It was traditionally market forces that played a decisive role in takeovers. Theoretically, a company is vulnerable to a takeover whenever there is a slump in its share price and it becomes an attractive target for investors. As the company’s directors risk losing their jobs in the event of a takeover, they are incentivised to work hard to prevent that from happening. What this model fails to take into account are the modern realities whereby foreign actors may seek to undermine national security by investing in sensitive UK projects and businesses in order to gain access to certain sites, data or goodwill.
On 11 November 2020, the Department for Business, Energy and Industrial Strategy (“DBEI”) laid before Parliament the National Security and Investment Bill in order to address national security concerns arising out of the prospect of certain sensitive assets or organisations being acquired by way of foreign investment. The new legislation is set to cover not just companies but any acquisition of property such as real, tangible or intellectual property that may impact on the UK’s national security. While the first actual debate on the bill has yet to take place, the Government has already explained in its policy paper that it sees such issues arising potentially from the interplay of geopolitical, economic and technological developments in the modern world.
It is intended that the legislative framework will confer on the Secretary of State for the DBEI the authority to carry out an assessment of relevant risks. It is envisaged that the so-called “call-in powers” will be used by reference to three risk factors – the target risk, the trigger event risk and the acquirer risk. Once a risk factor has been identified, the call-in powers will see a full assessment carried out by the Secretary of State with a view to neutralising any potential risk by imposing relevant remedies. Any such remedies shall be ‘necessary’ and ‘proportionate’. Moreover, it is expected that a mandatory notification regime and substantial penalties for failure to comply will be introduced for sellers, buyers and target entities in relation to any acquisitions likely to pose a national security risk.
It is believed that the Government sees some areas as having inherent national security risks, such as military and dual-use technologies, certain infrastructure projects and emergency services supplies. In order to set up appropriate safeguards addressing relevant concerns, it is planning to identify core activities and industries in which its new powers are most likely to be used, and make it mandatory for the parties to those transactions to report them to the Government, enabling an assessment to be carried out. There are certain events which are expected to trigger an assessment, including disruptive or destructive actions, espionage, or anything which has the capacity of undermining national security. The identity of the actors seeking to acquire sensitive property is also expected to play a crucial role in deciding whether an assessment should be carried out, with the Government promising to concentrate on the extent of affiliation with any hostile parties rather than seeking to block the involvement of certain foreign states.
The Business Secretary Alok Sharma said: “Hostile actors should be in no doubt – there is no back door into the UK. This Bill will mean that we can continue to welcome job-creating investment to our shores, while shutting out those who could threaten the safety of the British people”. This statement comes on the back of an earlier U-turn in respect of the decision to allow the Chinese telecom company, Huawei, to supply equipment for the UK’s 5G networks.
While the Government has stated that it has no intention of interfering with routine business transactions or restricting certain countries from accessing the UK market, the objective of the proposed legislation is to ensure that there is a system in place that would prevent foreign actors from accessing sensitive locations, obtaining strategic supply chains or otherwise acquiring assets for the purpose of conducting activities which could undermine national security.
The date for the second reading of the bill has yet to be announced.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.