Outside of the Media, the United Kingdom does not currently have a domestic legal framework that specifically governs inward foreign direct investment (FDI) into UK Businesses.
The Made in Group is launching an in-depth look into the creation of a Sovereign Investment fund within the UK. Broadly speaking, this policy would mean that only a certain percentage of a company can be held by a non-UK foreign body. So, in principle how would this work? If the Made in Group had a foreign investor, they could still invest in the company, but at a limit. This limit would be that they can only retain a share which in comparison, is of less value than that of British based investors as a percentage.
Beyond the realm of the media, the UK Government has two main options. Firstly, under Section 13 of the Industry Act 1975, the Secretary of State has the broad power to block an acquisition by a non-UK-based entity of an 'important manufacturing undertaking' when it appears that a change of control would be contrary to the interests of the United Kingdom or any substantial part of it.
Secondly, the government holds 'golden shares' in a limited number of UK companies that typically allow it to prevent certain investors holding more than a certain percentage of shares. A number of golden shares also include powers over the disposal of material assets.
As it currently sits, the UK government acting via a Secretary of State can also intervene in a transaction on defined public interest grounds in circumstances where the relevant EU merger control thresholds are not met.
This includes two key examples, firstly when transactions that are reviewable under UK merger control law (known as public interest cases). In this public interest intervention notice is issued in such circumstances, under Section 42 of the Enterprise Act.
The second case applies when a transaction does not meet the requirements for notification under UK or EU merger control law but raise special public interest considerations (known as special public interest cases). A special public interest intervention notice is issued in such circumstances, under Section 59 of the Enterprise Act.
But a major issue impacting the government right now is that EU law imposes some limits on the exercising of these rules, and post-Brexit, it's not clear what policy the government will pursue following the end of the transaction period.
If we look across the world, what are other countries doing?
Countries such as Germany, Japan and the US have taken a much stricter view on foreign investment.
Germany amended its Foreign Trade Regulation, to make it easier for the German Government to initiate an in-depth review of foreign investment, following the Government’s blocking of a Chinese fund’s takeover of chip equipment maker Aixtron in 2017. The amendment allowed Germany to investigate the acquisition of over 25 per cent of a domestic company by a non-EU/EFTA company if the acquisition could lead to risks to public order or security.
In 2018 the US passed legislation to expand the Committee on Foreign Investment in the United States (CFIUS’) jurisdiction to review involving foreign persons. The US Treasury Department recently published proposed rules implementing the changes, including Extending CFIUS' jurisdiction to "covered investments" in businesses producing critical technologies, handling critical infrastructure or maintaining personal sensitive data of US citizens, even if the transaction does not provide foreign investors with control Expanding CFIUS’ jurisdiction by imposing a mandatory pre-closing declaration requirement for foreign investments involving a substantial foreign government interest.
In Japan, proposed changes to the Foreign Exchange and Foreign Trade Act will lower the minimum stake foreigners can buy in certain listed Japanese companies without prior Government approval (from 10 per cent to 1 per cent). It will also require foreign directors to seek permission before they sit on the boards of Japanese firms in sensitive industries.
If you would like to learn more about The Foreign Investment Regulation Review, The Law Reviews, has posted an in-depth look at current UK legislation, policy and practices. Within their piece, you can learn more about the impact of EU Law, what powers the government currently has as well as some of the proposed legislative reforms that are currently taking place.
This article is the first in a series where we're looking at the prospects of a UK based Sovereign Wealth Fund (SWF). Check back throughout the week for updates on this story.