The "PACTE" Law was published in the Official Journal on 23^rd May 2019¹ and contains many provisions of interest to businesses. Among other things, it broadens the notion of what is in a company’s interest, takes into account the social and environmental stakes of companies' activities, revises the formalities for creating and modifying a company, and seeks to facilitate the transfer of businesses.

It tackles in particular one area of economic policy: foreign investment. It reinforces control over foreign investment in order to protect strategic companies. The law implements the European Union’s common framework for filtering foreign investment within the single market, through the Regulation of 19^th March 2019².

This movement had already found some application in France with the Decree of 29^th December 2018³, which extended the list of sectors requiring prior authorization to protect certain so-called "forward-looking" sectors such as cyber security, artificial intelligence and robotics.

It should be recalled that the requirement of obtaining a prior authorization is not exactly a new thing for foreign residents carrying out investment operations in France in companies in sensitive sectors⁴.

1. Injunctive and protective measures

Article L. 151-3-1 of the Monetary and Financial Code (CMF) from the PACTE Law provides that where a foreign investment has been made without prior authorization, the Minister for Economic Affairs may issue three types of injunctions against the investor:

• Submit a request for authorization
• Restore the previous situation at its own expense
• Modify the investment

All three may be subject to a penalty payment.

Secondly, if the Minister considers that the protection of national interests is or may be compromised, he may also take any precautionary measures he considers necessary. For instance, the Minister can:

• Suspend the voting rights attached to the fraction of shares or partnership shares whose holding by the investor should have been subject to prior authorization
• Prohibit or limit the distribution of dividends or remuneration attached to shares or partnership shares whose holding by the investor should have been subject to prior authorization
• Temporarily suspend, restrict or prohibit the free disposal of all or part of the assets related to these activities

The law provides similar powers in the event of non-compliance with the conditions of the authorization. Thus, the Minister can:

• Withdraw the authorization from the investor
• Require him to comply with the conditions set out in the authorization within a time limit set by it
• Order him to comply with the prescriptions in substitution for the obligation not complied with, within a time limit set by him

Once again, these measures may be combined with penalties and protective measures.

It should be noted that if the Minister wishes to take any of the measures mentioned, he must first give notice to the investor to submit observations within 15 days, except in cases of urgency, exceptional circumstances or imminent breach of public policy, public security or national defence.

2. Financial penalties

Under the terms of the new Article L. 151-3-2 of the CMF, the Minister of Economy also has the power to impose fines for four breaches:

• The realization of an investment without prior authorization
• Obtaining prior authorization by fraud
• Failure to comply with the conditions of the authorization
• The total or partial non-enforcement of decisions or injunctions

The investor may be subject to a financial penalty in an amount not exceeding the greater of the following amounts:

• Double the amount of the irregular investment
• 10% of the target company's annual turnover excluding tax
• Five million euros for companies and one million euros for individuals

3. Information obligations

New information obligations are highlighted by the PACTE Law.

On the one hand, the new Article L. 151-5 of the CMF provides that the investor or strategic company now has an obligation to communicate to the Minister all documents and information necessary for the performance of its mission.

On the other hand, the Minister of Economy also has an information obligation, which could be described as a transparency measure. He must indeed submit each year to Parliament a report on the Government's action in this area, which includes a description of its action, as well as information on the procedure for the prior authorization of foreign investment in French activities.

1. Law n°2019-486 of 22 May 2019 on the growth and transformation of companies

2. Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for filtering foreign direct investment in the Union

3. Decree n°2018-1057 of 29 November 2018 on foreign investments subject to prior authorisation

4. Cf., Law n°66-1008 of 28 December 1966 on financial relations with foreign countries, Article 3

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