This information was provided by Marco Padovan on 15 September 2020,
and should be reviewed against any later legislative updates.
Law Decree No. 21 of 15 March 2012 as subsequently amended and supplemented (lastly by Law Decree No 105/2019), as well as implemented by several presidential decrees, provides that the Italian Government shall review acquisitions of stakes in Italian public and private companies which have activities of “strategic relevance” in the defence and national security sector or which hold “assets with strategic relevance” in the energy, transport, communication and high-tech sectors. Following the economic downturn due to the COVID 19 pandemic, the Italian government adopted Law Decree No 23/2020 (“Italian Stimulus Package”) that, by its Articles 15-16 and 17 as amended by law of conversion No. 40/2020, modified the Law Decree No 105/2019 by introducing a provisional framework on FDI screening.
The execution of certain specific transactions requires notification, with the Government thereafter being able to make certain determinations in relation to the exercise of the so-called golden powers. The government has very extensive powers which may result in the vetoing of investment resolutions, blocking investments or imposing special terms and conditions for FDI.
The government reviews acquisitions of shares in or corporate resolutions by companies that
(i) carry out “strategic activities” in the defence and national security sector and
(ii) hold “assets with strategic relevance” in the energy, transport, communication and high-tech sectors.
Furthermore, the government reviews agreements regarding (i) the purchase of assets or the performance of services relating to the design, manufacturing, maintenance, or operation of networks which use the 5G technologies or (ii) the purchase of high-tech components which are instrumental to the mentioned manufacturing or operation.
The latest amendments, implemented by Law Decree No 23/2020, extended the notification obligation to certain transactions regarding all sectors listed in Article 4 of Regulation (EU) 2019/452 as well as the following sectors:
- The Financial sector (credit and insurance);
- The Health sector (production, import and wholesale distribution of medical/surgical devices and PPE);
- Agri-food and steel sectors, also in order to pursue the further goal of maintaining occupational and productivity levels in Italy.
The provisional framework will be in force until 31 December 2020. The Italian Government is currently working on a draft of the implementing measure required by the Law (Decree of the Presidency of the Council of Ministers – DPCM) to identify specific assets and activities of strategic relevance for the national interest in the sectors referred to in Article 4, paragraph 1, of Regulation (EU) 2019/452, as well as the type of acts or transactions to which those provisions do not apply. Until the adoption of such implementing measure, the notification obligation will apply to all the new regulated sectors.
4. Does the legislation apply to investment activities in a defined term? If so please provide a description.
The legislation in force as of today does not define the notion of “investment” but identifies a number of sectors and activities (please, refer to paragraph 3 above) to which the Law Decree is applicable.
5. Could the legislation be applicable to a broader category of activity, such as transactions whereby the foreign person acquires ownership or controlling interest by means of e.g. increased ownership through a rights issue?
The types of transactions that might fall within the scope of the Law Decree are various in nature and may include, for instance: stock or asset purchases, resolutions acts or transactions adopted, inter alia, by the shareholders or the board of directors regarding mergers, de-mergers, transfers of business and/or business units, winding up the target company’s business, transfers of subsidiaries, as well as the establishment of joint ventures in which the foreign partner is investing in one of the sectors referred above.
Please note that a “change of designated use” of assets in all the above sectors is considered a regulated transaction according to the provisional framework introduced by Law Decree No 23/2020.
In the context of the review procedure as regards:
(i) companies exercising any strategic defence and security activity, the government must assess, inter alia, whether the economic, financial, technical and organizational characteristics of the prospective investor (including consideration of any financing conditions), as well as its business plan, are suitable to carry on the business regularly, safeguard its technological portfolios and honour existing contractual commitments towards public entities; and
(ii) companies holding any strategic asset, the government must assess, inter alia, whether the economic, financial, technical and organizational characteristics of the prospective investor are suitable to ensure the security and continuity of supplies and the maintenance, security and operations of networks and plants.
Among the criteria that the Government shall take into account in order to assess whether to exercise or not the special powers, one should mention the existence, taking into account also the official positions of the European Union, of objective reasons which lead to deem possible the existence of links between the purchaser and third countries which do not recognize the principles of democracy or the rules of the State of law, which do not comply with the rules of international law or which have assumed behaviours at risk vis à vis the international communities, inferred from the nature of their alliances, or have relationships with criminal or terrorist organizations or with subjects in any case connected to them.
Please note that according to the provisional framework introduced by Law Decree No 23/2020, the Government shall also take into account two other criteria when reviewing an investment on agri-food and steel sectors: the maintenance of occupational and productivity levels in Italy.
7. Is the screening requirement triggered in relation to foreign (EU or non-EU) investors, or may it also be triggered by domestic investors?
