• Edinburgh: 0131 625 9191
  • Glasgow: 0141 428 3258
  • Galashiels: 01896 550991
Playing cards

Deal or No Deal? The Government Decides

Date: 19/08/2021 | Corporate

The government has announced that the National Security and Investment Act 2021 (“Act”) will come into force on 4 January 2022.  This new law gives the government unprecedented powers to investigate, veto, unwind or impose conditions on corporate deals it thinks may threaten national security.

The new legislation applies to businesses in 17 specified sectors.  In those sectors, where an investor or purchaser acquires more than 25% of the shares or voting rights in a business or the right to block resolutions being passed in such a business, then the proposed transaction must be notified to the government and advance clearance obtained under the Act.  The government can refuse clearance if it chooses to do so or impose conditions on the deal.  New clearance processes are being put in place to oblige the government to give a response within a specified period.  If a notifiable deal completes without approval, it will be void and may therefore be legally unenforceable. 

The 17 different sectors to which the new regime applies are:

  • Advanced Materials.
  • Advanced Robotics.
  • Artificial Intelligence.
  • Civil Nuclear.
  • Communications.
  • Computing Hardware.
  • Critical Suppliers to Government.
  • Critical Suppliers to the Emergency Services.
  • Cryptographic Authentication.
  • Data Infrastructure.
  • Defence.
  • Energy.
  • Engineering Biology.
  • Military and Dual-Use Technologies.
  • Quantum Technologies.
  • Satellite and Space Technologies.
  • Transport.

There is no minimum level of turnover, market share or value a business in a relevant sector has to have before this new legislation applies and there are significant personal and corporate risks in failing to comply.  A director of a company who completes a deal without complying with the advance verification obligations could receive up to 5 years in prison and/or an unlimited fine or a civil penalty of up to 5% of turnover can be imposed on the business.

The government also has the power to call in any deal completed after 12 November 2020 to retrospectively review it and unwind it or impose conditions, should it choose to do so.  There is no definition of “national security”, nor have any particular jurisdictions been identified as being of concern.  When deciding whether to “call in” a transaction and in assessing whether a transaction raises national security threats, the government will consider three things:

1. Is the business or asset being acquired engaged in activities which are relevant to national security?

2. Could the transaction give the acquiring party the ability to undermine national security by engaging in disruptive actions or espionage, or by exerting inappropriate leverage on the UK Government?

3. Is the acquirer likely to use its rights over the target in a manner which undermines national security?

The government will look at the ownership and control structure and consider who has the ultimate control of the acquirer.  It will be most concerned by acquirers that are closely affiliated with jurisdictions it considers to be hostile.

Even if a deal is not strictly notifiable, a voluntary notification can be submitted to find out whether the government will call it in after completion for review.

So what steps should you be taking to prepare for this new regime?  Firstly, you need to work out if your business or a business you want to invest in falls within one of the 17 specified sectors.  New, more detailed guidance has just been published on this.  If it is covered, then you need to be aware there will be impact on any proposed funding or sale transaction.  Businesses and investors will need to consider the following when planning any transaction:

  • Impact on timing if pre-clearance is needed.
  • Costs of compliance.
  • Need for conditions precedent in documentation.
  • Preference for investors/buyers most likely to get clearance.

If you think your business or investment may be affected by the new rules or need help with assessing the risks to any proposed transaction contact a member of our corporate team.

The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.



Latest Updates

Want to get even more insight from Davidson Chalmers Stewart?

Keep your organisation up to date with the latest opportunities and changes in commercial law with regular insight and updates from the experts at Davidson Chalmers Stewart.

Let's Talk

A typical law firm? Not really. But a partner for the people and businesses we work with? Absolutely.

Our determination to do things a better way is nothing without our clients. So if you like what you see and think we’d make a good team, let’s talk. Pick up the phone and call us direct or make specific enquiries to our individual email addresses across the website. Alternatively use the form to submit general questions and comments.

Either way, we’ll get the message.


t0131 625 9191


t0141 428 3258


t01896 550991

Let's Talk form