The UK National Security and Investment Act : Key Implications for the Energy Sector

WE KNOW ENERGY ®

By Darren Spalding ( Partner ), Nicholas Neuberger ( Senior Counsel ), Adam Quigley ( Associate ) Bracewell ( UK ) LLP

1 . Background

The UK ’ s National Security and Investment Act 2021 ( the “ Act ”) entered into force on 4 January 2022 , introducing a new investment control regime for acquisitions in the UK , with the aim of protecting the UK ’ s national security . These new legislative powers follow a global trend of greater scrutiny over foreign direct investment , particularly in sectors that are seen as critical from a national security perspective .

The Act replaces the UK ’ s previous foreign investment regime under the Enterprise Act 2002 and establishes a more thorough system for screening , and blocking , investments in certain parts of the UK ’ s economy . There has been considerable commentary on the Act as a whole in recent months . This article discusses the key implications of the Act specific to the UK ’ s energy sector .

2 . Key features of the Act

The Act has two key elements :

• a notification regime , pursuant to which transactions involving “ trigger events ” in certain key sectors are subject to mandatory notification , with the option to voluntarily notify transactions ; and

• a power for the Secretary of State for Business , Enterprise and Industrial Strategy ( the “ Secretary of State ”) to “ call-in ” transactions for review .

Mandatory Notifications

The Act establishes a mandatory notification regime if a purchaser gains control of a “ qualifying entity ” or “ qualifying asset ” through the occurrence of a trigger event . Those trigger events are :

• a purchaser acquiring or increasing its share ownership in the qualifying entity to more than 25 % ( or if it crosses 50 % or 75 % thresholds from an ownership interest below that level );

• a purchaser acquiring or increasing its voting rights in the qualifying entity to more than 25 % ( or if it crosses 50 % or 75 % thresholds from a voting right interest below that level ); or

• a purchaser acquiring voting rights in the qualifying entity enabling the purchaser ( whether alone or together with other voting rights it holds ) to secure or prevent the passage of any class of resolution governing the affairs of the qualifying entity .

The definition of “ qualifying entity ” is drafted broadly and captures UK companies , limited liability partnerships , partnerships , trusts and any other corporate body . An additional trigger event applies in respect of “ qualifying assets ,” but the acquisition of assets are currently not within the scope of the mandatory notification regime ( although the Act gives the Secretary of State the power to expand the scope of the mandatory notification regime to cover asset acquisitions ). bracewell . com