Covid-19 coronavirus: Foreign Direct Investment Control – what investors from outside the European Union need to know now

• The regulations on foreign investment assessments (FDI) continue to apply. German law distinguishes between three different categories.
  • The first category consists of companies in the military industry and in the field of encryption technologies (so called sector-specific examination). In such category, any direct or indirect acquisition of 10% or more of the voting rights by a non-German investor must be notified to the Federal Ministry of Economics and Energy (BMWi). German law provides for a suspensive effect here, i.e. the acquisition of the shares must become only effective after the transaction has been expressly approved.
  • The second category consists of German companies that are active in the field of critical infrastructures. In such category, any direct or indirect acquisition of 10% or more of the voting rights by a non-EU / non-EFTA investor must be filed with the BMWi. Under the current legal framework, however, no suspensive effect exists, i.e. the transaction can become effective before an approval has been granted (albeit with the risk of subsequent orders).
  • The third category, the so-called cross-sector examination, comprises all other German companies whose activities are of relevance to public order or public safety in the Federal Republic of Germany. If a non-EU / non-EFTA investor directly or indirectly acquires 25 % or more of the voting rights in such a company, the BMWi can initiate an ex officio examination of the acquisition within five years after signing. The investor may apply for a certificate of non-objection (Unbedenklichkeitsbescheinigung) to avoid the BMWi exercising its authority to review the transaction at a later date.
    
    
• In January 2020, the Federal Government announced an amendment to the foreign trade law. The draft bill provides, among other things, for an amendment of the standards applicable in the examination process: according to the current legal situation, the BMWi currently examines whether the acquisition of voting rights is actually causing a threat; in the future, the scope for the decision-making shall be extended to cases in which a "probable impairment" is identified.
  
  The Federal Government´s intention to extend the scope of the suspensive effects seems to be far more relevant in practice. The suspensive effect shall apply to all reportable transactions in the future. Currently, such extension would affect cases of the second category (critical infrastructures). However, this category is, however, likely to be extended. The Federal Government has announced that it will define a catalogue of critical technologies, which will include in particular the sectors of artificial intelligence, robotics, semiconductors, biotechnology and quantum technology. Accordingly, in the future more cases will require a mandatory approval to be obtained before closing. It is expected that such amendments will come into force in October 2020 at the latest. This will lead to an increase of examinations before the closing of a transaction. Furthermore, especially since the EU-wide coordination mechanism in accordance with the EU Screening Regulation 2019/452 will come into effect on 11 October 2020 an extended period for the clearance procedures is to be expected.
  
  If foreign investors intend to invest in or acquire German companies, not least against the background of possible economic consequences of the corona pandemic, swift decisions that ensure a closing as soon as possible may be advantageous.
  
  
• The corona pandemic could also influence the interpretation of the existing legal framework. Already in recent years, it has been observed that the understanding of the concept of "public order and safety" in particular, as defined in the third category, has been increasingly broadened. The corona pandemic could reinforce this tendency, so that in the future, companies in the textile industry, for example, will also come into focus, as they may appear to be capable of making a relevant contribution to the production of personal protective equipment. Indications for relevant goods could be provided by the order of 12 March 2020 (BAnz. AT 12.03.2020 B1) imposing restrictions on foreign trade in certain goods.
  
  
• Finally, it should be noted that the Corona pandemic may already lead to delays in the processing of applications. It is not yet possible to foresee what effects this will have on the legislative process.

Conclusion

The corona pandemic will also leave its mark on law governing foreign direct investments. It is crucial for the success of future transactions to recognise and take into account of such developments at an early stage. A&O is monitoring the currently developments in detail. We are advising on the foreign direct investment law since many years. We are happy to use our broad wealth of experience and our close working relationship with responsible decision-makers in the interests of our clients.

Note: Information on the latest amendments of the Spanish FDI regime can be found here.