The foreign investment environment in the UK has always been known for its flexibility and freedom. Among the major Western economies, the UK until now was the only country that did not have specific legislation on vetting foreign investment, and after the financial crisis, it attracted a large amount of Chinese investment.
With the continual changes to the international situation, the impact of geopolitics on investment is increasing. Major Western economies, as far as Europe is concerned, have strengthened their reviews of foreign investment in recent years, particularly to key national infrastructures, and sensitive sectors such as technology, the information industry, healthcare, etc.
Needless to say, the changes in foreign investment review in various countries are largely based on concerns about investment from China, and the UK government has also been outspoken about this.
The UK’s Department for Business, Energy and Industrial Strategy officially announced the National Security and Investment Bill on 11 November, 2020. The bill has been formally submitted to the nation’s parliament and is now under a legislative review process. The first reading without debate of the bill took place on 11 November, through the House of Commons, the UK parliament’s lower house.
According to the UK legislative process, a bill will go further for the second and third reading, then be debated and revised by the House of Commons and the House of Lords, the parliament’s upper house. Once a bill has completed all the parliamentary stages in both houses, it can be made into an Act of Parliament, following the Queen’s royal assent. Given all this will take a degree of time, it is uncertain whether the bill will be officially approved before the spring of 2021.
However, during this period, overseas investors including Chinese investors need to pay close attention to any changes in the bill in the legislative process, and carry out a prudential assessment of any deals already in the transaction process, and the conceived transaction. It is worth noting that the UK government has retroactive power to call in any qualifying transaction that closes between 12 November 2020 and the date on which the legislation comes into effect.
Based on the published bill submitted to the UK parliament on 11 November, this article refines and summarises key content in order to help Chinese investors understand the bill and what it means for their activities.
Due to space limitation, this article is divided into two parts. The first part introduces the sectors that require mandatory filing. The second part will introduce the types of transactions that may trigger the filing obligation, the decision-making authority, relevant time limits, and also review results.
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Sectors requiring mandatory filling
The bill divides industries that involve foreign investment into two categories, namely, sectors that require a mandatory national security review, and sectors that can make filling voluntarily.
There are 17 sectors that require mandatory filing: (1) civil nuclear; (2) artificial intelligence (AI); (3) engineering biology; (4) communications; (5) advanced robotics; (6) critical suppliers to government; (7) data infrastructure; (8) computing hardware; (9) critical suppliers to the emergency services; (10) defence; (11) cryptographic authentication; (12) military and dual use; (13) energy; (14) advanced materials; (15) satellite and space technologies; (16) transport; and (17) quantum technologies.
The 17 above-mentioned specified sectors have not yet been finalised, and the UK government is still seeking public consultation on the detailed definitions up until 6 January 2021. In addition, the UK government has the right to adjust the sectors that require mandatory filing through secondary legislation in the future, based on the changing nature of national security risks. The UK government also has the right to make appropriate exemptions, based on the characteristics of the acquirers.
For investment that is related to sectors requiring mandatory filing, investors cannot close the deal before a clearance has been obtained (pre-closing obligation).
Penalties for any breach will include imprisonment of up to five years for individuals, and/or fines of up to 5% of the group worldwide turnover of the investor, or £10 million (US$13.3 million), whichever is higher. In addition, transactions that complete in breach of the prohibition will be legally void.
For other sectors that are not specified in the above-mentioned list, voluntary filing is allowed. If the contemplated investment may possibly involve any national security concerns, the UK government will encourage a voluntary filling.
Even for transactions without a mandatory filing obligation, the UK government has the right to call in a transaction for review. This power to call in for review will apply for up to five years after the completion of transactions. If the government has become aware of the transaction, the call-in notice will be reduced to six months.
Yang Yuhua is a partner at Llinks Law Offices
Llinks Law Offices
16F / 19F, ONE LUJIAZUI, 68 Yin Cheng Road Middle
Shanghai 200120, China
Tel: +86 21 3135 8666
Fax: +86 21 3135 8600
E-mail: yuhua.yang@llinkslaw.com
