The National Security and Investment Act 2021 (NSIA) came into force on 4 January 2022. The UK’s Department for Business, Energy and Industrial Strategy (BEIS) published last month its first Annual Report on the NSIA in its first three months of operation. More on this can be found here.
First NSIA prohibition
Since then, the UK’s Secretary of State for BEIS, Kwasi Kwarteng, has announced that he has issued a final order under the regime preventing the acquisition of certain intellectual property by a Chinese company on national security grounds. The decision marks the first time the UK government has exercised its powers to block a transaction under the NSIA regime.
The University of Manchester and BIVT entered a licence agreement that would enable BIVT to use intellectual property to develop, test, verify, manufacture, use and sell licensed products. However, the final order states that “there is potential that the technology could be used to build defence or technological capabilities which may present national security risk to the United Kingdom”. This was ultimately deemed to be a potential national security risk, and the final order had the effect of preventing the licence from proceeding.
Interestingly, the notification was made on a voluntary basis. The order published by the UK government sets out that the relevant trigger event here was the acquirer’s gaining control of a “qualifying asset” under Section 9(1) of the NSIA. This class of trigger event falls outside the scope of the mandatory notification regime.
Market Guidance Notes
On 19 July 2022, BEIS also published Market Guidance Notes to complement the existing guidance by answering questions and providing advice based on the first six months of the NSIA’s operation.
Incomplete information
Some practical tips contained in the Guidance Notes include ensuring that notification responses are accurate and structured clearly, as well as ensuring that they have sufficient information. For example, it is not sufficient to identify that a proposed transaction falls within a sensitive sector, as that does not allow the Secretary of State to verify precisely which of the entity’s activities fall within the sensitive sector description and why. Some good and bad examples of responses from past filings are included, with a clear message that providing insufficient information will only serve to cause delay.
Additionally, the Guidance Notes make clear that structure charts are an important part of a notification. Without a complete structure chart, a notification may be rejected on the basis that it does not provide enough information for the government to decide whether to call in or clear the acquisition.
Submitting a single notification for multiple acquisitions
Reasons for rejection identified in BEIS’ Annual Report included that the notification in question covered multiple qualifying acquisitions that should have instead been submitted separately. The Guidance Notes confirm that the acquisition of multiple qualifying targets by a single acquirer from the same seller at the same time can all be notified together. On the contrary, acquiring multiple qualifying entities from different seller groups cannot be combined into one notification.
However, the Guidance Notes clarify that where an acquirer wishes to submit a combination of mandatory and voluntary notifications for different entities acquired from one seller, those can be combined into a single mandatory form without needing a separate form.
Research Collaboration Advice Team
The Guidance Notes acknowledge the wide potential for activities within higher education to fall within the scope of the NSIA. Accordingly, the government has created a dedicated team, the Research Collaboration Advice Team (RCAT), to help ensure that researchers’ work is protected and that the UK research sector remains open and secure.
Researchers or higher education institutions who believe their work may be relevant to the NSIA and wish to obtain further advice can contact their assigned RCAT point of contact either in advance of or alongside contacting the Investment Security Unit (ISU).
Contractual rights
The NSIA treats the acquisition of any class of resolution in a qualifying entity as a “trigger event” for notification purposes. The Guidance Notes clarify that contractual rights that have the effect of securing or preventing the passage of a class of resolutions will generally not give rise to a mandatory notification because such contractual rights are not themselves voting rights.