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Land, loans and licences: a menace to UK public safety? The UK government issued on 24 July 2018 a proposal to revise deals for reasons of domestic safety. The main points of the suggestions will be discussed in this short outline. Suggestions are aimed at investment from potentially enemy states. Proposal notes that some operations could lead to an increase in the risks of spying, disturbance of sensitive domestic infrastructures and/or undue leveraging in the context of either political or trade negotiation.

Suggestions suggest that these threats may arise in particular in certain areas - domestic infrastructures, sophisticated technology and government essential government support as well as disaster response capabilities. Emphasising that this is a way of controlling FDI, the suggestions show that FDI is more of a domestic threat than UK or UK buyers.

Given the seriousness of the damage the proposal is intended to avoid, infringements of the provisions would result in both penal and non penal penalties. A much broader variety of operations is covered by the proposal than most MCS. Loans (e.g. when provided by potentially enemy creditors and/or on the grounds of securities for sensible units or assets), the acquisition of land (e.g. when this land is situated near nationally important infrastructures or public institutions) and the acquisition of IPR (e.g. when this IPR is necessary for the provision of essential domestic infrastructural services) could, for example, be subject to review under the proposal.

Due diligence in transactions must therefore take into consideration the large field of application of the suggested regulations. Given the breadth of the proposal, the government anticipates that 200 safety reports will be made each year. According to the Government, about 100 of these can be fully evaluated, with about 50 of these 100 measures needing remedial action.

This compares with only five verifications of general interest in 2017 and 2018 (so far) under the current power framework, of which only two took place for reasons of domestic safety. It would be optional to give notice under the scheme foreseen. Contrary to the above-mentioned compulsory reporting procedure, the government would have the power to call for verification of a transaction (possibly up to six month after the occurrence of the respective triggered event) and the notifying party could report its transaction spontaneously.

Basically, this gives a vendor more freedom to conclude a deal quickly if he can negociate terms and condition that guarantee that the purchaser takes the risks of a possible domestic post-closing safety clearance. However, in fact this inflexibility is likely to be limited: major deals are definitely land, loans and licences: a menace to British domestic sovereignty?

However, the filing and filing of any documents required to be filed in other jurisdictional authorities and as soon as a trade is initiated shall be forbidden until the verification has been completed. Reviewing the scheme can be onerous. Whilst the suggestions aim at a speedy verification procedure, experiences with mergers and other systems (e.g. CFIUS in the US) indicate that these verifications will necessarily be carried out prematurely over a period of years, in particular through pre-notification talks without a compulsory timeframe.

Once a government has made a declaration voluntarily, it may need up to 30 working hours to determine whether to carry out a full evaluation of safety, with each full evaluation taking a further 30 working hours (with the possibility of adding 45 working hours and without prejudice to the power to stop the watch in the event of pending information requests).

Therefore, the proposal increases the probability of a delayed regulation of operations that could lead to problems of domestic safety. It would be independent and, to the extent permitted by law, would take precedence over the existing rules on mergers. Specifically, the Government would be empowered to authorise an anti-competitive business if it has reasons of public safety which allow it to continue the business.

This power would, however, only be effective if the UK NCA were the only competent anti-trust and market regulator - the government would not be able to ignore the decisions of other NCAs (including the European Commission). Apart from operations justifying domestic interests, the already established system of general interest would be continued.

Once these suggestions enter into effect, the current domestic safety rules in the Enterprise Act 2002 (including those adopted by the government only in June 2018) would be removed, while the already established rules of general interest would continue to apply, currently only to those operations that lead to problems of diversity of information and/or fiscal instability.

Governments have emphasised that the proposal is an adequate answer to a genuine menace and in line with global trends (in particular, the proposal refers to equal reform in Germany, Japan and Australia and to the European Union's proposal for a directive on the verification of FDI). Nevertheless, they have the capacity to create significant extra complexities in certain types of transaction.

In these cases, the proposed transaction may have a significant impact on the timetable and result of concurrent antitrust investigations.

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