The newly formed Investment Security Unit (ISU), housed within the
Key points of the Act:
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The Act applies to acquisitions of entities in qualifying sectors. The 17 defined sectors can be found on the government website and include artificial intelligence, communications, defence and energy.
- The Act provides for a mandatory notification procedure for acquisitions/disposals in these sectors. Trigger events for the mandatory notification procedure are, a proposed acquisition of:
- more than 25%, more than 50% or more than 75% of the votes or shares of an entity in a qualifying sector; or
- the acquisition of voting rights which would enable or prevent any class of resolution governing the affairs of an entity in a qualifying sector to be passed.
In this case, proposed acquirers must notify the ISU and obtain approval before completing the acquisition.
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The Act also provides for a voluntary notification system which is to be used in transactions which fall within one of the trigger events listed above , but which are not in relation to an entity in one of the qualifying sectors.
- In the absence of a mandatory or voluntary notification, the Act gives the Secretary of State the power to call in the transaction for review. A call notice can be issued from when the transaction is in progress or contemplation, through to within six months of the Secretary of State being made aware of a completed transaction. This power will apply retroactively to capture in-scope transactions completed from
12 November 2020 onwards. - As a result, enforcement action could be delayed, restrictions or conditions could be imposed on the lender as it tries to enforce its security (or, exercise its voting rights) or the lender may find the acquisition or disposal of the secured shares is prohibited. Absent a situation where mandatory notification under the Act becomes relevant, lenders who are concerned that enforcing their security might cause a trigger event, may wish to consider making a voluntary notification to avoid the not inconsiderable sanctions which arise for a breach of the Act.
Key points for lenders:
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Whilst the vast majority of commercial lending arrangements are not likely to raise national security issues, the Act may have an impact on secured lending in certain scenarios. In particular, it may have an impact on lenders seeking to enforce security over shares or over voting rights attached to shares if the criteria for mandatory notification of the transaction are met.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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