New market guidance on UK national security filings
On 19 July 2022, the UK Department for Business, Energy & Industrial Strategy ("BEIS") published new market guidance notes in relation to the National Security and Investment Act 2021 (the "NSIA").
BEIS' market guidance notes provide acquirers and their legal representatives with advice on practical matters when preparing filings as well as answering some commonly raised questions based on its review of filings submitted over the first six months of the NSIA regime. For key insights from the first quarter of the regime, see our blogpost on BEIS' recent Annual Report.
BEIS emphasises that gaps in the information provided will likely lead to delay
- BEIS requests notifying parties to provide as much information as possible with regards to description of the target's activities and trigger events. It also helpfully sets out some good and bad examples of responses from past filings, including a Clifford Chance submission selected as a "model answer"! In this particular case, we received confirmation of acceptance from BEIS within 1 working day of making the submission, which suggests that the more complete your filing is, the faster your case is going to be reviewed.
- BEIS also clarifies its requirements in respect of structure charts – they should include the ultimate beneficial ownership of both the qualifying entity and the acquirer, the nationalities (for named individuals) or the country of incorporation (for entities), any subsidiaries and the percentages of ownership between the entities.
- BEIS emphasises that filling in the notification form correctly will help to ensure that acquisitions can be assessed without delay. BEIS urges notifiers to read the Government's guidance on the 17 sensitive sectors before making the notification.
Important questions answered regarding mandatory notification scenarios
- The appointment of liquidators and receivers may, in some specific scenarios, require mandatory notification.
- The granting of security over shares is not a notifiable acquisition requiring mandatory notification, even if it involves a borrower carrying on regulated activities, as it does "not appear to grant any control over the shares".
- An indirect acquisition of control of an indirect subsidiary of the target which carries on regulated activities can trigger mandatory filing requirement, even when the target itself and other subsidiaries higher up in the chain of ownership may not carry on such activities. This happens when there is an unbroken chain of majority stakes.
- Contractual rights that have the effect of securing or preventing the passage of a class of resolutions (frequently taken by minority investors when providing early-stage investment) will generally not give rise to a mandatory notification because such contractual rights are not themselves voting rights. An important question to ask is whether these contractual rights amount to control over voting rights that enable the acquirer to pass or prevent all resolutions of a particular share class.
- Internal reorganisations can be subject to mandatory notification, even if the ultimate beneficial owner of the relevant entity remains the same.
Public disclosure generally at BEIS' discretion
- BEIS is only required to publish final orders, and has recently issued its first conditional clearance order and prohibition order.
- Consistent with its practice, BEIS confirms that it will not publish information regarding the receipt (or not) and the acceptance or rejection of individual notifications.
- BEIS may choose to publish information regarding call-in notices or final notifications (clearances) following the review period, in particular where the parties disclose such information, or the acquisition is otherwise in the public domain and the Business Secretary considers it is in the public interest to do so. It will not publish information about the specific contents of any interim order, but may choose to state that one has been made.
- Where BEIS chooses to make a proactive announcement, it will ordinarily seek to provide advance notice and to make the announcement when the relevant markets are closed.
Submitting a single notification for multiple acquisitions
- Circumstances where BEIS will accept one notification for multiple acquisitions include:
o The acquisition of multiple qualifying entities or assets from a single seller by a single acquirer; and
o The internal restructuring of an entity where there is no overall change in ultimate ownership.
- If control of multiple qualifying entities or assets is being acquired from different sellers, they must be notified under separate notifications.
BEIS welcomes suggestions for future guidance and will publish further market guidance notes in early 2023. In the meantime, our team will continue to engage with BEIS to assist clients in their investment and growth strategies.