Review procedurei Scope of application
The French authorisation regime initially relied on a very broad definition of investments subject to control, thereby affording the Ministry a wide margin of discretion. This approach was condemned by the European Court of Justice on the grounds that it was incompatible with the EU Treaty rules on the free movement of capital. Law No. 2004-1343 and subsequent decrees have addressed this concern by refining the concept of 'foreign investor' and by setting down a precise list of the business sectors that are subject to the regulatory authority of the Ministry.ii Categories of foreign investor
France's foreign investment regime has been gradually liberalised for EU investors to comply with the EU Treaty rules on the free movement of capital, with the result that there are substantial differences in the treatment of EU investors and third-country investors.
The qualification of 'EU investor' applies to any person who is a national of an EU Member State, to any legal entity that has its registered office in an EU Member State and to French nationals residing in another EU Member State. Investors who do not fall under any of these headings are considered 'non-EU investors'.
The Decree of 2012 introduced a new category of foreign investor subject to ministerial scrutiny: the foreign-controlled French investor (FCFI). This category encompasses all entities that have their registered office in France and that are controlled by a citizen of a country other than France, and companies whose registered offices is located outside France or a French citizen residing outside France.iii Forms of foreign investment subject to authorisation
Non-EU investors in all 22 sectors under the Ministry's authority must seek authorisation prior to any of the following operations:
- the direct or indirect acquisition of a controlling stake in a company that has its registered office in France (stock transfer test);
- the acquisition of all or part of a line of business of a company that has its registered office in France (asset transfer test); or
- the acquisition of more than 33.33 per cent of the stock or voting rights of a company that has its registered office in France (threshold test).
Foreign investment controls are somewhat less stringent for EU investors and FCFIs. The threshold test does not apply to EU investors. The stock transfer test and the asset transfer test apply to EU investors only with respect to the 15 business sectors that are considered particularly sensitive. For the remaining seven strategic sectors, EU investors are required to seek authorisation only if they trigger the asset transfer test.
Investments made by FCFIs will only be subject to authorisation if they trigger the asset transfer test.
The Decree of 2012 removed certain transactions from the purview of the Ministry's control, such as the grant of loans or guarantees, the purchase of licences or patents, the execution of commercial or technical assistance agreements in connection with the acquisition of a French company by a foreign investor, and investments relating to casinos.
In the event of uncertainty as to the application of these rules, the Ministry encourages foreign investors to present a written request to the Ministry to determine whether a transaction requires prior notification. Since 1 January 2019, target companies can also request a preliminary ruling from the Ministry. Although the law provides for a two-month delay for the Ministry to respond, a response is usually given within three to four weeks in practice (the absence of a reply does not imply that the transaction is exempt).iv Safe harbours
Several types of transactions are exempt from the authorisation regime, such as intra-group investments (i.e., between companies where more than 50 per cent of the stock or voting rights are held, directly or indirectly, by a common shareholder). This exemption will not apply if the proposed transaction is intended to transfer all or part of a strategic line of business abroad (investment triggering the asset transfer test).
Investors who have been previously authorised to acquire a controlling stake in a strategic sector company will also be exempt if they increase their ownership interest beyond 33.3 per cent of the stock or voting rights of said company.v Contents of the authorisation request
The request for authorisation must contain information about the investor, the recipient of the investment and the investment itself:
- if the investor is a legal entity, the names, addresses and information about the individuals and public legal entities with ultimate control are required. If the investor is a listed company, it will need to report the identity of the shareholders known to have more than 5 per cent of the stock or voting rights, and the names and addresses of the board members. In the case of a fund, the identity of a fund manager will be required;
- the recipient company's corporate name, legal address, Kbis extract (certificate of registration) or registry number (SIREN number), details of the business activity and main customers, and the most recent fiscal year turnover and results are required; and
- regarding the investment, the details required are the shareholding structure before and after the contemplated operation, the purchase option on the remaining capital, if any, and the total amount of the operation, with the financial terms and conditions.
The request shall be submitted by email and one original has to be filed with the Ministry.
The contents of the request for authorisation are defined in the Order of 7 March 2003 to increase the transparency of the authorisation procedure and guarantee equal treatment to all investors. In practice, if the information provided in the request is not sufficiently precise for the Ministry to carry out an assessment of the transaction, investors are likely to receive requests for additional information. Every supplementary request for information suspends the review period, meaning that, in practice, the authorisation procedure could extend well beyond the statutory time frame.vi Filing date and review period
The foreign investment regulations do not foresee a specific filing deadline, although the authorisation request must be sent once the investor is firmly committed to proceeding with the proposed transaction (in practice, as soon as a put option is signed) and in any case prior to the closing of the proposed transaction (failure to respect the authorisation regime may result in heavy sanctions; see Section IV.vii). The Ministry has two months to conduct a review of the transaction from the date it receives a complete notification. If it fails to respond within this time frame, the authorisation will be deemed granted (in practice, this never happens).
