Screening of foreign direct investments: enhanced government control over the M&A landscape
04/10/22
In June 2022 the nine Belgian federated entities reached a cooperation agreement to develop and implement a foreign direct investment (“FDI”) screening mechanism. This mechanism seeks to address concerns regarding security, public order and the strategic interests of the regions and communities. The draft act is currently with the Council of State for review and the aim is to implement the screening mechanism by 1 January 2023.
The new screening mechanism is an additional tool of government control over the private M&A landscape and can have a considerable impact on M&A transactions in Belgium. Apart from the analyses whether or not an investment needs to be notified and screened, one needs to make sure the transactional documents include the necessary arrangements in this respect (e.g. long stop date, condition precedent for screening, cooperation).
Below is a short summary of the scope and the procedure to be followed. As this is a new mechanism there will also be a certain degree of legal uncertainty during the months / years to come in terms of interpretation and decisions by the ISC and the competent minister(s).
Scope
A “foreign direct investor” is any private individual with its main residence outside of the EU, an undertaking established under the laws of a non-EU country or an undertaking which has an ultimate beneficial owner (UBO) with main residence outside of the EU.
A “foreign direct investment” is an investment of any kind by a foreign investor with the aim of establishing or maintaining lasting and direct links between the foreign investor and the (Belgian) enterprise in which the investment is made.
A transaction falls within scope if the following criteria are met:
acquisition of at least 25% of the voting rights of Belgian entities active in, amongst others, critical infrastructure (e.g. health, energy, defence), technology and resources which are important from a security, defence or public order point of view, private security, freedom of media or technologies of strategic interest in the biotech sector;
or
acquisition of at least 10% of the voting rights of Belgian entities with a turnover of more than EUR 100.000.000 (preceding year) active in the sector of defence, energy, cybersecurity, electronic communication or digital infrastructure.
Procedure
An Investment Screening Commission (“ISC”) consisting of 9 members will screen the investments and act as a one-stop-shop. The screening procedure is as follows:
A notification needs to be made by the foreign investor;
The ISC will make an assessment to decide whether the investment potentially may have an impact on public order, security or strategic interests of the regions and communities. By doing so it will take into account:
risk of discontinuation of vital processes which can lead to social disruption and pose a threat to national security, strategic interests and the quality of life of the Belgian population;
risk of losing the integrity or exclusivity of knowledge and information which is linked to vital processes and the required sensitive technology;
risk of creating strategic dependencies.
- If it is considered that there is a potential impact, the ISC will advance to a thorough screening of the investment. An advice is prepared for the competent minister(s) taking the form of (i) a positive advice, (ii) a negative advice or (iii) a positive advice subject to certain mitigating measures (e.g. increased governance or actual structure of the transaction).
The ISC will notify the investor of the decision taken by the minister(s). As long as no decision from the ISC is obtained, completion of the transaction cannot take place. Needless to say that e.g. in a competitive auction process a foreign investor can have a disadvantage compared to a non foreign investor.
An investor has the possibility to launch an appeal against the decision with the Belgian Market Court that was established in 2017.
Sanction
Investors that do not comply with the screening procedure (e.g. by failing to notify or not implementing mitigation measures) can incur administrative fines of up to 10% (and in some cases 30%) of the total deal value.
Should you have any questions, please do not hesitate to contact Ive Serneels or Stijn Vanbaelen of the M&A department of PwC Legal.
