Clifford Chance

Acquisitions of overseas entities and assets could be caught by the new UK national security regime which is due to come into force fully on 4 January 2022.

The substantive provisions of the UK National Security and Investment Act (Act) will commence fully on 4 January 2022. The Act includes broad powers for the UK Government to call in and review a wide range of transactions that could harm the UK's national security, as well as mandatory notification requirements for a subset of transactions in 17 specified sectors (see our July 2021 briefing for more detail).  The Government will be able to impose conditions or (in rare cases) block an acquisition.

One of the striking features of the new regime is its application to entities and transactions outside the UK.  The Government has published guidance for businesses on the extraterritorial application of the Act.  The mandatory filing requirement will apply to the acquisition of a foreign company which either carries on activities in the UK in a specified sector itself (e.g. through a regional office, or through staff that regularly travel to the UK to perform services for a UK client), or if it "oversees" a subsidiary that carries on such activities.

In addition, an acquisition of a foreign company or overseas asset could be called in for a national security review:

• if a foreign target carries out activities in the UK outside a specified sector;
• if a foreign target exports goods or services to customers in the UK, even if the target has no business activities in the UK;
• if a foreign asset is used "in connection with" the supply of goods or services to UK customers (such as an asset that generates energy which is supplied to the UK), even if it is not the seller of the asset that makes that supply; or
• if a foreign asset is used "in connection with" activities carried on in the UK (such as machinery located overseas used to produce equipment that is used in the UK by a third party).

Depending on the specific arrangements, a foreign company that supplies goods that pass through the UK while traveling to other destinations could also fall within the scope of the new regime.

The Government acknowledges that acquisitions of qualifying entities and assets located overseas are generally less likely to give rise to national security concerns than those located within the UK.  As a result, these are generally less likely to be called in for review. The strength of the UK connection, including the extent to which people in the UK rely on the relevant foreign entity or asset, and its effect on national security will be an important factor.  Helpfully, the guidance notes that investigations of foreign asset acquisitions are expected to be rare.

From 4 January 2022, the UK Government's call-in powers will become effective for transactions which completed on or after 12 November 2020, and the mandatory notification requirements will apply to transactions that meet the relevant criteria and complete on or after 4 January 2022.