National Security and Investment Bill

Lord Hodgson of Astley Abbotts Excerpts

Committee stage
Tuesday 16th March 2021 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, as my noble friend Lady Noakes said, Amendment 67 deals with Clause 18 on the voluntary notification procedure. I entirely support what she has said and her amendment. Like her amendment, Amendment 67 is to deal with no man’s land, but it adds a further wrinkle to no man’s land beyond that which she covered in her remarks. I am grateful for the support from the noble Lords, Lord Clement-Jones and Lord Bilimoria, and I have been reliant on the expertise of the Law Society for the detailed drafting.

As I say, this amendment is concerned with voluntary notification procedures. The objective behind the establishment of voluntary notification procedures seems entirely praiseworthy in that it can speed up the investment or divestment process for those involved by seeking in advance a decision by the Government on whether the proposed action will be subject to a call-in notice. If the Secretary of State decides to issue a call-in notice, the clock starts running on the 30-day period for initial assessment.

So far so good, but the Bill as drafted is not clear —as my noble friend made clear—on the time the Secretary of State has in which to decide, following a voluntary notice, whether he or she should issue a call- in notice. The only guide we have is under Clause 18(5):

“As soon as reasonably practicable after receiving the voluntary notice, the Secretary of State must decide”


and so on. This does not give any clear idea of how elongated this process may be. In particular, the use of the word “practicable” is rather strange—practicable for whom and in what circumstances? The solution to this is to redraft the clause so that unless the Secretary of State responds to the voluntary notification, it is deemed to have been accepted. That triggers the 30 working day period, so gives an end date by which the company or the investor will achieve clarity.

Amendment 67 also aims to correct a procedural anomaly in the current drafting, which touches on a point that was the subject of a discussion between myself and my noble friend Lord Lansley on the first day in Committee. I think this point goes beyond where my noble friend’s amendment went. It is as follows: the Secretary of State has this 30 working day review period to decide whether to issue a call-in notice or notify the parties that no further action will be taken, but the drafting of Clause 18(9) appears to muddy that clarity when it says that the review period

“does not affect the operation of the time limits in subsections (2) and (4)”

of Clause 2. This was the point raised by my noble friend on our first day. This would appear to mean that the Secretary of State could fail to make a decision within the 30 working days but would still have up to six months from becoming aware of the trigger or five years from the date of the trigger to serve a call-in notice. The same difficulty applies to Clause 18(8)(b), which allows the Secretary of State to inform the parties after considering a voluntary notification that no further action will be taken. Again, it seems overridden by the provisions of Clause 2(2), with the six months or five-year period allowing for further reflection by the Secretary of State.

Amendment 67 aims to cut through this Gordian knot by requiring the Secretary of State to make a decision on the voluntary notification by the end of the 30-working day period, and the absence of such a decision would be taken as approval. Objectively, that is to give clarity and certainty to investors, as we are trying to do throughout the Bill. Without an amendment such as this, the whole purpose and the advantages of the voluntary notification procedure could be undermined.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I have added my name to the amendment in the name of the noble Baroness, Lady Noakes, and I support everything that she said. I also support what I might call the companion Amendment 67 from the noble Lord, Lord Hodgson, which has been signed by my noble friend Lord Clement-Jones. I also agree with what was said there.

I favour mechanisms to give certainty, and the way the Bill operates at the moment means that, absent a call-in or other response, a business is left in no man’s land—as the noble Baroness, Lady Noakes, called it. Indeed, the noble Lord, Lord Hodgson, pointed out that even if you escape from no man’s land, there is a piece of elastic that pings you back in again for up to five years.

I realise that with a new system the Government may not know how well it will operate, but many noble Lords have repeatedly expressed concern, and I am coming from the standpoint that it is totally unreasonable to push all the uncertainty on to industry.

We have operated without these measures for a long time—maybe for too long—but to switch to draconian uncertainty overnight does not seem fair. There needs to be a point at which no response is an all clear, even though that itself is unsatisfactory compared with the positive receipt of an all clear notice in your hand.

I have nothing else to add, but I support the amendments. The Government need to take notice and to make this whole process more workable for industry.

