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The National Security and Investment Act 2021 (NSIA) came into force on 4 January 2022 (with retrospective effect enabling the Government to call-in for review transactions which closed on or after 12 November 2020). This expanded the Government's powers to scrutinise and intervene in certain acquisitions, investments and reorganisations on national security grounds. 

Transactions in the human capital space are not immune to this legislation and, due to the broad application of the NSIA, this should be a key due diligence focus from the outset. Failing to comply and obtain Governmental approval for transactions that fall within the legislation could give rise to civil or criminal penalties, and the transaction may be void and of no legal effect. 

Interestingly, the NSIA may also apply to intra-group reorganisations or corporate restructurings even if the acquisition occurs with the same corporate group or the beneficial owners do not change.

High level summary of parts of the legislation 

The regime under the NSIA applies to transactions that involve the acquisition of a specified level of control over certain qualifying entities or qualifying assets in, from or with a connection to the UK. An acquisition is in scope of the regime if a right or interest in, or in relation to, a qualifying entity or asset is acquired and the level of control acquired meets any of the following thresholds:

  • the acquirer's stake or voting rights in a qualifying entity meets or crosses certain percentage thresholds (from 25% or less to more than 25%, from 50% or less to more than 50% or from less than 75% to 75% or more);
  • the acquirer acquires voting rights in a qualifying entity that allows them to pass or block resolutions governing the affairs of the entity;
  • the acquisition means that the acquirer is able to materially influence the policy of a qualifying entity (e.g. by acquiring the right to appoint members of the board, thereby enabling the acquirer to influence the strategic direction of the entity); or
  • as a result of the acquisition, the acquirer is able to use a qualifying asset or direct or control its use or is able to do so more that it could prior to the acquisition.  

There is no de minimis threshold, so the consideration of a transaction or the turnover or size of the entities involved does not impact on whether or not the legislation applies.

Mandatory notifications are required to be made before the acquisition takes place to the Investment Security Unit of the Department for Business, Energy and Industrial Strategy for qualifying transactions in any of the 17 specified high-risk sectors of the economy in the UK where it is considered that national security risks are most likely to arise. These are:

  • Advanced materials
  • Computer hardware
  • Energy
  • Synthetic biology
  • Advanced Robotics
  • Artificial Intelligence
  • Civil Nuclear
  • Communications
  • Critical suppliers to the Government
  • Cryptographic authentication
  • Data infrastructure
  • Defence
  • Military and dual use
  • Quantum technologies
  • Satellite and space technology
  • Suppliers to emergency services
  • Transport

Voluntary notifications may be made in respect of acquisitions that fall outside of the mandatory regime but may nevertheless raise national security concerns and could therefore be called in for review by the Government and potentially be unwound (the Government can call-in a transaction for up to six months after becoming aware of it provided it does so within five years of completion – excluding those subject to mandatory notification which can be called in at any time).  

The voluntary notification regime also applies to the acquisition of assets (which are not covered by the mandatory notification regime).  

Application to deals in recruitment 

At a first glance, leaders and advisors to human capital businesses may think that the NSIA regime would not apply to them - as it may seem that they are not operating in high-risk sectors relating to national security. However, due to the potentially severe consequences of failing to gain approval from the Secretary of State in advance of completion, consideration should always be given as to whether or not the regime applies.

By way of one example, a notifiable area that recruitment businesses could potentially fall into is "Defence". Notifiable acquisitions in the defence sector include any qualifying entity carrying on activities that comprise or include the research, development, production, creation or application of goods or services used or provided for defence or national security purposes if the entity is a government contractor (or any subcontractor in a chain beginning with the government contractor) or has been notified by or on behalf of the Secretary of State that it or an employee of it may hold or receive information or documents etc. of a classified nature relating to such activities.

The Notifiable Acquisitions Guidance on the Government's website (the Guidance) states that all suppliers to the Ministry of Defence are covered by the regulations and that the obligation to notify extends to contractors or subcontractors who provide goods or services without clear military applications, such as catering or cleaning.

For example, recruitment businesses on Frameworks supplying the Ministry of Defence or under which the Ministry of Defence can call for the supply of workers (e.g. medical personnel or IT, catering or cleaning workers) may therefore fall within the regime - depending on the facts.  

Please note that a notification may be required even if you have never supplied the Ministry of Defence with workers, but the Ministry of Defence merely has a right to call for the supply of workers under a Framework Agreement. 
The Guidance provides detailed guidance and examples on how mandatory notification will apply to the 17 sectors (noting that the rules and exemptions differ depending on which sector is involved) and consideration should be given as to whether any of these may apply to a transaction based on the relevant facts.

Making a mandatory notification

A mandatory notification of the transaction, if required, should be made to the Secretary of State (and clearance received) before completion. This can be done online using the National Security and Investment Service. The notification needs to include information on the structure and share ownership of certain parties involved and the transaction as well as other matters. The Government then has 30 working days from acceptance to review the application (during which it can require further information and/or require attendance at meetings) and can then either clear the transaction or call it in for a full national security assessment, after which the Government can: clear the acquisition, impose certain conditions or block or unwind it.

As mentioned above, the  NSIA regime could apply also to company reorganisations – including where one shareholder simply buys out a fellow shareholder or an investor invests in the company – requiring approval from the Secretary of State!


Failure to make a mandatory notification and obtain approval from the Secretary of State before completion can have severe consequences.  This could result in civil penalties (a maximum fixed penalty of the higher of 5% of the global turnover of the business and £10million) or criminal penalties (for the company and also potentially for its officers) and the transaction would be void and of no legal effect. 

Related tips for human capital transactions

We set out below some top tips that should be considered in relation to transactions in the human capital space:

  • Parties should consider the implications of the NSIA prior to agreeing terms.
  • Due diligence should be done to consider whether a mandatory or voluntary notification should be made.
  • Parties should consider whether the business could fall within any of the 17 high-risk sectors and apply the Government guidance to the facts accordingly. If not, could there be any national security concerns related to the transaction that could mean that the Government could call in the event
  • This should not be ignored on intra-group reorganisations as the regime may apply here too.
  • Parties should consider including relevant warranties regarding the application of the NSIA in the sale agreements.
  • If the regime does apply and notifications need to be made, factor this into the deal timeline and consider whether a split exchange and completion is required.

This article is not intended to provide comprehensive legal advice - please refer to the NSIA and the Guidance for further details, and obtain formal advice from your legal advisors as to the scope and applicability of the legislation.