France issues its first guidelines on the control of foreign direct investments | Dechert LLP

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On September 8, 2022, the French Ministry of Economy and Finance, in charge of approving foreign direct investments (FDI) in strategic sectors, issued its first guidelines, aimed at making the FDI process in France more transparent and clear.

The guidelines are a summary of existing practice. This is even more useful since the decisions that authorize or deny foreign investments are not public. However, FDI decisions may be subject to freedom of information requests: the Ministry considers that only commitments from foreign investors would be considered confidential.

The first thing that stands out is that part of the guidelines refers to the definition of “strategic sectors”. It is clear that the Ministry does not intend to deviate from the case-by-case definitions, which will evolve according to the context and facts of each case. For example, the level at which a subcontractor operates may or may not activate the control.

Therefore, the guidelines focus primarily on clarifying other elements; definition of foreign investor, the type of control of the investment operations under scrutiny, and on the procedure.

Regarding the definition of “foreign investor”, the guidelines confirm a broad approach. An investor can be any type of entity, with or without legal existence, and the foreign investor can be located at any level within the chain of control.

Interestingly, the guidelines pay specific attention to private equity funds. But the message is not clear. The Ministry appears to be willing to consider the chain of control on a case-by-case basis, in light of the rights and obligations of the shareholders, while the applicable provisions focus solely on the identity of the management company.

Regarding the type of control of investment operations, the guidelines clarify that the control is applied as long as the investment thresholds are reached. This can create difficulties when the thresholds are reached as part of a progressive investment: the control will take place at a time when the foreign investor will already have shares, while the first investment is conditional on the possibility of completing his investment plan without risk. negative potential of the Ministry at a later stage.

Another complex situation is assessing whether multiple investors have joint control. The guidelines confirm that a case-by-case approach should also prevail over this criterion. The mere existence of a shareholder agreement is not enough to qualify joint or concerted control between its members. Veto rights and other specific rights will be taken into account to decide on the operation of the entity in question. But the list of decisions at stake is particularly broad, as it can span dispute resolution or lockdown. In case of joint control, all interested foreign investors will have to approve the operation.

As for the procedure itself, the guidelines formalize the possibility of informal exchanges with the Ministry in case of complex situations, both for the target and for the investor, in particular to clarify the purpose of the investment.

With regard to deadlines, the Ministry appears to depart from past practice in two ways. First of all, the signing and closing dates will be taken into account only if they are justified. Second, it will stop accepting notifications that are based on both the request for an opinion and the request for authorization. But the good news is that the clock is ticking on phase two, which cannot last more than 45 business days.

As for the commitments that investors can condition the liquidation of an investment, the guidelines confirm that they are not subject to negotiation during phase two. However, both the investor and the Ministry may request its review over time.

Finally, the guidelines contemplate sanctions: the amount will depend on the context and the behavior of the investor. It is important to highlight that the Ministry considers that its action in case of intent or omission is not prescriptive. However, this could be questioned in light of the general principles that prevail over sanctions.

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