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Moved by

[Lord Hodgson of Astley Abbotts]

48A: Clause 14, page 8, line 37, at end insert “which may include a streamlined form to be used by a person who has previously submitted a notification under subsection (1) or section 18 (2)”.
Member’s explanatory statement
This amendment seeks to reduce the regulatory burden for persons who have submitted notifications on previous occasions.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, in moving Amendment 48A, I shall speak to Amendments 67B and 67C, and propose that Clause 30 should not stand part of the Bill.

On the first three amendments, I have been assisted by the Global Infrastructure Investor Association and its legal advisers, Ashurst. The association, as its name suggests, represents major investors who participate in multiple infrastructure projects around the world. The purpose behind these amendments, as with so much of our debate today and on the previous two days in Committee, is to provide clarity, certainty and speed. My noble friend Lady Noakes, the noble Lords, Lord Fox and Lord Clement-Jones, and the noble Baroness, Lady Bowles, all talked about the extraordinary impact of uncertainty and time on companies. Let me give a brief example.

A few years ago, I was a non-executive director of a public company that was the subject of what is known as a dawn raid. My chairman was rung at 8.30 am by the chairman of a major competitor to say that, overnight, it had purchased 28% of our share capital from our investors. It was immediately referred to the Competition and Markets Authority, because these were two quite large companies in the sector, and we had a collective, organisational nervous breakdown. This went on for three or four months. The predator spent the whole time trying to persuade the CMA that there was no reason why the purchase should not go ahead; meanwhile, we in the victim company were trying to preserve morale, keep business going and assure people that their jobs were safe. But there was a degree of uncertainty, because it was not our decision in the end. The Ministers on the Front Bench deal with this in a sort of “it’ll be all right on the night” way, but it is very difficult in the real world out there. I give that example having been through this extraordinarily difficult period myself, and seeing how it could arise if we do not get the wording, clarity and speed of the Bill right.

Amendment 48A is the first. It would insert a provision for a more streamlined procedure for those who may be making frequent applications under the provisions of the mandatory notification procedure in Clause 14. Subsection (4) of that clause gives the Secretary of State powers, by regulation, to decide the “form and content” of any mandatory notification. The background to Amendment 48A is that there are many low-risk investors in the UK who currently and regularly invest in sectors that could trigger a notification once the Act comes into force. It would reduce the bureaucratic load if, once an investor had made a notification, or maybe one or two notifications, such an investor could make streamlined notifications, allowing them to avoid submitting the same information repeatedly —always, of course, with a statement that there had been no change in their circumstances in the meantime.

In the debate a few days ago on the group beginning with Amendment 15, the noble Lord, Lord Callanan, talked about the proposal in Clause 6(5), which does not entirely break new ground. It provides for the Secretary of State to make exceptions

“by reference to the characteristics”

of the acquirer. All that Amendment 48A seeks to happen is to move that sensible clarification and proposal into this subsection for this group of investors.

Amendments 67B and 67C are linked and seek to clarify the position of the Secretary of State under the stop-the-clock provisions of the assessment period and to ensure that any such powers are not abused. This is an add-on to the point made by my noble friend Lady Noakes earlier about no man’s land; the stop-the-clock provisions can be used to extend the period.

The two amendments relate to Clause 19, which concerns the power to require information, and Clause 24, which concerns the effect of the information notice and attendance notice. It is understandable that the Government may well need, and should be able to seek, further and better particulars for any transaction, but the extent of the power needs to be considered against two factors: first, the context of a regime where the basic assessment period is already quite long—75 working days or 15 working weeks for a national security assessment, or 30 working days or six working weeks for the initial screening process; and, secondly, that this statutory period can be extended by the Secretary of State using the stop-the-clock power. Under this power, the Secretary of State can require further information and must set a time limit by which it must be provided. Without being too cynical, it is perfectly possible for a Secretary of State with a tricky, controversial decision to make frequent requests for more information, stopping the clock on each occasion by imposing an unreasonably short time for the supply of the information. The process by which he or she pushes the pea around the plate could, eventually and ultimately, frustrate the transaction, without the Secretary of State ever having to take a decision at all.

