Irish Dealmakers Beware: New UK Rules on Foreign Investment Could Apply
A new broadly-cast UK national security and investment regime (“the UK Regime”) could catch Irish transactions, including deals with an Irish buyer and/or target.
The UK Regime, enacted by the National Security and Investment Act 2021, came into force on 4 January 2022, but has potential retrospective effect for deals closed since 12 November 2020.
The UK government expects between 1000 and 1800 deals to be caught every year – a large number by any measure. By comparison, UK merger authorities formally review around 100 deals a year under UK competition rules.
Important for Irish deal-makers:
- The UK Regime does not apply any financial or other size thresholds for qualifying transactions.
- There are no exemptions in respect of deals with a purely ‘island of Ireland’ cross-border element, and no other carve out in respect of Northern Ireland for deals involving Irish businesses.
- A standstill obligation applies, meaning deals caught by the mandatory notification rules under the UK Regime must be notified and cleared before completion.
At a glance - What does the UK Regime involve?
- Mandatory Notifications: Transactions in certain sensitive sectors now require mandatory pre-notification to the UK Government and clearance pre-completion, necessitating split signing and closing.
- Voluntary Notifications/Possible UK Government Investigations: Transactions in other sectors may fall within the UK Regime, but notification is voluntary in such cases. The UK Government retains the power to investigate non-notified transactions that may give rise to national security concerns for up to 5 years post-closing.
Mandatory notification will arise where a transaction involves:
- acquisition of an entity (excluding mere assets, but including companies, partnerships and unincorporated associations); and
- the entity carries out activities in the UK; and
- the acquisition involves a “triggering event” (e.g. acquiring >25% of shares or voting rights, or obtaining contractual control); and
- the target is active in the UK in one of 17 defined sensitive sectors.
What are the implications of failing to make a mandatory notification?
- Voidness: If a mandatorily notifiable deal is completed without notification then the transaction is deemed void under UK law. This may in practice require unwinding the transaction or pausing integration pending investigation.
- Criminal / Civil Fines: Failure to notify also carries potentially significant criminal and civil sanctions: a civil penalty could be up to 5% of the annual global turnover of the acquirer or £10 million (whichever is greater) and criminal penalties include up to five years’ imprisonment for responsible directors.
What are the 17 sensitive sectors subject to mandatory notification?
Energy; Transport; Civil Nuclear; Communications; Data Infrastructure; Defence; Artificial Intelligence; Autonomous Robotics; Computing Hardware; Cryptographic Authentication; Advanced Materials; Quantum Technologies; Engineering Biology; Critical Supplier to government; Critical Supplier to the Emergency Services; Military or Dual-Use Technologies; and Satellite and Space Technologies.
Further details of the mandatory notification requirements for these 17 sectors can be found in the UK Regime Regulations.
Transactions that are voluntarily notifiable and capable of investigation
The UK Regime also provides jurisdiction for the UK Government to investigate other deals with a nexus to the UK, either following voluntary notification or following UK Government-initiated investigations.
The UK Government has stated that this power will be used solely to safeguard the UK’s national security, although the circumstances in which national security is likely to be affected are not defined.
In practice the Investment Security Unit (“ISU”) within the Department for Business, Energy & Industrial Strategy (“BEIS”) will monitor market news and announcements and will have 5 years to investigate non-notified deals post-closing (or 6 months after becoming aware of the deal).
Accordingly, deals (i) considered likely to touch on UK national security, or (ii) involving (or adjacent to) any of 17 defined sensitive sectors, should be considered for possible voluntary notification.
Anticipated Irish Legislation for Investment Screening
Plans by the Irish Government to introduce an equivalent investment screening regime here are proceeding, even if draft legislation appears stalled. Since 2021, an Investment Screening Bill for this purpose has been listed as “priority legislation”. We expect earliest publication in Q1 2022.
Also contributed by Jack Larkin and Sean Kehoe.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.