We are pleased to share with you our briefing on how the National Security and Investment Act 2021 ("NSIA") (which received Royal Assent on 29 April 2021 and is likely to come into full effect later this year) may affect lending and other secured finance transactions. 

Financing arrangements are not exempt from the scope of the NSIA. Whilst the Government has stated its intention is to intervene in such arrangements only rarely, it remains to be seen just how interventionist the Department for Business, Energy & Industrial Strategy ("BEIS") (which will enforce the NSIA regime) shall become in respect of these and other types of arrangements. 

In the meantime, it is important for lenders and borrowers to understand how the NSIA may apply to their arrangements and what practical steps they can take to mitigate any NSIA risks.

Key take away points:

• Any finance arrangement which involves (or could involve) the transfer of ownership of shares, voting rights and/or assets could potentially trigger a mandatory or voluntary notification under the NSIA, or result in BEIS deciding to use its "call-in" powers to review the arrangement. The NSIA is applicable to a wide number of different finance transactions, including for instance: (i) loans; (ii) underlying transactions (where these are financed through debt); (iii) convertible debt to equity arrangements; and (iv) options and futures. However, the most common situation where the NSIA could apply is likely to be where lenders enforce any security under a loan.
• In light of this, lenders and borrowers will need to conduct sufficient due diligence "upfront" (i.e. before the relevant documentation is signed) in order to ascertain the likelihood of any future enforcement of security triggering a review under the NSIA; and if it does, consider ways to mitigate any NSIA risk. 
• Once the regime is active, it will have retrospective application to any matter which occurred after 12 November 2020. The Government has not yet clarified what this means for loans and financing arrangements specifically, but it is possible that it could, for instance, mean any security enforced after this date could be within the purview of the NSIA even if the loan agreement to which it relates was entered into before 12 November 2020.
• The NSIA carries severe penalties for any failure to make a mandatory notification (i.e. fines, imprisonment). Moreover, any matter which is subject to a mandatory notification and effected without approval from BEIS is rendered null and void.

The Government is expected to publish further guidance on the application of the NSIA to loans and other finance arrangements in the coming months. In the meantime, we hope that this briefing gives a helpful overview of the NSIA regime as it currently stands and practical tips for how to address it.

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