Review procedurei Review process and timelines
With respect to the applicable process and timelines for cross-sectoral review, an ex officio review has to be distinguished from a review upon a notification of the transaction, or a review process triggered by the application for a certificate of non-objection.
In all of these cases, from a technical legal perspective, the review procedure has no suspensory effect (so it will be possible to consummate the transaction in theory – while in case of an adverse decision by the BMWi, it will potentially have to be unwound).ii Ex officio review
To the extent the investor is not obliged to notify the acquisition of voting rights (i.e., where no acquisition of a business in critical infrastructures is concerned) or does not apply for a certificate of non-objection voluntarily, the BMWi may review transactions ex officio.
Such ex officio review can be commenced by the BMWi if it notifies the direct acquirer and the domestic company affected by the acquisition about the opening of an in-depth investigation procedure within three months of obtaining knowledge of the conclusion of the relevant acquisition documentation. Any such notification by the BMWi must be in writing; for the purposes of determining whether the deadline for initiating an in-depth investigation has been met, service of the notice to the domestic company affected by the acquisition is decisive. In addition, a statutory longstop date of five years from conclusion of the acquisition documentation applies irrespective of the knowledge of the BMWi.
Given that the standard review deadline of three months is only triggered by positive knowledge of the BMWi, it will in practice be very difficult to determine when such period has lapsed if the acquirer does not apply for a certificate of non-objection or files a formal notification pursuant to Section 55(4) AWV in case of the acquisition of critical infrastructure businesses.iii Review upon notification
Where the acquisition of critical infrastructure businesses is concerned, such acquisition has to be notified to the BMWi in writing. Through such notification, which can be submitted by the acquirer or the target, the BMWi will obtain positive knowledge of the transaction and the review deadline of three months to determine whether an in-depth investigation will be launched applies, as discussed in the preceding paragraph.
Where an acquirer chooses to apply for a certificate of non-objection, a shortened review period of two months applies (see Section IV.iv).iv Review upon application for certificate of non-objection
An acquirer may apply to the BMWi in writing for the issuance of a certificate of non-objection. As explained in Section II.viii, such application will regularly be prudent if there are at least initial concerns that public order or security may be threatened by the transaction. If an application is made, the BMWi has to decide whether it intends to open an in-depth investigation within two months from receipt of the application. In case it does not notify the applicant about its intention to open an in-depth investigation in writing within such two-month period, the certificate of non-objection is deemed to have been issued (and such deemed issuance can regularly not be revoked or withdrawn by the Ministry anymore other than in exceptional cases, such as where the information made available by the applicant was wrong). Applying for a certificate on non-objection does not trigger administrative fees or costs (other than the own costs of the applicant and its advisers).v In-depth investigation
In case the BMWi decides to initiate an in-depth investigation, the direct acquirer is required to submit documentation to the BMWi as determined by the Ministry by way of the general instruction published in the Federal Gazette. The BMWi may request all entities directly or indirectly involved in the acquisition to submit additional documentation as needed for carrying out the investigation.
For the in-depth investigation, a deadline of four months after the receipt of complete documents applies. Within such four months period, the BMWi may prohibit the direct acquirer from making the acquisition, or, in the alternative, it may issue instructions to safeguard the public order and security of the Federal Republic of Germany. If it intends to issue such prohibitions or instructions, it must obtain the approval of the German federal government.
In addition, the BMWi may negotiate and enter into public law contractual agreements with the acquirer which are aimed at guaranteeing public order and security in the Federal Republic of Germany. The four-month deadline for the issuance of prohibitions or instructions is suspended for the time period of negotiations.
If the BMWi intends to prohibit a transaction, it may in particular prohibit or restrict the exercise of voting rights in the acquired company which belong to a non-EU or non-EFTA acquirer or are attributed to him or her, or appoint a trustee to bring about the unwinding of a completed acquisition at the expense of the acquirer.vi Substantive scope of review, prohibitions and orders
In its review, the BMWi assesses whether an investment may impose a risk to public order or security in Germany that is actually threatening and sufficiently important so that it may affect fundamental public interests. The term public order or security refers to Article 36, Sections 52(1) and 65(1) of the TFEU and has to be interpreted pursuant to EU law.
Under these provisions, grounds of public order and security may justify restrictions of the free movement of goods, capital and payments and the freedom of establishment. Historically, the European Court of Justice has applied these criteria very restrictively and ruled that abstract concerns about investments in undertakings in strategic sectors do not constitute a valid justification based on public order or security. However, the political discussion of the recent past clearly indicates that authorities may apply a broader understanding of public order and security in future and the BMWi has considerable discretion in determining whether public order or security are at risk.
Therefore, and owing to the fact that if a prohibition decision is issued the transaction will likely have to be abandoned irrespective of whether the decision is potentially upheld or not in subsequent litigation against the BMWi, in practice the authority has significant leverage to negotiate public law agreements containing certain security related conditions or commitments with investors (see Section IV.v). In the preceding years, the German government has concluded several such agreements with purchasers.vii Legal protection against decisions by the BMWi
If the BMWi opens a review procedure, prohibits an acquisition or imposes restrictions, such decisions may be challenged pursuant to general principles of administrative law. Such legal challenges may exclusively be brought by the acquirer or by the seller, but not by the relevant target. There is no need to carry out previous opposition proceedings as the decisions by the BMWi are issued by a higher federal authority and are thus not open to such opposition proceedings according to Section 68(1), No. 1 of the German Code of Administrative Court Procedure.
Because the foreign investment regime shall only protect public order and security and not the interests of third parties, third parties will not be in a position to challenge a clearance or deemed clearance (or any other decisions by the BMWi) in court.
In practice, these legal protections are not particularly relevant. Even if legal action against a prohibition or instruction by the BMWi can be brought in theory, the timeline and publicity of a transaction will generally not permit sustaining the deal uncertainty for the prolonged time period of a legal proceeding.