UK narrows scope of national security deal vetting proposals

3 min read
Christopher Spink

Fewer transactions targeting UK assets are expected to have to file for mandatory clearance under the UK’s proposed national security and investment bill, after the UK government narrowed the definition of the sectors that will have to comply with the new rules.

When the bill was published in November, advisers feared that up to 2,000 deals a year would have to be vetted as the scope was potentially very wide. In an amendment, the government has revised the criteria for the 17 sectors that will be covered by the new regime.

The sectors, where advisers will have to notify the Department of Business, Energy & Industrial Strategy of a planned deal, include defence, energy, transport, communications, data infrastructure, computing hardware, civil nuclear and military-linked businesses.

In addition some areas of technology are also included, such as advanced materials and robotics; cryptographic authentication; quantum, satellite and space technologies; and synthetic biology.

Business secretary Kwasi Kwarteng said the bill “will protect the UK from 21st century threats, to ensure we remain a premier investment hub for the technologies of the future".

BEIS said it would assess transactions within 30 days of being notified about them. The timetable will be set out in the new law, something not done under previous regimes. It said the revisions will enable clearer parameters to be set on which deals fall within the scope of regulations.

“We're committed to working with investors to ensure the notification process is as quick and smooth as possible, and these carefully targeted sector definitions will give much-needed clarity about whether a deal is in scope,” Kwarteng said.

The revisions were made after a consultation period and BEIS said further refinements could be made as the bill goes through parliament.

The new rules will come in as advisers also grapple with requirements to file more deals with the UK Competition and Markets Authority for clearance now the UK has left the European Union. Previously larger deals only needed to file with the European Commission in Brussels.

Similarly, restructurings agreed in UK courts now need to be recognised by all other EU jurisdictions. Previously as a member of the EU such decisions in the UK were automatically recognised throughout the bloc.

The UK has also updated its regime to a “super scheme” that can impose restructuring terms on hold-out creditors. That may be attractive for international debtors to use but may be outweighed by the added burden of having to seek recognition outside the UK.

The recent decision to class distressed airline catering company Gategroup’s restructuring plan as an insolvency proceeding highlighted that requirement.

“The decision may significantly impair the means to have such a plan recognised internationally especially post-Brexit when it has lost the automatic recognition mechanisms under European regulations,” said Mark Fennessy, partner at law firm McDermott Will & Emery.

Kate Stephenson, partner at law firm Kirkland & Ellis, agreed. “This makes potential recognition of UK restructuring plans in Europe even more challenging; recognition is important to ensure the deal is fully binding on all stakeholders and to minimise the risk of disruptive action,” she said in a note.