Francis Kean

In the following guest post, Francis Kean examines the proposed new U.K. National Security and Investment Bill, which creates a new enforcement regime and carries substantial new risks for fines and even imprisonment. Francis is a Partner, Financial Lines, at McGill and Partners. A version of this article previously was published as a McGill client alert. I would like to thank Francis for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Francis’s article.



What do you get when you combine retrospective legislation, fines of up to £10 million and 5 year jail terms under an entirely new enforcement regime? Answer: directors sitting up and taking notice. It’s perhaps surprising then that there has not been more fuss made about the new National Security and Investment Bill published by the Government last week.


What’s the Fuss About?

The proposals represent the UK Government’s post BREXIT response to the threat to national security posed by foreign takeovers of British companies. Arguably, the UK is late to the table on this since other countries including France, Japan, Germany and Australia have had protectionist (or protective depending on your point of view) legislation on the statute books for many years. In the US for example the CFIUS Regulations were introduced long ago and those responsible for enforcement are not afraid to use their powers.

But the signs are that the UK intends to make up for lost time. When the new Bill becomes law, it will become mandatory in the UK to report takeover threats across 17 business sectors including defence, energy, transport and technology. The restrictions also cover land, tangible or moveable property, and even ideas, information, or techniques which have industrial, commercial or other economic value. It is expected that companies from China, Russia and parts of the Middle East are most likely to receive scrutiny from government under the new measures.

Failure to report takeover threats could result in individual criminal sanctions including five-year jail terms for directors and fines of up to £10 million whilst companies may have to pay up to 5 per cent of their worldwide turnover. By way of indication of the scale of the changes to the current system envisaged, the government expects to be notified of between 1,000 and 2000 transactions a year and to review not far short of 100. That compares with just 12 public interest interventions in mergers and acquisitions on security grounds in the 18 years since the Enterprise Act came into force. Moreover, this will be an entirely new regime separate from that of the Competition Authority.

The key test under the new legislation will be whether Secretary of State has a reasonable suspicion that a risk to national security may arise. What will be of relevance is the practical ability of a foreign entity to use an acquisition to undermine national security. In contrast to the clearance regime under competition laws, the new proposals do not envisage the possibility of clearance being obtained by giving undertakings or assurances. There is also no minimum deal size threshold. Nor is it the case that only when the Companies Act usual blocking threshold of 25% of the voting shares is acquired, will the obligation to notify apply. For certain key industry sectors such as defence the threshold may be as low as 15%.


Retrospective Effect

Retrospective legislation usually has the effect of sending shivers through the minds of lawyers and other professional advisers whenever it applies and this case should be no different. The rules will take effect retrospectively once they are approved by Parliament in the coming months which means that any threatened takeovers occurring after 11th November 2020 (the date on which the Bill was published) could risk being called in for an investigation which could take place up to five years later. Moreover, in the event that the government decides to take action following an investigation, it will gain the retrospective power to break up firms if they have not followed the correct procedures and to impose fines of up to £10m on individuals.



In publishing the Bill, Alok Sharma, the business secretary, said: “The UK remains one of the most attractive investment destinations in the world and we want to keep it that way. But hostile actors should be in no doubt, there is no back door into the UK. “This Bill will mean we can continue to welcome job-creating investment, while shutting out those who could threaten the safety of the British people.” What was perhaps a little less clear is that the Government is effectively requiring company directors to form the first line of defence here under threat of a new enforcement regime which arguably is already in force.