This information was provided by Raphaël Barazza on 21 September 2020,
and should be reviewed against any later legislative updates.
Please see the answers to the following questions.
Decree No. 2014-479 of 14 May 2014 on foreign investments subject to prior authorization updates the scope of the sectors covered by the authorization procedure to take into account the activities essential to guarantee the country’s interests in public order or public security or national defence and latest update with the PACTE Law and Decree no. 2019-1590 of December 31, 2019 on foreign investment in France.
Today, the following activities are potentially concerned by the prior checking of foreign investments:
– gambling with the exception of casinos;
– private security activities;
– R & D activities on pathogens;
– activities on technical equipment for security interception or data capture;
– security of information technology systems;
– dual use goods and technologies;
– national defence;
– infrastructure and network services whose integrity, security and continuity are considered essential;
– energy supply;
– water supply
– electronic communications;
– public health;
– electronic systems used for police missions;
– R & D activities related to cybersecurity, artificial intelligence, robotics, additive manufacturing and semiconductors;
– hosting of “”sensitive”” data.
Since January 1st 2020, new sectors are coming under scrutiny: print and online press services for political and general information, food safety, energy storage and quantum technologies.
The following are qualified as “investment” for the purposes of IEF regulations: the acquisition of control (Article L. 233-3 of the French Commercial Code) of a company, the acquisition of all or part of a branch of activity, the crossing of the threshold of 33.33% ownership of capital or voting rights.
The legislation referred to is applicable only to the sector explicitly referred to in the list of sectors concerned by the control of foreign investment, amended by Decree n°2018-1057 relating to foreign investments subject to prior authorization, published on December 1, 2018.
These include: companies in the aerospace and civil protection sectors, or which carry out research and development activities in the fields of cybersecurity, artificial intelligence, robotics, the manufacture of additives, semiconductors, as well as hosts of certain sensitive data. On the acquisition of control of a company the criteria are those set out in the answer to question 6.
There are three criteria for controlling foreign investment:
– the investment must come from a country other than France (Member State of the European Union, party to the Agreement on the European Economic Area or third countries);
– the investment must constitute an operation within the meaning of Articles R. 153-1 or, where applicable,  R. 153-3 of the Monetary and Financial Code (CMF). The transactions characterizing a foreign investment subject to the authorization procedure are as follows:
(i) the acquisition of control, within the meaning of Article L. 233-3 of the French Commercial Code, of an enterprise whose head office is established in France (when the foreign investor is European or not);
(ii) the acquisition of all or part of a branch of activity of a company whose head office is established in France (when the foreign investor is European or not);
(iii)the crossing of the 33.33% ownership or voting rights threshold of a company whose head office is established in France (only when the investor comes from a third country to the European Union).
– the investment must relate to a company operating under French law and carrying out a sensitive activity, falling within the areas listed in Article L. 151-3 of the Monetary and Financial Code, specified at the regulatory level by Article R. 153-2 or , where applicable, 1 R. 153-4 of the same code.
By definition, the control is applicable to foreign investors from abroad.
By extension, it can apply to the investments of a French company which is controlled in majority by foreigners. Since January 1st 2020, French companies have been able to question the administration about the sensitivity of their activities.
Yes. The transactions characterizing a foreign investment subject to the authorization procedure are in particular :
- the acquisition of control, within the meaning of Article L. 233-3 of the French Commercial Code, of an enterprise whose head office is established in France (when the foreign investor is European or not);
- the acquisition of all or part of a branch of activity of a company whose head office is established in France (when the foreign investor is European or not).
There are no conditions as to the amount of the investment. The transactions characterizing a foreign investment subject to the authorization procedure also could be the crossing of the 25% (since January 1st 2020, before it was 33%) ownership or voting rights threshold of a company whose head office is established in France (only when the investor comes from a third country to the European Union).
Any takeover bid made on the securities of a company listed in France must be subject to prior authorization if the company’s business sector is covered by the regulation of financial relations with foreign countries.
Since the entry into force of the PACTE law, the main statistics relating to IEF control (number of cases handled by the General Directorate of Treasury, origin of investors, targeted sectors) have been made public and also communicated to Parliament. The procedure with the administration is not the subject of any particular publicity.
There are no standard practices about mitigation agreements and/or specific clauses in relation to FDI.
Any application for authorization must be made before the investment is made in order not to be exposed to the possible sanctions of a lack of authorization. The authorization is not retroactive. Indeed, in a M & A transaction, it should be before signing. Since January 1st 2020, the investor must declare all his links with a foreign government.
It is the investor who makes the application to the competent authorities, giving information on:
- himself (name and address of the investor(s) and any information that will make it possible to determine who ultimately controls him),
- the target (the company that is the subject of the investment: the application file must contain information that makes it possible to identify the target company (company name, address, K-bis extract).
The application must also contain a precise description of the activity carried out and the investment itself (description of the terms of the operation (amount, capital distribution, etc.).
Apparently, there is no situation in which the administration would have to ask for information on an operation which is not really envisaged.
The control may be ex post facto, to check that the authorization given is in line with the investment actually made. Since 1 January 2020, the legislator has given the minister in charge of the economy new police and sanctioning powers, which may be exercised when an investment has been made without prior authorisation or in disregard of the conditions laid down to authorise it.
