Important Reminder for M&A transactions (including Internal Corporate Restructurings!) from 4 January 2022, when the UK’s National Security and Investment Act enters into force
As many corporate lawyers are aware, the UK’s National Security and Investment Act (NSIA) comes into force on 4 January 2022 and will have an impact on a large number of transactions which have a connection to the UK (an estimated 1,800 transactions per year will be affected). One thing that has not been discussed in any detail however, is the possibility of “qualifying acquisitions” (as defined) that are part of corporate restructurings or reorganisations may be caught by the mandatory notification regime under the NSIA.
This means that even within transactions consisting of internal corporate restructurings or reorganisations, it may be mandatory to notify. In such a scenario, it will also be necessary to await clearance before being to complete the transaction in question. This is unlike merger control.
The UK Government’s Guidance does not provide much detail about this, but does include an example to illustrate where a corporate restructuring transaction would be caught. Two parties share the same ultimate owner but are run separately from each other. One of the parties acquires part of the other, which takes its control over one of the thresholds to make it a qualifying acquisition. The ultimate owner remains the same, but their ownership now goes through a different corporate chain. This means there has been a change of control under the NSIA. Unlike merger control, this is true even though the ultimate owner remains the same.
This is not a situation that is unique to the UK. A number of EU countries likewise apply foreign direct investment or national security protection regimes to internal restructurings.
In Germany, internal restructurings in the relevant sectors are also generally subject to notification requirements if a non-EU or foreign acquirer directly or indirectly acquires a stake in a German company, even if the ultimate owner does not change. Exceptions apply only where no shareholders from a previously uninvolved jurisdiction comes into the ownership chain of the German entity.
In Italy, a mandatory filing may be required prior to a change of control or the adoption of extraordinary decisions of companies active in national critical infrastructure (i.e., energy, transport, communications or high intensity technology), including internal restructurings, regardless of the nationality of the buyer.
In the Czech Republic, internal restructurings or reorganisations can also be caught by a mandatory filing requirement. There is some uncertainty in the intention of the law in the Czech Republic however, which may be clarified in the months to come (i.e., to remove internal restructurings from the scope of the FDI regime). For the time being, however, the FDI regulation, as drafted, applies to internal restructurings.
In Poland, there is no explicit exemption for internal corporate restructurings in the FDI legislation or the guidelines. It may be possible to argue that the interpretation of the legislation does not capture corporate restructurings, although this has not yet been properly tested.
In France, however, the rules are different – corporate internal restructurings are not subject to FDI filing requirements. There is a small exception to this rule in cases where the contemplated (intra-group) transaction(s) (i) would prevent the Buyer/Investor from complying with requirements set out in a previous French FDI decision; or (ii) is aimed at relocating certain of the Target’s activities abroad.
In Spain, a change in ownership within the corporate group, by way of an internal corporate restructuring, will not trigger a filing requirement.
As a general point regarding the FDI regimes in the EU, most internal restructurings will be rather unproblematic from a substantive perspective and should ultimately be approved by the relevant respective authorities. However, if a mandatory notification is required, failure to do so can have serious adverse consequences.