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, French Minister of Economic Affairs and Finance, announced a forthcoming modification of the rules governing the French foreign investment control mechanism to adapt them to the current pandemic of COVID-19.
1. Provided for in Articles L. 151-1 et seq. and R. 151-1 et seq. of the French Monetary and Financial Code, the French mechanism for controlling foreign investments is an old system which has been deeply reformed by French Decree No. 2019-1590 of 31 December 2019 and a French Order of 31 December 2019. Long contested as infringing the principle of the free movement of capital established by European Union law, it has recently been asserted by the establishment at European Union level of a common framework for the control or “screening” of direct investments made by non-European operators through Regulation (EU) No. 2019/452 of the European Parliament and of the Council of 19 March 2019.
2. 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.
When an operation satisfies these three conditions, the investor must request the prior authorization of the Minister in charge of economic affairs to be able to close it. To this aim it must submit a notification file to the French Directorate General of the Treasury and suspend the completion of its operation pending the Minister’s response.
The French Directorate General of the Treasury and the French Minister in charge of economic affairs have thirty working days to review the case. The Minister can either authorize the operation, with or without conditions, or prohibit it, or specify that it does not fall within the scope of the French foreign investment control mechanism. If the Minister remains silent at the end of the thirty working day period, the notified operation is deemed prohibited.
The European Commission is responsible for coordinating the foreign investment control mechanisms of the Member States of the European Union. In addition, on its own initiative, it may issue a non-binding opinion when an investment threatens the security or public order of at least two Member States of the European Union and the investor comes from a third party State to the Union.
3. During his hearing and in his press release, Bruno Lemaire stated that two aspects of the French mechanism for controlling foreign investments will be reviewed.
First, and pursuant to French Order of 27 April 2020 issued in the French Official Journal of the following 30 April, biotechnologies were added to the list of critical technologies. As a reminder, the research and development of these critical technologies is a “sensitive” activity which is one of the conditions triggering the implementation of the French foreign investment control mechanism. This addition is permanent.
Secondly, the threshold for holding a share of the capital or voting rights in a business which has its registered office in France, the crossing of which is another of the conditions for controlling foreign investments will be lowered from 25 to 10% for listed companies only. The implementation of this reduction should occur at the very beginning of the second half of 2020 because it requires the prior legal opinion of for the French Council of the State and the adoption of a French Decree. A draft Decree having been forwarded to the French Council of the State for its legal review, it seems that its content has already been decided by the Prime Minister subject to this review of the Council of the State. The amendment would be temporary since it should be repealed on 31 December 2020.
In addition, the review procedure would be streamlined. Investors from third party State to the European Union and the European Economic Area which meet the 10% threshold without reaching the 25% threshold should submit a notification file similar to the one provided for the regular procedure (see 2. above) to the Directorate General of the Treasury. Within ten days from receiving this file, the Minister in charge of economic affairs should decide either that the transaction does not fall within the scope of the French foreign investment control mechanism, or that it must be authorized, or that it must be subject to the regular review procedure to possibly be prohibited.
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