The Screening of Third Country Transactions Bill 2022 (the Bill) proposes a new regime for screening Foreign Direct Investment (FDI) in the Republic of Ireland that will apply also to certain non-European Economic Area, including UK, transactions.
The Bill was published on 2 August 2022 following a public consultation and is similar to the UK FDI regime in that mandatory notification is required for transactions that meet certain conditions and the Minister for Enterprise, Trade and Employment will be empowered to ‘call in’ completed transactions in certain circumstances.
FDI screening regimes are becoming increasingly common across the EU following the EU Regulation on screening of foreign direct investment for possible security and public order risks (2019/452/EU) and concerns about foreign asset acquisitions following Covid-19. That said, previous statements on the matter show that the Irish Government is acutely aware of the need to preserve Ireland’s attractiveness as a location for FDI. On review of the draft legislation the question arises as to the balance the proposed rules strike between these agendas.
It seems likely that the low threshold for deal value, combined with the wide scope of application, may mean that a large number of transactions will be caught by the mandatory notification aspect of the regime. Further, the call-in power for non-notifiable regimes means that all sectors and deal sizes are potentially in scope. This, added to potentially long review periods, means that we can expect the regime, if implemented as proposed in the Bill, to give rise, at least in the initial implementation phase, to uncertainty for foreign investors and Irish targets alike.
Important points for deal-makers
- The Bill will allow the Minister to call in transactions that have been completed up to 15 months prior to the law coming into force, which means that the Bill will be relevant to recently completed, as well as upcoming, transactions.
- A standstill obligation will apply, meaning that a deal that is caught by the mandatory notification rules under the Irish regime will have to be notified and cleared before completion. Review times could be up to 135 working days (and the first-decision point for the Minister is not until working day 90).
- It will be possible for non-notifiable transactions (ones for which no mandatory notification arises) to be called in for a period of 15 months post-completion.
- Failure to notify a notifiable transaction will be a criminal offence. It will be possible for the Minister to review an unnotified transaction for up to 5 years post-completion or 6 months from the date on which the Minister first becomes aware of it.
When will mandatory notification of a transaction be required?
Certain transactions will be subject to requirements of prior notification to the Irish Government and receipt of pre-completion clearance if all of the following conditions are met:
- the value of the deal is €2 million or more;
- the transaction directly or indirectly relates to an asset or undertaking in the Republic of Ireland. The regime applies to tangible asset transactions where the asset is physically located in the State and to intangible assets where it is owned, controlled or otherwise in the possession of an undertaking in the Republic of Ireland;
- a third country undertaking or national (or a person connected to that undertaking) is a party to the deal and that undertaking is moving
i. from 25% or less to more than 25% of shares or voting rights in an undertaking in the State, or
ii. from 50% or less to more than 50% of shares or voting rights in an undertaking in the State.
A third country is any state or territory other than Ireland, an EU Member State, a European Economic Area state and Switzerland. This means that UK and US investors are in scope;
- the transaction directly or indirectly relates to:
a. physical or virtual critical infrastructure1
b. critical technologies and dual-use items2
c. supply of critical inputs3
d. access to sensitive information4 (or)
e. the freedom and pluralism of the media.5
Further guidance from the Department on its interpretation of these areas of activity would be welcome: one can anticipate difficulties in determining the boundaries of these areas of activity.
Mandatory pre-notification to the Irish Government and clearance pre-completion makes it necessary to split signing and closing the transaction.
What will be the implications of failing to make a mandatory notification?
- Review: If a mandatorily notifiable deal is completed without notification, the Minister will be empowered to review an unnotified transaction for up to 5 years post-completion or 6 months from the date on which the Minister first becomes aware of it.
- Criminal Offence: Failure to notify a notifiable transaction will be a criminal offence. The maximum penalty for failure to notify a notifiable transaction will be imprisonment for 5 years and / or a fine of €4,000,000.
The Minister will be empowered to ‘call in’ non-notifiable transactions
The Minister will be empowered to call in non-notifiable transactions (ones for which no mandatory notification arises) for a period of 15 months post-completion, if the Minister has reasonable grounds for believing the transaction affects or would be likely to affect the security or public order of the State. This power could apply in respect of deals that fall outside of the mandatory sectors or below the prescribed thresholds.
Powers of the Minister
The Minister will have a maximum of 135 working days in which to issue a decision, but it will be possible for that time to be extended if the Minister requires further information from the parties. The Minister will have wide-ranging powers in the event of an adverse finding. If the Minister finds that a transaction affects, or would be likely to affect, the security or public order of the State, the Minister will be empowered to direct the parties:
- not to complete the transaction, or such parts of the transaction as the Minister may specify;
- not to complete the transaction, or such parts of the transaction as the Minister may specify, before or after such date or dates as the Minister may specify;
- to sell or divest itself of any matter, including business, assets (tangible or intangible), shares, real property or intellectual property;
- to modify or constrain its conduct or practice in specified ways;
- to cease a specified conduct or practice;
- to prevent the flow of competitively sensitive information between undertakings or within divisions, units, departments or other organisational units within an undertaking;
- to report to the Minister, on such terms as the Minister may specify, on the parties’ compliance with conditions imposed; or
- to pay to the Minister, or such other person as the Minister may specify, such amounts as the Minister may specify in order to meet the reasonable costs associated with monitoring compliance with conditions imposed by the Minister.
It will be possible for decisions of the Minister to be appealed to a panel of Adjudicators. The Adjudicators’ decision may then only be appealed to the High Court (i) on a point of law (ii) with the leave of the Court and (iii) within 30 days of the Adjudicators’ decision.