Last July I wrote about the National Security & Investment Act 2021's (the "Act") annual report premiere, but now the sequel has come to a screen near you. 

Covering the period 1 April 2022 to 31 March 2023, the Act's second annual report is directed by the Cabinet Office and stars the Investment Security Unit (the "ISU") as it battles with (potentially) thriller-type national security concerns over a 12-month period. Can this unlikely hero(ine) save the day and protect the "UK’s national security in an increasingly volatile world" while maintaining the jurisdiction's "global magnet for investment"? 

Critics have applauded the publication of an annual report which covers a full 12-month period (the first annual report only covered three months) but there are mixed reviews about the regime and process involved with some feeling that improvements could be made around the clarity of decisions made and reasons for the final orders imposed.

Key takeaways

  • Factoring the notification and call-in process into any affected acquisition is key. Although statutory timelines were met, the entire process can delay transaction timetables by several weeks and the report mentions that the additional and voluntary time periods were invoked in several instances during the reporting period
  • Ensure that the correct forms are completed when notifying a transaction. According to the report, the most common reason for the ISU rejecting a notification was because the mandatory notification form was used when it should have been the voluntary notification form and vice versa
  • The government is not simply paying lip service to the Act and is prepared to both call-in transactions which have not been notified and issue final orders, including the blocking of a transaction, where it thinks it necessary. That said, the government also appears to be taking a pragmatic approach, not wishing to stifle investment in the UK, and has only exercised its final orders powers in a few instances
  • Although only one final order was revoked by the government during the reporting period, requesting the amending or revocation of a final order is an option for transaction parties, particularly where there has been a material change in circumstances 
  • The huge numbers of notifications that were feared before the Act took effect have not (yet) materialised

In total, the ISU received 866 notifications during the reporting period, of which 671 were mandatory notifications (transactions falling with the 17 mandatory sectors set out in the Act), 180 were voluntary notifications (transactions not falling within one of the mandatory sectors but which may be perceived as having a national security interest) and 15 were retrospective validation applications (notifications made post-acquisition). On this basis it appears that the fears of many commentators at the Bill stage (that there would be a plethora of "just in case" notifications while advisers found their feet with the new legislation) have not been realised. That said, it's been quite a tough year in the corporate acquisition space so a general fall in the number of transactions taking place may have had an effect here. 

Of those notifications, 65 were called-in, the majority of those falling within the mandatory regime but interestingly, the ISU called-in ten acquisitions which hadn't been notified at all, showing that the government is alive to what's going on in the corporate world and will take action if it thinks necessary. 42% of the transactions called-in involved acquirers associated with China, while 32% were associated with the UK, but given the low numbers here, query how indicative these percentages are in reality. 

Final orders were given in respect of 15 transactions, with the majority of these permitting the transaction to complete subject to government-prescribed conditions, although several final orders blocked the transaction from completing. 

The report points out that all cases were decided within the statutory timelines but from the average time periods given, there doesn't seem to have been much wriggle room here and when we also consider that the timetable pauses at certain points, for example, when the government makes an information request, this may not provide much comfort to a party desperate to complete. 

No penalties or criminal prosecutions for Act-related offences were meted out during the reporting period.

The report does state that the government is keen to receive comments and feedback on the regime so anyone who would like to share their thoughts should email investment.screening@beis.gov.uk. 

We recommend seeking legal advice if you are involved in a transaction which could fall within the Act.