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UK Government releases new guidance on the NSI Act and prohibits first transaction

  • United Kingdom
  • Competition, EU and Trade - Foreign investment regimes
  • Mergers and acquisitions


If you have any questions about the NSI Act, the updated guidance and whether it may impact your activities, please get in touch with your usual Eversheds Sutherland contact, or the authors below:

The National Security and Investment Act 2021 (“NSI Act”), which came into force on 4 January 2022, established a new standalone statutory regime enabling the UK government to scrutinise and intervene in acquisitions and investments for the purposes of protecting national security in the UK (see our briefing on the regime here).

In this past week, the government has both issued a new set of guidance relating to the NSI Act, and published an updated version of a set of its existing guidance.

1. Market Guidance Notes

On 19 July 2022, the UK government published a set of Market Guidance Notes (“Guidance”), with the purpose of complementing the guidance already published on the NSI Act by answering questions and providing advice based on the first six months of its operation.

The topics covered in the Guidance are based on an analysis of the notifications received under the NSI Act and feedback from stakeholders on their experience of the system.  There is a particular focus on the mandatory notification system and whether commonly raised scenarios require mandatory notification.

We set out below some of the key points covered by the Guidance.

Further assistance on what to provide when answering questions on the notification forms

The Guidance gives clear practical examples of the level of detail that is expected when explaining which sectors are relevant to a notification and which qualifying acquisitions (or “trigger events”) apply to an acquisition.

Submitting a single notification for multiple acquisitions

This section of the Guidance covers instances where the Government will and will not accept a single notification for acquisitions of control over multiple qualifying entities and/or assets.  The Guidance clarifies that in the following cases, a single notification may be submitted:

  • where a qualifying acquisition involves multiple qualifying entities or assets being acquired by a single acquirer from a single seller; and
  • purely internal corporate restructurings.

Conversely, where control of multiple qualifying entities or assets is being acquired from different sellers, separate notifications must be submitted.

The appointment of liquidators or other insolvency measures

The Guidance states that the appointment of a liquidator or receiver may be a qualifying acquisition, and in some specific scenarios, may require mandatory notification.

Granting of security over shares

The government has clarified that the granting of share security is not a notifiable acquisition requiring mandatory notification, even if it involves an entity carrying on activities covered by the mandatory notification sectors.

If, however, legal title is transferred or control passes in some other way, and the shares fall within the scope of the mandatory notification sectors, the transaction will need to be notified.  In particular, the Guidance confirms that this would include the creation of a share pledge under Scots law, where title to the shares is transferred to the secured lender or its nominee.

Whether or not the granting of security over shares could constitute a notifiable acquisition has been one of the key areas of uncertainty since the regime came into force, and so this clarification is to be welcomed.

Different types of voting rights

The Guidance confirms that the trigger event set out in Section 8(6) of the NSI Act applies to companies with alternative voting thresholds as well as entities that are not companies which have greater flexibility to set alternative thresholds for passing or blocking resolutions (or their equivalent).

Internal reorganisations

The Guidance makes clear that purely internal reorganisations can be qualifying acquisitions where they result in an acquisition of control over a qualifying entity, even if the ultimate beneficial owner of the entity remains the same.  In addition, such an acquisition of control over an entity by a person in the same business group could raise national security risks, although the Guidance acknowledges that this will be rare.

Publication of information related to the NSI Act

The Guidance sets out a number of situations where the government might exercise its discretion to publish information about individual acquisitions prior to a final order being made, which it is not required to do under the NSI Act.  Such information about an acquisition might include details of call-in notices, clearances and interim orders.

The scenarios in which the government might exercise this discretion include where a party is a public company and has an obligation to inform the market of price-sensitive information, where a party wishes to communicate a decision publicly for business or reputational reasons, or where a party is seeking to raise external awareness of the government’s consideration of an acquisition.

Exemptions based on acquirer characteristics

The NSI Act gives the government the power to create exemptions from mandatory notification requirements based on the “characteristics” of the acquirer.  The Guidance states that the government is monitoring closely how the NSI Act works in practice in order to determine whether it would be appropriate to make any such exemptions (which would first be subject to Parliamentary scrutiny).

2. Updated BEIS guidance on notifiable acquisitions

On 20 July 2022, BEIS published updated guidance on the 17 types of notifiable acquisitions under the NSIA (“Updated Guidance”).  The guidance has been amended to clarify when an acquisition in the downstream oil sector will be subject to the mandatory notification regime.

The Updated Guidance provides that a mandatory notification will be required if the qualifying entity being acquired meets all of the following three requirements

  • it supplies petroleum-based road, aviation or heating fuels (including liquefied petroleum gas) to persons in the UK;
  • it carries on any downstream oil activity, i.e., any one of import, storage, production, distribution or delivery of oil and/or certain oil products; and
  • the qualifying entity or its facility meet the relevant capacity threshold.

Our comment

The new guidance from government is to be welcomed. Consideration of the NSI Act has already become a regular feature of a broad range of deals – for UK focussed and international deals alike – with notifications becoming commonplace. The guidance helps clarify some important practical questions, for example, relating to taking security over shares and whether single notifications can be made for transactions involving multiple entities.

Providing clarity around the NSI Act for companies and investors is essential as the significance of this legislation becomes ever more apparent. On 21 July 2022 the government announced its first prohibition of a transaction  - this is against a backdrop of it announcing that it is undertaking a number of other high profile investigations.

Companies should continue to ensure that the NSI Act (as well as foreign direct investment regimes in other countries and other regulatory processes such as merger control) are considered from the outset of transactions so that the implications of these processes can be factored into deal planning at an early stage.

If you have any questions about the NSI Act, the updated guidance and whether it may impact your activities, please get in touch with your usual Eversheds Sutherland contact, or the authors below: