On December 31, 2019 the French Government adopted a Decree and a Ministerial Order, which implement the reform of the French foreign investment control regime initiated by the Law n°2019-486 of May 22, 2019.   Since many years, foreign direct investment in certain sensitive sectors for French national interests has been subject to prior clearance by the Minister for the Economy.

The Decree notably aims to expand the scope of sectors subject to prior foreign investment control and to clarify and simplify the authorization procedure. Together with the Ministerial Order, it constitutes the new framework applicable to foreign investments in France. The Decree also includes measures aimed at implementing in France the cooperation mechanism provided for under EU Regulation 2019/452 of March 19, 2019 establishing a framework for the screening of foreign direct investments in the European Union (the “EU Regulation 2019/452”).

The new rules will enter into force as from April 1st, 2020 and will apply to all transactions notified as of this date.

1. An extended and clarified scope for the French Foreign investment control regulations

  • The transactions which are subject to foreign investment control are (i) the acquisition of control over a French law entity by a non-French investor, (ii) the acquisition of all or part of a business line of a French law entity by a non-French investor or (iii) the direct or indirect crossing of 25% of the voting rights in a French law entity by a Non-EU/EEA investor (while a one-third threshold applied previously).
  • The concept of control for the purpose of foreign investment control is extended. In addition to the concept of control used for corporate law purposes as defined by Article L. 233-3 of the French Commercial Code, it now also includes the concept of control as defined by Article L. 430-1-II of the French Commercial Code which subsidiarily applies whenever control as defined by Article L. 233-3 cannot be established. This second test which is used for the purpose of merger control in France and the EU refers to control resulting from rights, contracts or other means conferring the possibility to exert, solely or jointly, a decisive influence on the activities of a business.
  • In case of indirect acquisition of control through successive companies, each of such companies is deemed to be an investor for the purpose of foreign investment control. As a result, an investment made by a French investor through a non-French entity will be made by a foreign investor for foreign investment control purposes.  Prior to the new rules, the list of strategic sectors subject to foreign investment control differed depending on whether the investor was based in an EU/EEA Member State or not. There is now a single list of strategic sectors which applies regardless of the country of origin of the investors. This list has also been extended to include the following activities listed in the EU Regulation 2019/452 :
    • The production, transformation or distribution of agricultural products as defined in Annex I of the Treaty on the Functioning of the European Union, when such products contribute to national food supply security;
    • The editing, printing or distribution of press publications related to politics or general matters;
    • R&D activities relating to “critical technologies” listed by the Ministerial Order, in which quantum technologies and energy storage technologies has been added and that can be further extended in the future.
  • The Decree introduces a new exemption – An investor previously authorized to acquire, directly or indirectly, alone or as part of a concerted action, more than 25% of the voting rights of a French company is exempted from the requirement to file an application for authorization in case it later acquires control over the same company. In this case, the acquisition of control has only to be notified to the Minister of Economy and will be deemed authorized within 30 days of such notification, if the Minister of Economy does not object. In this case, the Minister may however impose new conditions on the investor.

2. Modified authorization process

  • The authorization process is now divided into two phases:
    • Within 30 business days following the receipt of a request for authorization, the Minister will either (i) declare that the investor is not required to obtain such authorization, (ii) grant its authorization without conditions or (iii) declare that an additional review is required to determine whether a conditional authorization is sufficient to protect national interests;
    • If an additional review is required, the Minister has an additional 45 business days to either clear the transaction (if necessary subject to conditions) or prohibit it.

In relation to each phase, the absence of decision within the applicable timeframe results in the request being deemed rejected.

  • This new process is inspired from merger control processes, which typically involve two phases depending on the complexity of the case. The purported aim is to allow most transactions to be cleared swiftly in the first phase if they do not require any commitments, while allowing for more time for an in-depth review of transactions that may raise issues. Under the previous system the Minister had two months to take a decision, regardless of the complexity of the case. In practice however, the review could take much longer as the authorities could easily re-start the clock by considering that a file was not complete.
  • The Ministerial Order lists the information to be provided with the approval request and significantly extends the amount of information required.

Some of the elements newly listed have, in practice, already been requested by the authorities as part of additional information requests (e.g. certificates of formation for all the entities included in the control chain of the investor; organization charts; name of board members; etc.) but the list also includes genuinely new elements, such as the disclosure of any capital-related relationship with or significant financial support from a State or public entity, a list of French and foreign competitors of the investor and of the target, or a signed statement that the investor has not, over the past five years, been subject to any of the sanctions mentioned by the foreign investment regulations.  The application file must also provide information as to whether the company in which the investment is contemplated is involved in projects and/or programs of Union interest listed in the Annex to the EU Regulation 2019/452, so as to allow the Commission, should it consider that the contemplated investment is likely to affect said projects or programs on grounds of security or public order to issue an opinion addressed to the French authorities on this point.

3. Entity responsible for the implementation of the conditions to which the investment may be subject, possibility to review such conditions and strengthening of the test for clearance

  • The Decree contains an indicative typology of possible conditions to which the authorization might be subject, which largely crystallizes existing decisional practice. A new feature of the system is that the entity within the investor’s chain of control that will be responsible for implementing the conditions will no longer systematically be the ultimate controlling entity.
  • The Decree explicitly provides for the option to review the conditions at the investor’s or the Minister’s request. Conditions may be reviewed at the Minister’s request in the event of a change in the shareholding structure of the target entity or of a change in the target’s chain of control or if the initial authorization has provided for the possibility for such a change.
  • Finally, aside from the usual grounds of rejection related to insufficient moral guarantees (i.e. serious suspicions of money laundering, corruption, fraud, etc.) and to the inability to protect national interests through a conditional authorization, the Decree allows the Minister to deny clearance based on the investor’s negative track record. A negative track record may result from an investor’s failure to seek the necessary authorizations for its previous investments or refusals to apply injunctions to comply with French foreign investment control rules. The fact that the investor has ties with a foreign government or public authority may also be taken into account.