What the UKs NSI Act means for corporate transactions involving entities and assets in this jurisdiction

Who falls within the scope of the NSI?

Entities or assets that are from or have a connection with the UK fall within the scope of the NSI. These are defined as entities that carry on activity in the UK or supply goods and services to its residents; and/or assets that are used in connection with activities carried on in the UK or the supply of goods or services. The UK has also published additional guidelines on target entities and assets outside the country that may fall within the scope of the NSI. While the Act went into force earlier this year, it, however, applies retroactively to transactions that took place on or after November 12, 2020.

What is required of transacting parties?

The NSI stipulates a mandatory notification by transacting parties for acquisitions of control over qualifying legal entities (LLPs, trusts, and other legal structures) and qualifying tangible or intangible assets that fall into one of 17 sensitive sectors or those closely linked to them. These sectors include:

1. Advanced Materials
2. Advanced Robotics
3. Artificial Intelligence
4. Civil Nuclear
5. Communications
6. Computing Hardware
7. Critical Suppliers to Government
8. Cryptographic Authentication
9. Data Infrastructure
10. Defense
11. Energy
12. Military and Dual-Use
13. Quantum Technologies
14. Satellite and Space Technologies
15. Suppliers to the Emergency Services
16. Synthetic Biology
17. Transport

Mandatory notifications for review under the NSI are triggered when:

• Shares or voting rights by an acquirer increases
  • From 25% or less to more than 25%
  • From 50% or less to more than 50%
  • From 75% or less to more than 75% 
• It enables the acquirer to secure or prevent the passage of any type of resolution governing the affairs of the target
• It enables the acquirer to materially influence the policy of the target
• Acquisitions of a right or interest in, or in relation to, a qualifying asset enables the acquirer to:
  • Use the asset or use it to a greater extent than before the acquisition
  • Direct or control how the asset is used
  • Direct or control how it is used to a greater extent than before the acquisition

Mandatory notifications for transactions that meet the above criteria must be submitted before the transaction takes place.

The Act also outlines requirements for voluntary notifications. Voluntary notifications are required when:

• The target entity is not active within a sensitive sector, but the acquisition meets the criteria listed under mandatory notifications.
• If the transaction involves the acquisition of material influence over an entity’s policy, whether or not the target entity is in a sensitive sector.
• If the acquisition of a right or interest in, or in relation to, an asset provides the ability to use or control the asset (entirely or to a greater extent), whether or not the asset relates to a sensitive sector.

The Investment Security Unit (the governing body under the NSI) conducts initial reviews within 30 working days of notification. Once initial reviews are completed, transactions will either be cleared for execution or called in for a full national security assessment. 

Penalties for non-compliance

If a deal requiring a mandatory notification is completed without approval, the transaction will be legally void. Parties privy to these transactions may incur civil and criminal penalties, including penalties of up to 5% of group worldwide turnover or £10 million (whichever is higher) and risk imprisonment for individuals for up to five years. 

For more information, contact a CT Corporation specialist today.