The National Security and Investment Act 2021 (the NSI Regime) has been in force since January 2022. Following publication of the first set of market guidance notes in July 2022, the government has now published, on 27 April 2023, a new edition of notes, which are incorporated into the main NSI guidance.
The latest update provides more information and practical guidance for submitting a notification, based on analysis of notifications made so far and feedback gathered from stakeholders. This article summarises what businesses need to know about the most recent guidance.
The initial review period for a notification submitted under the NSI Regime is 30 days – which can be extended if a detailed review is required. Any proposed transaction cannot complete prior to clearance, which can present issues for parties that are facing financial distress and need a quicker decision.
The updated guidance has advised notifying the ISU of such situations as soon as possible, as it may be possible to expedite a decision in ‘exceptional’ circumstances where ‘evidence of material financial distress gives rise to genuine urgency’. What counts as material will be decided on a case-by-case basis, but parties will need to provide supporting evidence.
Where material financial distress is claimed, the government has provided details of the types of ‘appropriate and supporting evidence’ it may accept, which generally include:
Relevant evidence of urgent financial distress is likely to include, but is not limited to:
The updated guidance has also clarified that, where there is significant uncertainty about whether an acquisition is notifiable, parties may contact the government to seek a view. However, any subsequent response does not constitute legal advice, nor will the government always be able to give a substantive response (eg it is unlikely to comment on hypothetical scenarios).
Parties are advised to include as much detail as possible about the qualifying acquisition in their query, including the names of the parties and their activities. They must also provide a clear explanation of why there is uncertainty in applying the NSI Regime to the acquisition and any timing considerations to be aware of.
The government has advised that notifications should be made when ‘the terms of the acquisition are sufficiently stable to enable the government to properly assess whether the NSI Act is applicable and whether it could lead to national security risks’. It will generally be appropriate to notify when there is ‘a good faith intention to proceed’ which can be evidenced by:
Whilst a deal does not have to be signed for a notification to be submitted and parties have some flexibility, it is important to consider carefully the timing of the notification and to factor this into the transaction timeline. A premature notification could have adverse outcomes. For example:
There is further guidance on the various stages of the assessment process, including what the government can ask parties to do during the assessment period, including:
Parties should be aware any of these can pause the statutory review period, which could result in delays to the acquisition timeline. The review period will only restart when sufficient information is provided.
This part of the guidance also includes additional details on the review period. During this phase, the ISU will undertake substantial due diligence and, where appropriate, share the details of the acquisition with other relevant government departments. The government will only make its final decision once the relevant departments have provided their assessments.
The updated guidance also confirms that the parties can withdraw from an acquisition. If the parties choose to withdraw before the review is complete, they should inform the government in writing and provide evidence. If withdrawn, no final order will be made but a final notification may be issued by the government. After withdrawal has occurred, any new or revised terms of the deal must be considered as a potential new trigger event, that may require a new notification.
Interestingly, the guidance also confirms that parties do not need to wait for the government to suggest remedies (to mitigate national security risk); the parties can make representations on possible remedies at any point in the process. However, whilst the government will consider such representations, it is not bound to accept any remedies suggested.
More detailed guidance has also been provided on completing the notification form and what information might be required, based on common inconsistencies in the forms received to date. In particular, parties should be careful of using the right form depending on the type of notification ie mandatory vs voluntary.
The government has also highlighted the information it has found particularly helpful in notifications it has received to date:
The overall takeaway is that parties should include as much information as possible about the acquisition, and they can optionally send additional supporting information and documents.
Whilst parties can continue to progress an acquisition during the review and assessment period up to the point of completion (unless any interim orders have been given), they cannot complete without clearance. This is important to factor into a transaction timeline and how this may affect a deal.
The updated guidance has provided more clarity on the notification and review process, as well as more detail on the 17 mandatory sectors. The guidance will continue to be updated and stakeholders can suggest topics for future updates.