Report).

It is clear from these reports that the government has scrutinised only a small proportion of acquisitions and has issued Final Orders on relatively few occasions, across a range of sectors. It is unwise to assume that an acquisition by an investor from the UK or a "friendly" nation would not be subject to scrutiny and intervention. Furthermore, the government has granted conditional clearances involving a wide range of conditions when it has identified national security concerns, rather than issuing prohibitions in all cases.
There have already been more Final Orders (including a prohibition) imposed since 1 April 2024 than in the previous full-year reporting period. It remains to be seen whether the change of government will lead to a different approach.

Non-compliance

The NSIA introduced significant penalties, including the possibility of criminal prosecutions for failure to obtain clearance for acquisitions requiring mandatory notification. As of 31 March 2024, the Reports confirmed that there had been no penalties issued or "criminal prosecutions concluded". At the time of writing, we are not aware of any changes to this position.

It is possible to submit a retrospective validation form, and 33 applications were made in the year to 31 March 2024 (more than double those in the previous year), with none being called in.
The 2024 Report highlighted that 34 offences of completing a notifiable acquisition without approval had been identified, but had escaped penalties. Instead, the "parties were contacted to request that steps were taken to prevent any recurrence". Whilst taking a pragmatic approach to non-compliance is welcome, it cannot be guaranteed that future transgressions will be treated similarly.
In addition, the 2024 Report confirmed that four non-notified acquisitions were called in by the government, one of which was subject to a Final Order and the imposition of conditions. Therefore, there can be other consequences of not notifying.

Tom McQuail
Partner
+44 7561 104098
tom.mcquail@rpclegal.com

Melanie Musgrave
Of Counsel
+44 7525 601312
melanie.musgrave@rpclegal.com