France extends the transition base for foreign direct investment

On December 23, 2022, the French government passed Decree No. 2022-1622, a temporary provision that was extended until December 31, 2023 and is now in effect for two years, lowering the threshold for starting a foreign investment review. 10% of the voting rights of some investments. . A transitional rule applies to foreign investors from outside the European Union (EU) and European Economic Area (EEA) who invest in certain listed French companies.

The temporary rule was first implemented in July 2020 in response to the economic impacts of the COVID-19 pandemic on French strategic assets, and was extended in December 2020 and December 2021.

In a press release announcing the latest extension, the French authorities referred to the national security risk, namely the opportunistic acquisition of shares by non-European foreign investors in French public companies involved in major operations.¹ French officials cited current economic conditions and the energy crisis as the main reasons for the latest extension.

temporary rule

According to the French rules on foreign direct investment (FDI), foreign investors must apply to the French Ministry of Economy (ME) and obtain authorization before making certain investments (covered investments) in business activities involving sector reviews in France. Strategic assets (closed operations).²

Under French foreign direct investment rules, covered investments are defined as follows:

(1) the takeover of a French company;

(ii) the acquisition, in whole or in part, of a subsidiary of a French company; And

(3) Only for foreign investors outside the European Union, outside the European Economic Area, who own more than 25% of the voting rights of a French company (minimum test).

The transitional rule lowered the threshold from 25% to 10% if the French company carried out covered activity and its shares were allowed to trade on a regulated market.

French FDI authorities reserve some discretion in determining what activity is covered in a particular case, but under FDI rules, it includes the following:

(i) Activities which by their nature are subject to the purpose (it’s a. public order, public security and national security measures);

(ii) Procedures that have been intentionally specified to comply with susceptibility tests based on various criteria (for example. target customers; the nature, distinctiveness, and use of Target’s products, services, and solutions; market adaptability; seriousness of targeted actions); And

(iii) Research and Development (R&D) activities involving biotechnologies or dual-use materials and technologies related to any activity referred to in point (1) or (2).

Clarify the scope of the provisional provision

The French Treasury’s guidance on foreign direct investment, published in September 2022, states that the transitional rule applies if the shares of the target French company are listed on a regulated market in France, the European Union or the European Economic Area. See our customer alert dated November 14, 2022, “France publishes foreign investment control regime guidelines.” »

The guidelines state that the temporary rule does not No Applies to French public companies recognized for trading on a liberalized market (for example. Euronext Growth) or in a market in a country outside the European Union or European Economic Area. The Guidance also confirms that the threshold test (and thus the transitional rule) does not apply if all persons in the investor’s chain of custody are from another EU or EEA country and are incorporated in an EU or EEA country.

Evaluate the success of the threshold test

Under French FDI rules, a covered investment occurs when a non-EU or non-EEA foreign investor exceeds the 25% threshold (or 10% under the provisional rule), alone or jointly with other investors. The investor does not have specific control rights.

FDI Guidelines on “Entry Contraband” and “Collective Action” (gigs), defined and applied by French corporate and securities law.

With regard to the concept of coordinated action, the Guidelines make it clear that an agreement to act collectively need not be in writing, nor can it be express or implied. Where no such agreement is in writing, the existence of a coordinated action can be demonstrated on the basis of “serious, accurate and consistent indications”.

Notification requirements and expedited review process

Covered investments that fall within the scope of the provisional rule are subject to simplified advance notification requirements and an accelerated review process. See our customer alert dated December 23, 2020, “France Extends Temporary Covid-19 Foreign Investment Rules.” »

After the announcement, the Ministry of Education will decide within 10 working days whether the proposed investment should undergo the standard review process under the French Foreign Direct Investment Rules. If the Ministry of Education does not raise any objection within 10 working days of notification, the proposed investment will be considered approved, and if so, the foreign investment must be made within six months of notification.

However, the Ministry of Education may reject the exemptions and conclude that the proposed investment must be subject to standard review under French foreign direct investment rules (it’s a. , 30 working days for the first stage review and, if necessary, 45 working days for the second stage review). The launch of a standard screening process will result in the Ministry of Education imposing binding obligations on the foreign investor as a condition for granting the FDI permit.

According to the guidelines, a covered investment in a French company that is listed and authorized under the transitional 10% threshold rule does not require additional FDI authorization if the foreign investor exceeds the 25% threshold.

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1 to see Press release, N˚ 458, 2023 extension of measure that temporarily lowers the threshold leading to IEF control in French companies listed on a regulated market.

2 French foreign direct investment rules define foreign investors as: (i) any natural person of foreign nationality; (ii) any natural person with French nationality who is not tax resident in France; (iii) any company incorporated abroad; or (iv) any French entity controlled by one or more of the persons or entities listed in (1), (2), or (3).

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