The UK National Security and Investment Act 2021 ('the Act') took full effect on 4 January. This is Part 2 of a three-part series on the key questions and issues deal-makers (both in and beyond the UK) need to be aware of. Part 1 covers the mandatory notification regime. This Part 2 deals with the Government's proactive call-in power. Part 3 sets out the consequences that can apply under the Act and the key risk factors for a deal, as well as the application of the Act to non-UK transactions.

What deals can the Government call in for review?

While the Act primarily creates risk for notifiable acquisitions, it also empowers the Government to issue a call-in notice to review (and potentially unwind) other deals about which it has national security concerns. This power can be used where a "trigger event" takes place in relation to a qualifying entity (as defined above) or a "qualifying asset", and the Government thinks the deal could create a national security risk.

In relation to entities, a trigger event occurs where a person gains either control (as defined above) or "material influence" over the target's "policy". The latter is akin to the test used in UK merger control, and the Government's guidance on the Act expressly cross-refers to the CMA's guidance on material influence. At its most basic, this threshold creates the possibility that investors without sufficient veto rights to give them "control" could still secure material influence through vetoes over key matters such as budgets, business plans and/or board appointments. In that case the deal would not have to be notified, but could be called in by the Government after the event.

That power can be used in respect of assets where a person acquires a right or interest in, or in relation to, a "qualifying asset" that makes them able to use the asset or direct or control how it is used (or do so to a greater extent). There is, again, no minimum turnover or deal value threshold.

"Qualifying asset" is defined very broadly, to cover land, corporeal moveable property and “ideas, information or techniques which have industrial, commercial or other economic value” (the Act gives the examples of trade secrets; databases; source code; algorithms; formulae; designs; plans, drawings and specifications; and software). The asset must be either within the UK or its territorial sea (in the case of land or corporeal property), or otherwise used in connection with activities carried on in the UK or the supply of goods and services to persons in the UK. For more on the application of the Act to assets, and particularly IP, see our post on its impact on IP and confidential information and our related webinar.

What timings apply to the call-in power?

The call-in power can be invoked within six months of the Government becoming aware of the relevant acquisition, subject to a 'backstop' of five years from the acquisition date (though the power will never expire in relation to deals that should have been notified under the mandatory regime).

While the power could only be exercised from 4 January onwards, it can be used in respect of deals that completed on or after 12 November 2020. In that case the six-month and five-year periods each run from 4 January.

The threshold for the Government being "aware" of the deal will need to be established – it is not yet clear whether that will be assessed objectively (e.g. if a deal receives sufficient press coverage then the Government will be deemed to be aware of it) or will require proof of actual awareness. If the latter then the ISU may find itself inundated by emails flagging deals to ensure they benefit from the shorter six-month period. Again, data on the ISU's activities in this initial period will be keenly awaited.

These lengthy risk periods can in any event be avoided by voluntarily notifying the transaction (before or after completion) to the ISU. That process follows the same timings as set out in Part 1 in relation to a mandatory notification: i.e. 30 working days (after the notice is accepted) for the initial screening, and if the deal is called in 30 to 75 working days for the more detailed review.