Amendments 67B and 67C attempt to deal with this by a twin-track approach. Amendment 67B proposes that any information notice served under Clause 19 must allow a reasonable period of time for response, which must, in any case, be not less than three days. Without this safeguard, as I have said, the Secretary of State could repeatedly ask for more information, each time stopping the clock almost immediately. In parallel, Amendment 67C amends Clause 24, so that the stop-the-clock powers are discretionary and not automatic. Therefore, if complex questions take longer to answer, the Secretary of State does not have to stop the clock. Such an approach would mirror that followed by Section 34ZB of the Enterprise Act, in granting extensions to the statutory time limits to which the Competition and Markets Authority is subject for merger control purposes.

The final proposal in this group is that Clause 30 should not stand part of the Bill. I had thought about degrouping this, but decided that we have enough groups and should crack on. Clause 30 is entitled “Financial assistance”. Its wording can best be described as wide, and the Explanatory Notes are not much more helpful. In principle, there is nothing wrong with the Secretary of State having the power to compensate for the consequences of him or her making a final order under Clause 26. This is a probing amendment to ask my noble friend to provide what I might describe as a stream-of-consciousness description of how these powers are likely to be used.

For example, how is any compensation process to be initiated? Will it be at the request of the party which is the subject of a Clause 26 order or an offer by the Secretary of State? Is there an official or a body that will consider and assess such requests or will the decision flow from the Secretary of State’s desk? It may be that the expert person referred to by my noble friend Lord Lansley has a role to play here. What factors will be taken into account? Who decides the quantum of any compensation? Lastly but most important, how long is any process expected to take to complete?

If the subject of a Clause 26 order is a small, fast-growing company in urgent need of additional finance in the form of working capital to fund its expansion and the investment is suddenly blocked, any long delay may well prove terminal for the company as a whole. What about smaller companies where a single individual has spent a lifetime building up the business? Now he or she wishes to retire to enjoy the benefits of years of toil. Such a sale is then blocked on grounds of national security. What compensation or redress is available? It would be helpful if my noble friend could explain how this will work. In the meantime, I beg to move.

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[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

As there are no further speakers, I call the noble Lord, Lord Hodgson of Astley Abbotts.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank all those who have spoken in the debate, as we struggle—that is the only word—to find the balance between national security and investor rights, and do so against a background of what is practical and realistic in the marketplace. I thank my noble friend the Minister for his extensive reply and tell him that I did not have a happy ending: we got taken over after four months, but never mind.

He has made a valiant effort. The noble Lord, Lord Clement-Jones, used the rugby match “stop the clock” analogy; I will use a cricketing analogy. I think the Minister’s officials have written him a speech that is a series of forward defensive prods, and it is rather like watching Geoffrey Boycott nought not out at lunch—but he has made a hugely valiant effort along the way.

On Amendment 48A, he says that we are completely aligned because the regulations provide for a streamlined procedure. Of course they do, but it will never happen because, unless something is written there, people will say, “Why go there, Minister? Why not just have the same old procedure we have always had?”

On Amendments 67B and 67C, I am not quite sure what appropriate incentives the Secretary of State had in mind to work the system appropriately. To be candid, it is unrealistic to say that judicial review is a possibility when you are working to the timetable these sorts of things will have to work to: it is not in touch with the reality of the marketplace.

On Clause 31, other noble Lords have made the relevant points. My noble friend the Minister made a determined effort to explain, but the loopholes and opportunities for difficulties with this are great. His example was that, if a firm’s takeover were to be blocked, help might have to be given until another buyer could be found. He knows better than any of us that, once a firm is known to be in trouble, any other offers will be very low indeed; the differential between someone selling on the uptick and when they know that the firm is a wounded bird will be very great indeed.

There is a big question to be answered about that, which he is much more familiar with than I am, of trying to meld together the realities of the marketplace with the needs of national security. We have not yet got the balance right. We have been advised by a number of leading law firms, and a number of Members of the Committee have practical experience. I cannot believe that we are wrong in everything that we are saying and that all the law firms are wrong. I cannot believe that some of the things that have been put forward are not worthy of much closer and further assessment. We are now in the territory of, “Are they fit for purpose?” “Oh yes, they are”, “Oh no they’re not”. I want the opportunity to go away, talk to the people who advised us, see what the Minister and his officials say, and then decide whether we should come back to these and other amendments at the next stage of the Bill.

In the meantime, I thank the Minister for the long speech that he made, and all other noble Lords who have spoken, and I beg leave to withdraw the amendment.

Amendment 48A withdrawn.