DETE Issues Draft FDI Screening Guidance

Ireland is expected to commence the Screening of Third Country Transactions Act 2023 (Act) in September 2024. This will introduce a new FDI screening regime in respect of certain acquisitions or investments by third country businesses or persons in Ireland. In anticipation of the commencement of the Act, the Department for Enterprise, Trade and Employment (DETE) has issued draft Guidance for Stakeholders and Investors (Guidance) in relation to the new regime.

The Guidance provides useful insights for parties who are seeking to determine whether they may be subject to a mandatory notification requirement under the Act. It also sets out helpful practical guidance in relation to the notification form, timings and the Ministerial review process.

Key Requirements under the new regime

The new regime will introduce a mandatory and suspensory notification requirement to the Minister for Enterprise, Trade and Employment (Minister) where:

  • a third country business (or a connected person): (i) acquires control of an asset or business in the State; or (ii) changes the percentage of shares or voting rights it holds in a business in the State from 25% or less to more than 25% or from 50% or less to more than 50%;
  • the cumulative value of the transaction and each transaction between the parties to the transaction (or connected persons) in the 12 months before the date of the transaction is at least €2m;
  • the same business does not directly or indirectly control all the parties to the transaction; and
  • the transaction relates to or impacts upon at least one of a list of prescribed matters (these include, for example, critical infrastructure, critical technologies and dual use items, the supply of critical inputs, access to sensitive information or the freedom and pluralism of the media) (Section 9(1)(d) Criteria).

Call-ins by the Minister are also possible in certain circumstances, including for non-notifiable acquisitions and those which were completed in the 15 months prior to the commencement of the legislation.

Acquisitions will be assessed by reference to whether they affect or would be likely to affect security or public order in Ireland. In reaching a decision, the Minister will be obliged to consider a list of prescribed criteria and to have regard to any comments submitted by other Member States/any opinion of the European Commission as well as the views of a specially appointed advisory panel. It may also consult such other Ministers of the Government and persons as are appropriate.

A notification must generally be made at least 10 days before completion. The Minister has 90 days from the date of the screening notice to reach a decision, which can be extended to 135 days on written notice to the parties. Further extensions are possible where additional information is requested from the parties. Where the Minister finds that a transaction affects or would be likely to affect security or public order in Ireland, he/she may issue directions to the parties, including directions not to complete the transaction, to make divestments or to modify or cease a specific conduct or practice.

Guidance

Jurisdictional Criteria

The Guidance provides a number of useful insights in relation to the criteria which will trigger a mandatory notification requirement under the Act. In this regard:

Section 9(1)(d) Criteria

  • The Guidance clarifies that in the context of the Section 9(1)(d) Criteria, the focus will on the target’s activities as this is where risks are most likely to arise.
  • In assessing the existence of “critical infrastructure”, it refers parties to Directive 2022/2557 and, in particular, to the list of infrastructural categories, subsectors and operators contained in Annex 1.
  • In assessing the existence of “critical inputs”, it refers the parties, inter alia, to the list of critical raw materials which has been produced by the European Commission and indicates that a notification will be required if the Irish target of a third country transaction is engaged in the extraction, production or supply of the identified critical raw materials.
  • It clarifies that equipment covered by Council Common Position 2008/944/CFSP, which governs the export of military technology and equipment, also falls within the scope of the mandatory notification requirement contained in the Act.
  • It provides an explanation of what constitutes “sensitive information” and indicates that for screening purposes, sensitive data must be held as an essential or critical part of a business or asset. Equally, it states that the volume of such data should be “substantial” and/or that the transaction should relate to a business model that depends on generating turnover from such data.
  • It refers parties to the legislation governing media mergers in Ireland for guidance on what constitutes “media plurality” and a “media business.” It also clarifies that media transactions relating to media businesses that operate, sell or are otherwise active in Ireland will be of interest for investment screening purposes.