“as regards the investor: the application file must contain the name and address of the investor(s) as well as any information to determine who ultimately controls it. To this end :
– if the investor is a legal person, information will be required to determine the persons or public authorities who ultimately control it;
– if the investor is a listed company, the application for authorization must provide the identity of the main known shareholders holding a stake greater than 5%, as well as the list of members of the board of directors and their place of residence;
– if the operation is carried out by an investment fund, it will be necessary to specify the identity of the manager or managers of the fund and specify by whom they are controlled.
– if the investor is a natural person, all identity documents and information relating to his place of residence must be provided.
As regards the company which is the subject of the investment: the application file must contain the information enabling the target company to be identified (i.e. its business name, its address, a copy of its K-bis extract ). The file must also contain a precise description of the activity carried out and in particular mention the following data:
– turnover for the last fiscal year ended;
– result of the last completed financial year;
– number of employees ;
– description of the main customers.
As regards the investment: the file must contain a description of the terms of the operation of which:
– the total amount of the transaction;
– the distribution of capital and voting rights before and after the declared transaction;
– mention of a possible option on the principal balance;
– information on the terms of payment (transfer or not of funds from abroad to France or use of another means of settlement);
– schemes describing ownership of capital and voting rights before and after the completion of the transaction.
All the information provided during the screening is covered by the professional secrecy.
The file must be filed in a paper copy at the following address:
Ministry of Economy and Finance
Treasury Directorate General
Office Multicom 4 / Télédoc 554
139, rue de Bercy
75572 Paris cedex 12
The file must also be sent electronically to the following email address: IEFautorisations@dgtresor.gouv.fr
The file will be acknowledged once the paper and electronic versions of the file have been received.
From 1 April 2020, with an initial response within 30 days, the procedure will guarantee an attractive legal framework for international investors; the decisions of the Minister of the Economy may be pronounced under penalty payment (max €50,000 / day); the procedure will take place earlier in the context of merger and acquisition procedures, and responsibilities will be clarified. The initial delay of response in two months stay applicable.
The competent authority takes the final decision.
(See answer to question 11 and 16)
When an operation has been carried out without prior authorization or without respecting the conditions attached to the authorization, the Minister of the Economy has several options depending on the breach and its seriousness.
where an operation has been carried out without authorization, the Minister shall require the investor to do one or more of the following:
(i) filing an application for authorization for the purposes of regularization;
(ii) amending the operation;
(iii) restoration at the expense of the previous situation.
The possibility is therefore left to the Minister not to systematically regularize the operation but to ask, in particular the investor to restore the previous situation; when an operation has been carried out without respecting the conditions of the authorization, the Minister shall take one or more of the following measures:
(i) withdraw the authorization issued;
(ii) impose the respect of the initial conditions;
(iii) impose the compliance with newly established conditions such as reinstatement of the previous situation or transfer of activities.
The reinforcement of the minister’s police power is also materialized by the possibility of the Minister in charge of the Economy to combine, cumulatively, these injunctions:
(i) a penalty to encourage their respect;
(ii) provisional measures (suspending the voting rights of the investor, appointing an agent, preventing the investor from disposing of the assets or receiving dividends), in order to prevent risks to public order, public security or national defence; and
(iii) of a pecuniary sanction.
cf. Articles L.151-3-1 to L.151-3-7 of the Monetary and Financial Code
The PACTE law, which came into force on January 1st 2020, provides for the strengthening of the injunction power of the minister in charge of the economy in the event that a foreign investment subject to prior authorisation has been carried out without such authorisation. Three types of injunction are instituted: injunction to the investor to file an application for authorization, to restore the previous situation at his own expense, or to modify the investment. These injunctions may be accompanied by a penalty payment.
The Minister may also, if he considers that the protection of national interests is compromised or is likely to be compromised, take the precautionary measures that appear necessary. In this respect, he may, in particular, suspend the voting rights attached to the fraction of the shares or corporate units, the holding of which by the investor should have been subject to prior authorisation, or prohibit or limit the distribution of dividends or remuneration attached to the shares or corporate units, the holding of which by the investor should have been subject to prior authorisation.
The new regulations also give the Minister the power to impose financial penalties for four breaches: carrying out a transaction without prior authorisation; obtaining prior authorisation by fraud; failing to comply with conditions; and failing to comply with an injunction. It may impose a fine not exceeding the highest of the following amounts: double the amount of the irregular investment, 10% of the annual turnover of the target company, one million euros for individuals and 5 million euros for legal entities. In addition, in order to clarify the treatment of transactions carried out without prior authorisation, the minister will finally have the possibility of authorising a transaction a posteriori, while sanctioning the investor who has not requested prior authorisation. He will still be able to obtain the reinstatement of the previous situation but also to require an investor to seek authorization.
If a condition is not fulfilled, the investment is not subject to authorization.
The Minister of the Economy may refuse the operation, under restrictive conditions:
(i) if no condition would guarantee the country’s interests in matters of public order, public security and national defence; or
(ii) if doubts hang over the reputation of the investor (Article R. 153-10 of the Monetary and Financial Code).
The filing of a new application is possible, but the decision of the administration is without real appeal.