New Definitions: Extension of the Scope
As revised, the following are to be considered "covered investors": (i) any foreign legal entity or natural person; (ii) any French natural person living outside France; or (iii) any French legal entity controlled by any of the previous mentioned investors. Presently, the regulation covers the acquisition of control of French targets or the acquisition of all or part of businesses (asset deals), but the revised regulation will also cover any investment in which the investor will directly or indirectly, alone or jointly, own more than 25% of the French target's voting rights (excepted for EU investors and intragroup investments).
New Sensitive Businesses: Another Extension of the Scope
The amended French FDI names certain "sensitive" business activities and sectors that will trigger the foreign investment approval process. Sensitive activities are now divided into three categories:
- Sensitive activities relating to national security and national defense (including crypto and data storage and processing);
- Businesses relating to specific facilities and infrastructure, goods, or services (energy, water, transportation, space, electronic communications, public health, agriculture and food industry, publishing and media);
·Certain businesses relating to research and development activities focused on critical and dual use technologies.
A French entity can ask at the Ministry of Economy at any time whether all or part of its activity could be considered sensitive (the answer should be delivered within two months).
Acceleration of the Proceeding
Today, when a transaction is contemplated and an application is filed, the Ministry of Economy has a two-month deadline to grant or deny the authorization (and the Ministry can stop the clock answering additional questions on the deal). In the future, the Ministry will give a first answer within 30 days which could be: (i) authorization without conditions or undertakings (simple cases) or (ii) the need for additional investigation and potential discussions for undertakings (complex cases). In that second case, a new period of 45 days will start at the end of which the Ministry could grant the authorization (possibly with undertakings for the investor) or refuse it.
Clarifications on the Potential Undertakings and Requirements
The purpose of the undertakings is: (i) to ensure the continuity and the security of the activity of the French target on the French territory; (ii) to protect the knowledge and know-how of the French target company; (iii) to adapt the governance of the French target company; and (iv) to determine the means of posttransaction communication and reporting between the investor and the controlling administrative authority. These undertakings may be revised at any time, on the initiative of either investor or Ministry, in case of certain specific changes in circumstances. Additionally, the Ministry of Economy may condition its authorization based upon the transfer of part of the capital or business lines of the French target to a legal entity different from the investor and agreed by the Ministry.
New Grounds for Refusal
The authorization may be denied if (i) the undertakings are not sufficient; (ii) the investor has relationships or links with foreign government or foreign public entities; or (iii) the investor committed violations of criminal or social law.
Control and Sanctions
Since the PACTE law increased the supervisory power of the Ministry of Economy, the Ministry could now (i) issue, as an emergency intervention, an order requiring from the company to comply with certain obligations subject to a daily penalty (up to EUR 50,000) and (ii) appoint a substitute within the company in order to protect national interests (including via a veto right on company decisions). In addition to the imposition of criminal and administrative sanctions, any transaction completed in violation of this regulation will be null and void.
Content of the Application to Be Filed With the Ministry
Order n° ECOT193723, dated 31 December 31, 2019, on foreign investments in France describes all the information needed about the investor, the target, and the investment.
As soon as the authorized transaction is completed, a specific declaration to the Ministry of Economy must be filed.