Foreign investment: France strengthens controls!

The threshold decreases from 25% to 10% for listed companies!

As announced in April 2020 in the midst of the COVID-19 health crisis in France, a decree aimed at protecting French companies listed on a regulated market has just been published. As the COVID-19 crisis has affected, sometimes considerably, French companies, the Minister of Economy has decided to extend the scope of foreign investment control to any acquisition by a non-European investor of more than 10% of the voting rights of a French company listed on a regulated market.

This is yet another development in the scope of a regime that is constantly being expanded. Indeed, France adopted an investment screening at a relatively early stage in order to protect the country's interests in terms of public authority, public order, health and public safety. Since these early regulations in 1966, the scope of foreign investment control has been considerably strengthened, the list of sensitive sectors has been extended and the thresholds lowered.

As a result, foreign investment (direct but also indirect) in sensitive sectors must, under certain conditions, be authorized by the Minister of Economy.

Within the framework of the prior authorisation procedure as set out in Decree n°2019-1590 of 31 December 2019, the Minister has a period of thirty working days to accept, possibly subject to conditions, or refuse the notified investment. If necessary, the Minister may have a discretionary period of forty-five additional working days. Failure by the Minister to reply shall be deemed, in the context of this procedure, to constitute a rejection of the investment.

In response to the COVID-19 health crisis, the Minister of Economy twice modified the foreign investment screening mechanism. Firstly, by an order of 27 April 2020 under the terms of which he extended the list of critical technologies to the biotechnology sector. Secondly, by the aforementioned decree, which is accompanied by an order published on 23 July 2020, under the terms of which the Minister of Economy lowered from 25% to 10% the threshold for holding voting rights triggering the control procedure.

However, this reform is limited in three respects. It is applicable only until 31 December 2020, concerns only investors from countries outside the European Union and the European Economic Area, and is limited to French listed companies only.

In order to reduce the impact of this measure on the free movement of capital, a lighter procedure has been provided for. Indeed, the foreign investor is exempted from the requirement of prior authorisation. The investment project only needs to be notified to the General Directorate of the Treasury and must be carried out within six months of notification.

There is still some doubt as to whom is competent to notify the investment project. It seems from the decree that not only the investor but also the target company may notify the investment.

Finally, breaking with the principle that silence from the Minister is equivalent to refusal, the decree provides that authorization is deemed granted after a period of 10 working days from the notification if the Minister does not answer in such period.

It is therefore a reinforcement, but implemented in a very pragmatic way, which is commendable. The government has heard the wishes of the industry and we can reasonably expect a very targeted application of these measures, the purpose of which is to preserve strategic assets in these times of particular crisis without discouraging investors.