The Action Plan for Business Growth and Transformation (PACTE) was adopted on 22 May 2019. This ambitious law contains new rules that will be of interest to parties that undertake private M&A transactions, particularly those involving foreign investment.
Decree 2018-1057 of 29 November 2018 extended the control of foreign investments in France to additional sectors (for further details please see "Private M&A transactions: new decree on foreign investments enters into force"). As expected, PACTE complements this regime by providing a new legal arsenal to penalise non-compliance with the rules relating to such control.
PACTE clarifies the measures that the minister of economy can take should an investor pursue an investment without prior authorisation or fail to comply with the conditions set out by the minister in such prior authorisation.
If a foreign investor completes a transaction without prior authorisation, the minister of economy may order it to apply for such prior authorisation, modify its investment or restore the previous situation at its expense.
If a foreign investor fails to comply with the conditions set out by the minister of economy in its prior authorisation, the minister of economy may withdraw authorisation or order the investor to comply with the prior authorisation's or alternative conditions (including restoring the previous situation and selling all or part of the strategic activities subject to prior authorisation) within a period determined by the minister.
In both situations (ie, an acquisition without having requested prior authorisation or non-compliance with the conditions set out in the prior authorisation), PACTE allows the minister of economy to impose a financial penalty until full compliance is achieved and order protective measures. These protective measures may be far reaching. For example, the minister of economy may:
- suspend the voting rights attached to the shares corresponding to the investment;
- forbid or limit the distribution of dividends of such shares;
- suspend, limit or reduce the free disposal of part or all of the assets linked to the strategic activity falling within the scope of the control of foreign investment; and
- appoint an ad hoc professional representative:
- who will oversee the protection of national interests at stake within the company running the strategic activity;
- who will have a veto right on any decision made by the company which could affect such national interests; and
- whose remuneration will be determined by the minister of economy and paid by the company.
A 15-day notice period normally applies before such measures are implemented; however, the minister of economy can order them without prior notice in case of emergency, in exceptional circumstances or in order to prevent an imminent threat to public order.
Moreover, the financial penalties under the previous regime that applied to the control of foreign investments in France were considered inadequate as a deterrent and inappropriate for new technologies. PACTE significantly improves and toughens the financial penalties that can be imposed if:
- no prior authorisation exists;
- prior authorisation has been fraudulently obtained;
- prior authorisation conditions have been disregarded; or
- the minister of economy's orders and decisions have been disregarded.
After a 15-day notice period, the minister of economy can penalise such behaviour by levying a fine equal to the highest of:
- twice the amount of the irregular investment;
- 10% of the target's annual turnover (excluding tax); or
- €5 million for legal entities and €1 million for private persons.
PACTE has introduced a new arsenal for the French state to monitor foreign investments in sensitive industries.
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