For a law which does not fully come into force until 4 January 2022, its approaching footsteps have been making plenty of noise before it walks through the door. The Euclid Law team has been advising many clients on whether their transactions are caught, assessing substantive risk, liaising with the Department for Business, Energy & Industrial Strategy (BEIS) and submitting filings. Some themes are already emerging from our experience which we are sharing here. We welcome views and reactions from others.
The Christmas rush
As well as the mad dash to buy a turkey before supply chains crash, some deal-makers have been rushing to complete transactions before 4 January 2022. This makes a lot of sense when all other aspects of the deal point to simultaneous exchange and completion. Complete on or after 4 January 2022, by contrast, and this deal timetable is out of the question if the target business happens to fall into one of the 17 mandatory filing sectors. And where the deal obviously raises no substantive national security concerns, the extra time and cost of a mere technical filing is best avoided. So, if it’s not too late, it’s worth completing certain transactions during the first days of the New Year.
The UK’s new national security investment screening regime will enter fully into force on 4 January 2022. From that date, the National Security and Investment Act 2021 (the ‘NSI Act’) will give the Government the power to review a wide range of investments in businesses that are active in the UK or acquisitions of related assets. While the new regime has the ultimate objective of preventing transactions that could harm the UK’s national security, it will impact a much wider range of deals.
Under the new regime, investments in entities that are active in the UK in 17 specific sectors will have to be notified to the Government and cleared before completion. The notification obligation applies regardless of whether the investor is foreign or UK-based and severe civil and criminal penalties will apply if notifiable transactions are not notified. The underlying transaction will also be void as a matter of English law.
Although 4 January may feel like a long way off, it is now less than three months away. The new NSI regime will have a potentially significant impact on timetables and deal certainty for transactions where closing is due to take place after that date. As a result, it may well be relevant to transactions that are currently being negotiated. It is also notable that, once the regime is in force, the Government will have the power retrospectively to review and call in any transaction that completed on or after 12 November 2020 (the date on which the bill was originally introduced to Parliament).
Filings will be mandatory where the target is active in any of the following sensitive sectors:
Critical suppliers to government
Military and dual-use
Critical suppliers to the emergency services
Satellite and space technologies
The assessment of whether a qualifying entity is involved in a specified sector will involve careful analysis of the target’s business alongside the relevant statutory definitions. These are extremely detailed and prescriptive, with some running to several pages.
Debates concerning the role and procedures of the Competition Appeal Tribunal mirror the UK’s dilemma post-Brexit
So how do practitioners rate the tribunal? ‘In my view, the CAT is one of the real success stories of the “new” UK competition regime that was put in place by the Competition Act 1998,’ says Becket McGrath, a partner at Euclid Law. ‘It has proved to be an effective and independent tribunal that is prepared to overturn decisions that are insufficiently well reasoned and to pick up material procedural defects, while showing sufficient deference to authorities’ discretion.’
There are also plenty of examples where CAT has upheld the regulator’s decisions, […] dismissed all of the applicant’s arguments and upheld the CMA merger decision in full’, McGrath notes.
McGrath says the Penrose report contains ‘a mix of good and bad ideas but the details were largely brushed aside’. […]