The French government has implemented an informal 'fast-track' procedure for determining whether an investment falls within the ambit of the prior authorisation procedure. In this regard, the Ministry has committed to respond within three to four weeks to any complete notification. This specific time frame applies without prejudice to the period of review of two months in case it appears that the investment is subject to prior authorisation.vii Clearance test
The Ministry must verify that the investment will not harm national interests. If necessary, it may impose conditions on the investment relating, in particular, (1) to the continuity of the business, (2) its industrial, research and development capacities or related know-how, (3) the safety of its supply chain and (4) the performance of procurement contracts or contracts concerning public safety, national defence or research, or the production or trading of weapons, ammunition, or explosive powders or substances, by companies that have their registered office in France. It is possible that additional conditions may not suffice to remedy concerns, in which case the Ministry must refuse to grant authorisation.
In addition, the Ministry's review must determine whether there is a 'serious presumption' that the investor is likely to commit any of the following crimes:
- drug trafficking;
- criminal exploitation of a person's weakness or ignorance;
- procurement and related crimes;
- money laundering;
- acts of terrorism or financing of terrorism;
- corruption and influence peddling;
- acting in a conspiracy; or
- any damage to the fundamental interests of the nation.
In the event that such a presumption is established, the Ministry would have to deny the investor its authorisation.
Although the Ministry is required to explain its refusal, in practice the courts may accept that the reasons for the decision shall not be disclosed for national security reasons.viii Prerogatives of the Ministry
The Ministry has a long tradition of negotiating with foreign investors, but this was an informal practice until 2004. Law No. 2004-1343 gave the Ministry authority to subject the implementation of an investment to conditions to safeguard national interests.
These conditions are specified in Decree No. 2005-1739 of 30 December 2005: typically, investors will commit to continuing the business's operations in the future. They might also undertake to protect its industrial, research and developmental capabilities, related know-how or the safety of its supply chain. Additional conditions may be imposed on companies that have their registered office in France to guarantee the continued performance of procurement contracts or contracts concerning public safety, national defence, research, or the production or trading of weapons, ammunition, or explosive powders or substances. Conditions related to the protection of sensitive information have become more usual during the past year.
As a consequence of the six sectors added by the Decree of 2014 and the Decree of 2018, the Minister may now also subject the implementation of an investment to conditions aimed at guaranteeing the integrity, security and continuity of the operations of an installation, facility or structure of vital importance, the transportation and electronic communications networks and services, or the protection of public health.
Furthermore, the Decree of 2014 authorises the Minister to demand the divestment of part of the target's activities falling within a strategic sector to an independent third company. This was already provided for by the Decree of 2012, but only if the strategic business concerned was an ancillary activity of the target. Today, the Minister may order the divestment of any activity falling within the scope of the strategic sectors. However, the conditions imposed must be proportional to the protection of the national interest being safeguarded.
In the course of its assessment, the Ministry may seek the assistance of foreign regulatory authorities to verify the information submitted by foreign investors, in particular regarding the provenance of funds.ix Sanctions
Failure to respect the authorisation regime comes at a potentially heavy price. At the very least, any agreement, understanding or contractual provision purporting to effectuate a foreign investment in one of the sectors identified by the regulatory provisions, without due authorisation, will be considered null and void.
When required to do so, the investor will have up to 12 months to accomplish the rescission.
The law PACTE enacted in May 2019 has clarified and, at the same time, expanded the Ministry's sanction powers.
Firstly, in case the investment is carried out without any authorisation, the Ministry can either:
- order the investor to file an application;
- order the investor to return to the status quo ante at its own expense; or
- order the investor to modify the investment.
Secondly, in the event of an investment in contravention of the agreed conditions, the Ministry can either:
- order the investor to comply with the unfulfilled condition;
- order the investor to apply remedy actions, including the return to the status quo ante, in substitution to the unfulfilled condition; or
- revoke the authorisation.
In any case, the Ministry can attach an interlocutory penalty to the above-mentioned injunction. Moreover, it can take protective measures if it considers that the national interests are at risk: it has the authority, inter alia, to suspend the voting rights, the distribution of dividends or the free disposal of the assets related to the sensitive activities, and to appoint, within the company, an agent entitled to obstruct any decision likely to affect the protection of national interests.
Moreover, in any event, infringement of the foreign investments regulation regime may be punished by a civil fine capped to the highest of the following amounts:
- twice the amount of the non-complying investment;
- 10 per cent of the annual turnover (excluding tax) of the company carrying out the sensitive activities; and
- €5 million for legal entities and €1 million for natural persons.
However, a fine must be proportional to the gravity of the offence.
Investors also face possible criminal sanctions, including imprisonment for up to five years. Legal entities face the imposition of various prohibitions (carrying out certain activities, participating in public tendering procedure, receiving government subsidies, etc.), either definitively or for a limited period of time and a fine of up to 10 times the amount of the investment.x Right of recourse
The decisions of the Ministry are subject to full review by the administrative judge. Under this procedure, the judge is given broad powers to control the Ministry's decision to submit an investment to prior authorisation, to overrule the Ministry's authorisations or rejections. The judge may hold the government liable for damages to the investor; although, in practice, it is extremely difficult to establish the state's liability.
Moreover, an EU investor may challenge the Ministry's decision under EU law in the French courts if it can demonstrate that the French regulatory framework creates an unjustified restriction of the free movement of capital, or that it lacks proportionality with regard to the public policy objectives at issue.xi Declaration of the completed investment
The completion of an authorised investment gives rise to a notification in accordance with the conditions laid down by a forthcoming order of the Ministry.