Following publication of the first set of market guidance notes in July 2022, the government has updated its guidance to reflect the experiences of the first year of the National Security and Investment Act 2021 (NSIA). What do businesses need to know about the most recent guidance?

Acquisitions involving parties in financial distress

When parties are in financial distress and require a quicker decision, they should bring this to the government's attention as soon as possible (particularly when the NSIA's statutory timelines could exacerbate financial problems). The government may be able to expedite an acquisition in exceptional circumstances, provided the parties can show that there is material financial distress giving rise to genuine urgency. A relevant consideration is likely to be whether the financial distress has a direct bearing on the national security risks involved.

The government gives specific examples of relevant evidence that it may accept in these circumstances, which will generally include:

• analysis provided to the company by external legal, restructuring and insolvency advisers and external auditors about the company's position;
• evidence from the company's debt or equity providers;
• if the company forms part of a larger group, information about the parent company's ability to provide continued financial support; and
• evidence that other funding options are not feasible or available. 

Unless a notifiable acquisition (even one that warrants an expedited timeline) is approved by the government, the acquisition will be void and the parties will be at risk of criminal or civil penalties.

When parties can notify

Generally speaking, the government would consider notification appropriate when there is a good faith intention to proceed. This may be evidenced by:

• heads of terms;
• financing arrangements; 
• board level consideration of the acquisition; or 
• for a public bid, a public announcement of a firm intention to make an offer, or the announcement of an offer.

The government may accept notification without such evidence where there are good reasons for doing so. However, if an acquisition is notified too early, the parties run the risk that:

• the transaction subsequently changes, making a separate notification necessary;
• the government requests further information about the transaction; or
• the notification may be rejected (e.g. because it contains insufficient information).

In any notification, the parties should state the progress of negotiations or commercial dealings, including the awareness of the seller and target. Before accepting a notification, the government may require confirmation from a counterparty (e.g. the seller) that the acquisition is in contemplation, particularly where the government has received more than one notification in relation to the same target, the arrangements appear to be fluid, or there are unusual circumstances. The government will not typically inform the counterparty about the potential existence or identity of any alternative bidders.

Updating NSIA process and procedure 

The guidance has been updated to reflect changes made to government departmental structures and current practice, including that: 

• the Investment Security Unit (ISU), which administers the NSIA, is now in the Cabinet Office and the decision-maker is the Chancellor of the Duchy of Lancaster, the Secretary of State in the Cabinet Office (currently Oliver Dowden). The former Department for Business, Energy and Industrial Strategy is no longer responsible for the NSIA;
• the government generally accepts, rejects or returns a notification form within five working days (although this may be longer if there are complicated issues). If a notification is returned, the parties should address any questions they have to the general ISU email address; 
• the government shares the details of the acquisition with relevant government departments and will make its assessment once the departments have provided their assessments. If the acquisition is "called in" for assessment, the government will continue to work with relevant departments, although the ISU will remain the primary point of contact for the parties; and
• where the government is considering issuing a final order, it must consider any representations made by the parties, but is not bound to accept any alternative remedies proposed. The parties may identify potential remedies to mitigate any national security risk at any point in the process. 

The guidance provides further information about the government's use of certain powers, including the power to make interim orders and extend the assessment period. 

Uncertainty about whether an acquisition is notifiable

If there is significant uncertainty about whether an acquisition is notifiable, the parties may contact the government (using the ISU general email address) to seek a view. Views expressed by the government are not legal advice. 

In seeking the government's view, the parties should include as much detail as possible about a qualifying acquisition and clearly explain the uncertainty about the application of the NSIA and any timing considerations. The government will not always be able to provide a substantive response and is unlikely to comment on hypothetical scenarios.

Top tips when completing a notification form

These include providing as much detail as possible about the acquisition in the notification form, including optional additional documents (such as an acquisition brief or financial statements). The following information is likely to be particularly helpful: 

• why the parties believe the acquisition does or does not raise any national security concern;
• the rationale for the acquisition, including why the acquisition is being undertaken and the intended business effect of the acquisition (e.g. consolidation of functions);
• relevant financial or economic information (e.g. the value of the deal, turnover of the target);
• whether any associated parties are in financial distress;
• details of any related acquisitions that have not been notified to the government; and
• existing relationships between the target and the acquirer (e.g. competitors).

Final thoughts

The updated market guidance provides helpful insights for businesses and practitioners. Parties can suggest topics to the government for inclusion in future editions of the market guidance.

There is a large amount of publicly available guidance on various NSIA topics, which is frequently updated. We can expect new and amended guidance as the government gains greater experience of the national security regime. Parties and their advisers should keep up to date with all changes.

The first full NSIA annual report is due to be published shortly, providing details about cases dealt with by the ISU between 1 April 2022 and 31 March 2023.