Clifford Chance

The UK Government has published updated Market Guidance which provides some useful additional information on how the Government will exercise its powers under the NSI Act. 

The UK Government has published updated Market Guidance on the National Security and Investment Act 2021 ("NSI Act") which provides some useful additional information on how the Government will exercise its powers.

When to notify

The guidance advises that notifications should generally be made at the point at which the terms of the acquisition are sufficiently stable to enable the Government to properly assess whether the NSI Act is applicable and whether it could lead to national security risks. The earliest point at which the Government will generally consider it appropriate to notify is when there is a good faith intention to proceed. This might be evidenced by:

• the existence of heads of terms;
• financing arrangements being in place;
• board level consideration of the acquisition;
• if it is a public bid, a public announcement of a firm intention to make an offer or the announcement of a possible offer; and/or
• confirmation from a counterparty to the acquisition (e.g., the seller) that it has been engaged and agrees that the acquisition is in contemplation.

However, the Government may accept a notification where the items above are not present, where there are good reasons for doing so, bearing in mind that if the acquisition is notified too early there are risks that:

• subsequent changes in the acquisition will require new notification(s);
• the Government will make further information requests; or
• the Government might reject the notification if, for example, it does not contain sufficient information to allow the Government to decide whether to give a call-in notice.

Clarifying uncertainties about filing obligations

It remains quite common for parties to be uncertain as to whether their transaction is subject to a mandatory filing under the NSI Act, in part because certain provisions of the NSI Act itself and the criteria for identifying the relevant sectoral activities that are subject to mandatory filing are open to different interpretations. Consequently, the new guidance explains that the Government is open to giving informal advice as to whether a transaction is subject to mandatory filing, the information it will typically require to do so, and the circumstances in which it may decline to do so (for example, it will not typically give advice on hypothetical scenarios).

Frustratingly, however, there is no commitment to any timeframe for giving such advice. Moreover, the guidance also makes it clear that the Government considers itself bound to reject filings that are notified using the wrong form (e.g., a transaction that is subject only to voluntary filing but which is notified on the mandatory filing form). Consequently, in cases of uncertainty, transaction parties must either accept an unspecified delay while seeking informal advice from the Government prior to filing, or proceed with a filing and accept the risk of delay if the Government decides that the wrong form has been used, such that the transaction may need to be re-notified. Given that the information requirements of the mandatory and voluntary forms are largely the same, it has been suggested to the Government that it should consider implementing a single form that can be used for both, and is not therefore at risk of rejection.

How to notify

The new guidance contains guidance on the information to be included in the filing forms, as well as certain information that is not strictly required by the form, but which can be helpful to the Government, such as details of the transaction rationale, relevant financial or economic information (e.g., transaction value, target turnover), related un-notified transactions and competitive relationships between the parties. It also clarifies that certain classified information should be communicated to the Government through separate, secure processes and not included in the filing form.

Interim orders and information gathering powers

The new guidance also explains the Government’s powers to issue:

• interim orders (within the Phase 2 assessment period only) to prevent or reverse the parties taking pre-emptive action that might prejudice the outcome of the assessment of an acquisition and/or to prevent any action which could have the effect of undermining conditions the Government may seek to put in place through a final order;
• binding information notices at any stage (including prior to filing) and their “stop the clock” impact pending a satisfactory response, which arises only if sent during the Phase 2 review period; and
• attendance notices, which will usually require attendance at a virtual meeting rather than physical attendance at a Government building. Such notices have the same "stop the clock" impact on the Phase 2 assessment period as information notices, and the guidance states that attendance notices will not usually be issued during the Phase 1 review period.

Clarifications of the review process

The new guidance also gives some insights into certain procedural practices that have been developed by the Government to date:

• where one of the parties is in financial distress, the Government may consider expediting the review process, provided it is given sufficient information to assess the urgency of the situation. This will typically include financial information (e.g., cash flow statements and accounts), analysis provided to the company by external legal, restructuring, insolvency advisers and auditors, and possibly also information from the company’s debt or equity providers (including parent companies and creditors) evidencing their refusal to further support the company.
• the guidance notes that the Government is required, before issuing a final order, to consider any representations made by the parties which can made at any point in the process.
• in cases where the Government is considering issuing a final order, it “may” write to inform relevant parties of this, with information about the remedies it is considering and inviting the parties to make representations to inform the Government’s decision making, e.g., regarding the feasibility of the proposed remedies and any alternative remedies. The Government may also give an overview of the national security risks that it has identified, unless the sensitive nature of this information makes it impossible to do so.
• where the parties choose to withdraw from a transaction, if the Government is satisfied that parties no longer intend to complete an acquisition, no final order will be issued by the Government.