CELIS Update on Investment Screening – May 2022
EU – Commission singles out “hostile investors”
As a reaction of the war against Ukraine, for the first time ever, the European Commission has taken the step of singling out two hostile investor countries for Member States to consider in applying foreign direct investment (“FDI”) screening laws. In its communication from 6 April 2022 the Commission advises member states to be more vigilant about investments originating from Russia or Belarus. When dealing with companies from Russia or Belarus parties should expect a lengthy screening process and extensive investigations. It must be noted, however, that this is still a legally non-binding “communication” on the part of the Commission. The decision to block a foreign investment is still up to the member states themselves. Nevertheless, the clarity of the process is remarkable.
For further information on the Commission’s communication, you may consult here.
Romania – New FDI regime enters into force
On 18 April 2022, the Emergency Government Ordinance No. 46/2022 (the “FDI Act”) came into force in Romania. The ordinance implements the EU FDI Regulation and provides a broad definition of Foreign Direct Investments. The new regulation does not only cover changes in the ownership structure but investments of any kind made by a foreign investor for the purpose of establishing or maintaining long-lasting and direct links between the investor and an undertaking and/or a separate unit of an undertaking, via funds which are made available for carrying out an economic activity in Romania, and which allow the foreign investor to exercise control over the management of the business. The FDI filing will be triggered if a non-European investor invests in a list of specified sensible sectors and the value exceeds 2 million € and if the investment is likely to raise concerns about potential risks or effects for homeland security of public order. The control is carried out by a new authority (the so called “FDI Screening Commission”) which is directly subordinated to the Romanian Government.
Germany – retrospective prohibition of acquisition and failed takeover under German FDI screening regime
The retrospective prohibition of acquisition in the medical devices sector and the failed takeover in the semiconductor industry under German FDI Screening regime attracted a lot of attention. One year ago, on 1 May 2021 the 17th revision of the “Außenwirtschaftsgesetz” came into force expanding the list of critical sectors to 27 and implementing a more protectionist policy. In March 2020 a leading Chinese manufacturer of anesthesia and respiration equipment acquired a German medical device manufacturer. However, the legislative amendments of 2021 allowed the German government to prohibit retrospectively the acquisition of the company on 27 April 2022 on the grounds of national security concerns.
In another procedure a major company from Taiwan intended to acquire the majority of shares and control if a German manufacturer of silicon wafers. Nevertheless, the takeover failed because the German government would not respond in time to the request of issuing a certificate of no-objection. In the subsequent trial both, the Administrative Court of Berlin and the Higher Administrative Court of Berlin ruled in favor of the German government.
It follows from the two procedures that parties intending to acquire a German company should carefully assess the question whether it is prudent to apply for a certificate of no-objection and they should provide sufficiently contractual protections in their deals to avoid a subsequent prohibition after the deal has been closed.
The press release of the Higher Administrative Court of Berlin can be found here while the full decision can be read here.
Netherlands – Approval of a bill introducing a national security control regime for investment screening
The Dutch Senate approved on 17 May 2022 a bill introducing a national security control regime for investment screening. The new regime will apply to investments that intend changes of control of companies but also the “acquisition or expansion of significant influence in one or more undertakings” in the sectors of vital suppliers, managers of corporate campuses and sensitive technologies. On a procedural level the Minister of Economic Affairs and Climate will have the power to retroactively call-in for review transactions implemented after 8 September 2020 and if he finds sufficiently concrete indications for a risk to national security, he can impose sanctions or block the envisaged transaction. This has serious implications for investors as the closing of deals that have not been closed before the regime has entered into force is potentially subject to clearance of the Minister.
Switzerland – Swiss Federal Council initiates consultation on legislation to screen foreign investment
The Swiss Federal Council has been instructed by the Parliament to draft an new FDI regulation for Switzerland. Therefore the Swiss Federal Council initiated consultation on 9 September 2022. In the purpose of preventing the takeover of domestic companies by foreign investors that endanger public order or security, the new “Investment Review Act” shall foresee necessary approval by the State Secretariat for Economic Affairs (SECO). However, small companies are to be exempted via a de minimis threshold. The SECO is the competent institution to carry out the investment review whereas in case of disagreement, the Federal Council is to be responsible to make the final decision.
For further information, please read the CELIS Briefing Note by Phil Baumann. The official press release by the Swiss Federal Council is available here.
