The acquisition of UK companies in certain sectors by foreign entities is restricted and sanctions may restrict other acquisitions and financings. There are also disclosure requirements and antitrust laws.
Entities that are subject to financial markets supervision are usually subject to change of control restrictions. For example, acquisitions of qualifying holdings in banks, regulated financial services, insurance undertakings and certain regulated investment funds require prior regulatory approval pursuant to the Financial Services and Markets Act 2000. Similar restrictions apply to the acquisition of other financial sector businesses, including investment exchanges and e-money institutions. A prior notification requirement applies to the acquisition of a qualifying holding in a payment service provider authorised pursuant to the Payment Services Regulations 2017. Acquisitions involving UK companies exceeding certain thresholds may trigger the merger control powers of the UK Competition and Markets Authority or the European Commission.
The Takeover Code applies to acquisitions of listed UK companies and certain European Economic Area companies listed only on a UK regulated market. The Takeover Code regulates the way that an offer is made for such a company and conduct during the takeover after the offer is made. Changes to the Takeover Code became effective in January 2018 to extend certain restrictions and requirements under the Takeover Code to certain asset disposals - generally where ‘significant’ assets of a target are being acquired by an offeror which is prevented under the Takeover Code from making an offer for the target’s securities. There are also detailed notification requirements - both ‘opening position disclosures’ and ‘public dealing disclosures’ - with respect to bidders, targets and others who hold or, during an offer period, acquire interests in relevant securities of parties to an offer.
The Alternative Investment Fund Managers Directive (2011/61/EU) imposes further disclosure obligations on managers of certain private equity and other unregistered funds that acquire major stakes in certain EU-based non-listed companies (including UK companies) carrying 10 per cent or more of the voting rights in the relevant company. Reporting obligations are also imposed on funds that acquire ‘control’ of EU-based non-listed companies and issuers whose securities are admitted to trading on a regulated market. Such funds are subject, for a period of 24 months following acquisition of control of the relevant company, to anti-asset-stripping rules.
Acquisitions involving a change of control of targets in oil and gas, electricity, telecommunications and broadcasting, defence and certain other sectors are subject to additional consents or other regulatory requirements. In May 2018 the UK government introduced the first stage of reforms with respect to national security concerns raised by certain investments and takeovers (particularly foreign) of UK companies or businesses. These reforms reduce the thresholds for review of mergers in certain ‘sensitive sectors’ (eg, dual military/civilian use and advanced technologies sectors). As a result, more transactions in these sectors are likely to be assessed by the UK government on national security grounds and by the Competition and Markets Authority on anti-trust grounds. A second stage of reforms is proposed that will have a national security focus on protecting national infrastructure-related businesses or assets. The proposals include circumstances in which a loan relationship and/or an associated enforcement of collateral might lead to concerns that a lender who is hostile to the UK might gain ‘significant influence or control’ over assets of national security interest.
The United Nations, EU or UK may, from time to time, impose trade or financial sanctions or other similar measures on cross-border payments, including exchange control restrictions (pursuant to the International Monetary Fund Act 1979 and the Bretton Woods Agreement Order in Council (SI 1946/36)). In July 2014, in response to Russia’s actions in the Ukraine, the EU passed ‘sectoral’ sanctions targeting Russia’s finance, energy and defence sectors, which have been extended until 31 July 2019. They are similar to the sectoral rules published by the Office of Foreign Assets Control (OFAC) in the US. Although the EU’s sectoral rules, generally, do not restrict the sale of UK companies to entities designated under the sectoral rules, there are implications for cross-border lending, as lenders must ensure that they are not providing loans or credit to entities designated under the sectoral rules or their subsidiaries or agents.
The UK has an international law obligation to implement UN sanctions. In practice, the EU will implement UN regimes through directly effective regulations, which immediately form part of UK law when adopted and are enforced through domestic regulations. The Sanctions and Anti-Money Laundering Act 2018 introduced a new framework for the implementation and enforcement of international sanctions in the UK post-Brexit.
Lenders will wish to ensure that cross-border transactions they enter into are compliant with applicable sanctions regimes for a number of reasons, including liability under civil and/or criminal penalties for failure to comply with applicable laws and regulations, ability of the lender to receive payments from the borrower and to enforce a guarantee or security, in addition to reputational damage. In view of this, credit agreements often contain a representation and undertaking relating to the borrower’s use of loan proceeds to address compliance with sanctions. It may be difficult in certain cases for a bank to identify whether it is transacting with a sanctioned entity, particularly where a counterparty is acting as an agent of a designated entity. In addition to EU rules, US banks making loans booked in the UK must comply with OFAC rules as a result of being ‘US persons’.
In May 2018 the US announced its decision to reimpose extraterritorial sanctions against Iran simultaneously with its withdrawal from the Joint Comprehensive Plan of Action. In response to this development the EU updated its Blocking Statute in August 2018 to mitigate the impact of these sanctions on the interests of EU operators conducting legitimate business with Iran. The updated Blocking Statute allows EU operators to recover damages arising from the extraterritorial sanctions and nullifies the effect in the EU of any foreign court rulings based on them. It also forbids EU persons from complying with those sanctions unless exceptionally authorised to do so by the European Commission in case non-compliance seriously damages their interests or the interests of the EU.
For further detail on the regulatory restrictions applicable to certain types of lending in the UK, see question 6.
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