#COVID-19 : Adoption of the temporary reduction from 25% to 10% of the capital holding threshold, triggering the control of foreign investments

1. During a hearing before the Economic Affairs Committee of the French National Assembly on 29 April 2020 and in a press release published the following day, Bruno Lemaire, then French Minister of Economic Affairs and Finance, had announced modifications of the rules governing the French foreign investment control mechanism to adapt them to the current pandemic of COVID-19.  This included a reduction from 25% to 10% of the threshold for holding the capital or voting rights of a French listed undertaking (see our article issued on 30 april 2020 regarding this matter).

2. As a reminder, transactions meeting the three following cumulative conditions fall under the French foreign investment control mechanism:

(i)     the direct or indirect acquisition of

(a) the control of a business having its registered office in France,
(b) all or part of a branch of activity of a business having its registered office in France, or
(c) a share of the capital or voting rights in a business having its registered office in France when this acquisition results in meeting a threshold of 25% of the capital or voting rights of this business;

(ii)     by an investor from another State whether or not it is a Member State of the European Union or the European Economic Area, except in the case of an acquisition mentioned in 2.(i)(c) above for which only an investor from a third party State to the European Union or the European Economic Area falls within the scope of the control mechanism; and

(iii)     insofar as the target exercises a so-called “sensitive” activity, the activities qualified as “sensitive” being listed in Articles L. 151-3 and R. 151-3 of the French Monetary and Financial Code and including e.g. the manufacture and trade of war materials and dual-use goods, computer security, cryptology, gambling (excluding casinos), data storage, water or energy supply networks, transport or electronic communications networks and services, agricultural business, the press or the research and development on critical technologies.

3. By French Decree No. 2020-892 of 22 July 2020, the 25% threshold mentioned in 2.(i)(c) above was lowered to 10% of the capital or voting rights of an undertaking having its registered office in France and which shares are admitted to trading on a regulated market.  This reduction is temporary and, due to an express provision of the Decree, will automatically cease to apply on 31 December 2020 at midnight.

4. In addition, foreign investments benefit from an expedited procedure for their clearance when meeting this new temporary 10% threshold but remaining below the permanent 25% threshold and having to be closed within six months from their notification to the Minister in charge of economic affairs.  They are deemed to be authorized if within ten days from the reception of this notification, the Minister has not objected the project.  The practical details of this expedited procedure have yet to be defined by a French Order of the Minister in charge of economic affairs.