Transaction Structure and Value of Transaction

  • The Guidance confirms that control of a business exists where a person can exercise “decisive influence” over its activities and that “decisive influence” is to be interpreted in line with EU merger control guidance (i.e. as the power to determine the strategic commercial behaviour of a business).
  • It acknowledges that joint ventures which are engaged in activities akin to greenfield investments (e.g. which are created to construct a new plant), and which do not involve the acquisition of control of a business or asset in the State or of a stake/voting rights in a business in the State, will not require mandatory notification.
  • It confirms that as no change of control usually occurs in relation to businesses or assets placed into receivership or examinership, a mandatory notification is generally not required in those circumstances.
  • In the context of businesses or assets entering into liquidation, it notes that while the liquidator usually takes over the powers of the directors, no automatic vesting of shares or change of ownership of assets occurs by virtue of the appointment. On that basis, the Guidance suggests that notification is only required in relation to any disposal of assets resulting in a change of control, where the criteria in sections 9(1)(a) – (c) of the Act are met.
  • It notes that while the appointment of a receiver, examiner or liquidator may confer rights to use the secured asset or the right to exercise decision influence over the activities of the business concerned, a notification is not required on the basis of the “existence” of such rights, but rather where such rights are actually exercised, and all of the other relevant threshold criteria are fulfilled.
  • It confirms that notification is required where a lender or security holder takes control of an asset (deemed to be within the scope of the Act) as a “mortgagee in possession” to enforce its security. It also provides guidance in relation to situations where a lender acquires shares as a result of an unpaid debt (for example, debt/equity swaps).
  • It confirms that the “value” of the transaction refers to the consideration being paid by the acquirer for the entire transaction, including any assets or undertakings that may not be located in the State.

Timing and Process

As regards timing and process, the Guidance also usefully clarifies the following points:

  • The Guidance confirms that the Notification Form will be uploaded to, and all engagement with the DETE will take place via, a Case Management System. The draft Notification Form which has been published by the DETE replicates that used by the European Commission to facilitate the exchange of information between Member States.
  • The Guidance indicates that the DETE expects that the acquiring party (or their representative) will typically take primary responsibility for the notification. It also confirms that notification on the basis of a “good faith intention” to complete a deal is not precluded by the Act.
  • It confirms that the DETE will issue a letter to the parties where it receives notifications that are determined not to fall within the scope of the mandatory regime. However, this will not impact its ability to exercise its “call-in” powers under the Act.
  • It confirms that while a 45 day extension to the 90 day review period is possible, this will only be used in “exceptional circumstances” where further time is required to assess and/or mitigate risk. Helpfully, the Guidance also confirms that the 90 day period is the outer bound of the time permitted to complete the screening process rather than the intended target and that the DETE is aiming to ensure that “…where no risks are identified, screening reviews are completed in as short a time frame as possible, subject to all inputs required, including possible inputs from the European Commission or other Member States, being received.”
  • It confirms that there will be no application charge for the notification or screening process and that individual screening decisions will not be published. While an annual FDI screening report will be laid before both Houses of Parliament, this will focus on aggregated data, trends and outcomes, with no information included that could result in the identification of any parties to a transaction.

Next steps

The draft Guidance acts as a helpful interpretative aid in relation to certain of the jurisdictional criteria laid down in the Act and provides useful insights into how the FDI screening process will operate in practice. Certain of the observations made by the DETE in the draft Guidance will be welcomed by investors, including the DETE’s assertion that it will endeavour to operate the regime “…in as efficient a manner as possible, to minimise the burden on investors and companies, and to facilitate low-risk, legitimate investment”, and that “…only a small number of investments, mergers or transactions might pose a risk to our security and public order and so, the investment screening mechanism must be proportionate and tailored to these risks, without undermining Ireland’s attractiveness to inward FDI more generally.”

The draft Guidance may be further revised prior to the commencement of the Act, including on the basis of comments submitted by interested stakeholders. In any future iteration of the Guidance, it is hoped that the DETE will take the opportunity to elaborate on certain points which are not addressed, or addressed only at a high level, in the current draft. These include:

  • Clarification on the possibility of engaging in pre-notification discussions with the DETE;
  • The implications for Ireland’s screening regime of the Court of Justice’s decision in C-106/22 - Xella Magyarország (in which it was found that Hungary had infringed the freedom of establishment by prohibiting a Hungarian company, which was indirectly owned by a Bermudan company, from acquiring another Hungarian entity under its FDI screening regime); and
  • Further clarification on the circumstances in which the DETE is most likely to exercise its call-in powers in respect of non-notifiable acquisitions. At present, the Guidance refers only to the ability of the Minister to call-in deals where he/she has reasonable grounds to believe that the transaction affects or would be likely to affect the security or public order of the State and notes that “[t]his is particularly aimed at emerging technologies or sectors”.

For further information on how the new regime may impact on your business, please contact any member of A&L Goodbody’s EU, Competition & Procurement team

Date published: 29 April 2024