July 8, 2025

Can the UK government force you to sell (divest) a business? – an NSIA case-study

Posted in Corporate

Following on from our article looking at the requirements and repercussions of the National Security and Investment Act 2021 (AKA the NSIA, and described below simply as the “Act”) (see What is the National Security and Investment Act 2021?), we wanted to give an example of a case in which an acquiror was actually required to divest of their interest in an acquired company.

“Divest” in this context meant the acquirors were ordered to sell all of their interest in the relevant company within a specified period and following a specified process. They did so, reportedly at a price which was lower than the investment they had made in the business, thereby making a loss (even when not accounting for costs they will have incurred in challenging the Government’s decision).

The case in question is L1T FM Holdings UK Limited and another -v- Chancellor of the Duchy Lancaster in the Cabinet Office [2024] EWHC 2963 (Admin).

Why is this case particularly interesting?

Alongside serving as an example of one of the most challenging and hard-hitting outcomes arising under the Act, this particular case and the circumstances surrounding it are interesting for a few reasons:

A) The acquisition was called in under the Act as the ultimate beneficial owners of the acquiror (and therefore the new beneficial owners of the target company) were Russian nationals with alleged ties to the Russian President and Government. However, the acquisition completed over a year before Russia’s invasion of Ukraine (the transaction completed in January 2021, whereas Russia’s offensive began in February 2022), and sanctions were not imposed by the UK on the relevant individuals until March 2022 – this suggests that the Act can be used to intervene in a transaction even if there is no obvious or material national security risk at the time of the transaction itself;

B) Before the acquisition took place (and before the Act came into force), representatives of the acquiror consulted with Government to establish whether it was likely to intervene in the transaction, either under then-existing legislation or when the Act was put in force, and they were reassured by a member of the Senior Civil Service that they “could not imagine” any such intervention – indicating that informal reassurances, even from senior Government figures, do not offer protection from the Act, with the only true protection being to make a formal application and receive clearance;

C) At the time of the acquisition, the company in question was non-operating (it was several months after the transaction until it began to truly conduct business and take on customers) – this demonstrates that the Act can apply even where the operations of the business evolve over time;

D) The outcome of the case suggests that the scope for judicial review of decisions made under the Act by the relevant Secretary of State is limited – meaning Government may have wide discretion in the measures it decides parties should take;

E) The acquisition in question occurred before the Act came into force (in January 2022) – it is therefore also an example of the Act having retrospective effect.

What happened?

The claim for judicial review was made in response to a decision of the Secretary of State to require the acquiror to divest their entire shareholding in Upp Corporation Ltd, citing a national security risk under the Act.

In coming to its decision, the Court highlighted that the Act envisaged the executive (the Government) would be lead on assessing the risk to national security of acquisitions, and not the Court itself. Essentially, the Secretary of State was within his powers to take measures he reasonably considered would prevent, remedy, or mitigate the risk to national security.

What was the background?

In 2021, L1T FM Holdings UK Limited acquired the entire issued share capital of Upp Corporation Ltd, a startup intending to supply fibre broadband in certain regions of the UK (the “Acquisition”). By January 2022, the network extended to eight towns in the East of England.

The ultimate beneficial owners of L1T FM Holdings UK Limited were Russian nationals, who were later added to the sanctions list in 2022 following the invasion by Russian troops in Ukraine.

The Secretary of State became concerned about national security risks to the country’s telecommunications infrastructure arising from the Acquisition and believed the ultimate beneficial owners could be vulnerable to leverage by the Russian state.

Notably, the ultimate beneficial owners were not on the sanctions list at the time of the Acquisition, but this did not prevent the Secretary of State’s ability to call in the Acquisition. The trading nature of Upp Corporation Ltd had also changed since the time of the Acquisition, moving from a non-operating fibre broadband start-up to a company with an established network.

Application of the Act

The acquisition was “called-in” for review in May 2022 by the Secretary of State using retrospective powers under the Act. Retrospective powers are available to the Secretary of State for acquisitions completed from 12 November 2020.

During the review, the Secretary of State considered and was presented with various packages of potential measures which could be taken to minimise or eliminate national security risk, many of which were considered to be less “intrusive” than divestment – these included Governmental oversight of the board, cutting lines of communication and access to information between the business and the ultimate beneficial owners (which the acquirors had already taken steps to do), committing to keep critical infrastructure in the UK, and various other matters.

However, when making the final order, the Secretary of State was of the view that divestment was the most appropriate solution.

What were the results of the Judicial review

The claim for judicial review centred around the alternative proposals which were put before the Secretary of State. It was argued by the acquiror that (amongst other points) the final order of divestment was disproportionate in light of available less-intrusive alternatives and that certain elements of the process were procedurally unfair.

All grounds of the claim were dismissed. The Judge found that the Secretary of State has wide discretion when assessing risk to national security, stating “The Secretary of State is entitled to consider the influence of malign actors exerting influence on the UBOs in any manner of ways”.

Our comments:

With consequences possibly amounting to a divestment, this case is a stark reminder to would-be acquirers (and investors) about the importance of ensuring they are aware of the requirements and potential repercussions of the Act, and of ensuring that careful consideration is given to potential national security concerns with as much foresight as possible.

However, parties to transactions may find comfort in knowing that if the Government clears an acquisition following notification, it cannot investigate it again, unless the parties have submitted false or misleading information. Formal notification and clearance is therefore an important point to consider (and may in many cases be mandatory, see What is the National Security and Investment Act 2021?).


Research and assistance for this page was provided by Charles Oliver, Paralegal in our Corporate team based in our Bristol office.

Our team have worked on many transactions involving notifications under the Act and successfully obtained clearances.

If you think your transaction may require notification under the Act and/or this article has raised any questions, please contact Scott Preece, Partner and investment specialist, or another member of our Corporate team.

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