New and updated guidance on National Security and Investment Act 2021

The Department for Business, Energy and Industrial Strategy (BEIS) has published new Market Guidance Notes on the National Security and Investment Act 2021 (NSI Act). It has also updated its guidance on the 17 sectors where acquisitions must be notified under the NSI Act, and published new guidance on the application of the NSI Act to new build downstream gas and electricity assets.

The NSI Act came into force in January this year and gave the UK government power to scrutinise a wide range of transactions on national security grounds, and made notification of relevant transactions in 17 specified sectors mandatory (see our detailed briefing on the regime for more detail).

The Guidance Notes aim to answer questions and provide advice based on the first six months of the NSI Act’s operation. This first set, of what will be a series, of Market Guidance Notes has a particular focus on whether certain scenarios require mandatory notification.

As well as covering practical issues when making a notification, the Guidance Notes also give guidance on when the regime will apply.

Topics covered include:

• Group reorganisations – The guidance reaffirms that an internal corporate reorganisation can be a qualifying transaction even if the ultimate beneficial owner of the entity remains the same.
• Voting rights – Under the NSI Act, in the 17 specified sectors the acquisition of voting rights that enable a person to "secure or prevent the passage of any class of resolution governing the affairs" of the target entity must be notified. The Guidance Notes say that contractual rights that have similar effect (such as those taken by minority investors when providing early-stage investment) are not covered by the concept of voting rights in the NSI Act and so notification in relation to the acquisition of such rights is not mandatory. They may however give the acquirer material influence, in which case the acquirer may choose to voluntarily notify the transaction as the Secretary of State has power to call the transaction in.
• Indirect acquisitions of control – Investors may acquire control over qualifying entities indirectly, where there is an unbroken chain of majority stakes down to an entity of interest. For example if Company A acquires 51% of the shares in Company B, which in turn already holds 51% of the shares of Company C, Company A acquires indirect control over Company C and the NSI Act regime will be engaged.

BEIS intends to publish another tranche of Market Guidance Notes in early 2023 and welcomes suggestions for topics they should cover.

For further information on the Market Guidance Notes, see this post on our Competition Notes blog.