NSIA: impact on intra-group reorganisations
A new law means that you might need to tell the government about acquisitions and investments which could threaten the UK’s national security. The National Security and Investments Act (“NSIA”) came into force on 4 January 2022 and is already shaking up M&A transactions. Surprisingly, the new law also means that internal reorganisation and corporate restructurings may need the government’s consent.
Where a UK business (or an overseas business supplying to the UK), which operates in one of the government’s 17 identified key sectors is planning an internal reorganisation, this must be notified to the UK government in many circumstances. If the reorganisation involves the acquisition of more than 25% shares in a company operating within a key sector, it will be necessary to submit a mandatory notification to the government and wait for approval before completing the transaction.
The policies behind the NSIA were to enable the government to scrutinise and intervene in takeovers and mergers to protect national security. An internal reorganisation rarely involve third party investors or buyers and beneficial ownership remains with the same shareholders, yet they are still be caught by the rules – which is surprising! There is also no lower limit, as the rules apply regardless of the size, market share or turnover of the companies involved.
Some examples of where the rules will need to be considered include:
- Transfer of a subsidiary: two companies are part of the same corporate group (share the same ultimate owner). Company 1 holds shares in a subsidiary company which trades in one of the 17 key sectors. Company 1 transfers the shares in the subsidiary company to Company 2. All three companies remain within the same corporate group.
- New holding company: the shares in a company which trades in a key sector are acquired by a new holding company.
- Demerger: a company trades in one of the key sectors and undergoes a demerger to separate out two parts of its business. As part of the transaction, the two parts of the business are moved into separate corporate groups. The ultimate ownership of each group remains the same.
- Asset sale: a company that trades in a key sector transfers some of its assets to another company within its corporate group. As this is an acquisition of assets and not shares, notification is voluntary rather than mandatory.
The new rules should always be considered if your business operates within one of the key sectors listed below, as the penalties for completing a transaction subject to mandatory notification without obtaining prior approval can be serious. These include the transaction being void, fines of up to the higher of £10 million and % of total worldwide turnover and even criminal sanctions for directors.
17 key sectors:
- Advanced Materials
- Advanced Robotics
- Artificial Intelligence
- Civil Nuclear
- Computing Hardware
- Critical Suppliers to Government
- Cryptographic Authentication
- Data Infrastructure
- Military and Dual-Use
- Quantum Technologies
- Satellite and Space Technologies
- Suppliers to the Emergency Services
- Synthetic Biology
Even if your business sits outside of the 17 key sectors, there are other circumstances where voluntary notifications may be desirable. We would always recommend you undertake an initial assessment of a transaction as early on as possible. For a more detailed overview of how the approval process works, see our previous article, here:
NSIA: New approval process for investors buying UK assets
Buying an asset that is considered a risk to UK national security now needs to follow an approval process which investors are taking notice of as they understand the impact this can have to their transactions.
Our corporate regulatory team have experience in advising on and submitting notifications under the new NSIA. To discuss how the NSIA may impact on your business, please contact our corporate regulatory and restructuring team on 01276 686222 or via firstname.lastname@example.org.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.
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