On 6 March 2009 the German Federal Council approved a bill on the limitation of non-EU investments in Germany (Amendment of Foreign Trade and Payments Act). This amendment is important for everyone who deals with company transactions as it can lead to considerable time delays and unpleasant surprises.

The amendment was made with the intention of examining the acquisition of German companies through non-EU/EFTA purchasers and to prohibit such acquisitions if necessary in order to safeguard the public order and security of the Federal Republic of Germany. “Non-EU/EFTA” refers to purchasers with their statutory seat outside the EU and outside the EFTA states. The amendment affects countries such as the USA, China, Russia, states in the Middle East and Asia, i.e. all countries outside the EU or EFTA. (Iceland, Liechtenstein, Norway, Switzerland are seen as equivalent to EU-countries.)

The restriction applies if at least 25 per cent of the voting rights in a German company are acquired. Within the EU, freedom of establishment and freedom of capital movement are still guaranteed. Yet, in order to prevent malpractice and evasion, transactions by investors with their statutory seat in EU or EFTA states can be subject to examination if a non-EU/EFTA shareholder holds 25 per cent of the voting rights in the purchaser.

The amendment does not aim for an abandonment of an open investment regime. An investment can only be restricted or prohibited if it poses a threat to the public order or security (cf. Art. 46 and 58 of the EC Treaty as well as decisions by the European Court of Justice).

The terms “public order“ and “security“ are defined in accordance with Community law, however, the member states, including Germany, are free to interpret these terms within the scope laid down therein. Reference to public order or security is subject to a genuine and sufficiently serious threat which affects one of the fundamental interests of society. Public security refers to the functioning of the state and its institutions. The European Court of Justice has previously recognized the relevance of public security with regard to matters of safeguarding supplies in crisis situations in the area of telecommunications and electricity or safeguarding services of strategic importance. Investments in weapons of war, armaments and cryptosystems have so far been subject to examinations.

The German Ministry of Economics and Technology can initiate the examination of an investment project ex officio within three months after conclusion of the transaction or after publication of the takeover offer. After receiving the complete documentation, the German Ministry of Economics and Technology can issue orders or prohibit the acquisition within a period of two months.

In order to achieve transaction safety, the purchaser can apply for a clearance certificate confirming that the investment does not pose a threat to the public order or security. Until the expiration of the two-month period or, respectively, a decision, the acquisition is subject to the condition subsequent that the German Ministry of Economics and Technology can prohibit the acquisition.

The bill is yet to be signed and executed. It will come into effect in the coming weeks.