The review procedure relating to purchases of interests in a company performing activities deemed strategic for the defence and national security system (except for 5G broad-band electronic communication services – see below) apply to purchases made by any person, regardless of nationality (including EEA persons and therefore also domestic investors).
The review procedure relating to 5G Agreements applies only to those agreements entered into with non-EEA persons.
The review procedure relating to purchases of interests in a company in the sectors of energy, transport, communication and high-tech applies only to purchases made by non-EEA persons.
The review procedure relating to corporate resolutions applies to companies adopting them.
The provisional framework introduced by Law Decree No 23/2020 also applies to:
- foreign entities or individuals – including EU investors – in case they take control over entities active in the regulated sectors (see above);
- Non-EU investors for acquisitions of more than 10% in the capital (corresponding at least to € 1M) of the targeted entities.
8. Would the screening mechanism apply to an investor from another EU Member State if the investor is owned by a foreign entity (non-EU Member State)?
The definition of a foreign investor covers all entities domiciled outside the European Union, but also EU-companies controlled by non-EU residents and any EU vehicle established to evade the application of the Italian FDI screening legislation.
This distinction is relevant for three circumstances:
- Within the procedure regarding the defence and national security sectors, the Government may consider the fact that a company is a non-EU entity (including EU companies controlled by foreign persons) as a further factor for the purpose of exercising its powers;
- The reporting/notification obligation imposed by the Law Decree regarding 5G technology is triggered only if the prospected transaction involves non-EU persons (and EU entities controlled by non-EU persons);
- The reporting/notification obligation imposed by the Law Decree regarding some specific assets and interests in property within the energy, transport, communication and high-tech sectors is triggered only if the corporate decision of the relevant entity, the shares transfer or any other transactions will have the effect of transferring rights to a non-EU person (and EU entities controlled by non-EU persons).
9. Are there any specific thresholds for when the screening procedure is triggered / exempted? (Threshold could be the % of ownership or value of the investment.)
Thresholds for notification are provided for only in relation to publicly listed companies (see below).
10. Does the screening mechanism apply also for foreign investments in publicly listed companies? (For examples when stocks are traded on the open market).
Purchases of equity interests in a listed company active in the fields of defence or national security trigger the notification obligation if they exceed the thresholds of 3, 5, 10, 15, 20 and 25 per cent.
Please note that the Law Decree No 23/2020 has also modified the Consolidated Law on Finance (Testo Unico Finanziario – TUF) by granting to the Italian Securities Exchange Commission (CONSOB) the power temporarily lower the threshold (now as low as 5%) beyond which certain disclosure obligations apply to investors acquiring qualified shares in publicly traded companies.
The procedural rules regarding the access to information/documents originating either from public or private entities and pertain to the FDI legislation is permitted inasmuch as the applicant (any person) can demonstrate that such documents must be relied upon, by the applicant, in exercising its right of action/defence before a Court of Law.
12. Would it be normal procedure to use mitigation agreements and typical clauses in relation to FDI? Is it required by law?
There are no standard practices about mitigation agreements and/or specific clauses in relation to FDI. Nonetheless, we consider that the investor might require the insertion of mitigation clauses in the relevant agreements regarding the possibility of the Government blocking or imposing certain conditions to the transaction/investment (e.g. condition precedent, termination, etc.).
13. What are the notification obligations (or could the notification be voluntary), i.e. before or after the investment is completed (e.g. in an M&A transaction, would the notification have to be made before signing or closing)?
Notification of purchases of interests must be filed within 10 days from the investment (except for what is provided regarding the notification related to defense and national security sector for which no term is indicated); until the notification and, subsequently, until the expiry of the term for imposing conditions or for exercising the veto power, voting and other non-economic rights belonging to the purchased shares are frozen.
Notification of any resolution, act or transaction by a company which holds a strategic or high-tech asset, resulting in change of ownership, control or use of such asset, must be filed within 10 days and, in any case, before its implementation; until the notification and, in any case, until the expiry of the terms for exercising the government’s powers, the effectiveness of any such resolution, act or transaction is frozen.
Depending on the circumstances, either the investor or the company adopting the relevant resolution are required to notify the Italian Government.
A notification must be filed
(i) by a company which exercises a strategic defence or security activity, in case the company’s shareholders or board of directors adopt resolutions relating to certain extraordinary transactions, or
(ii) by a company in case of any resolution, act or transaction resulting in change of ownership, control or use of such asset, including company’s shareholders’ or board of directors’ resolutions relating to certain extraordinary transactions.
A notification must also be filed
(i) by any investor of any purchase of interests in any company exercising any strategic defence or security activity or holding any strategic asset within 10 days of the acquisition, or
(ii) by any foreign and EU investors of a purchase of interests of such importance as to determine the permanent establishment of the purchaser by reason of the acquisition of control of the company as well as purchases of shares by foreign entities, which attribute a share of voting rights or capital of at least 10%, are also subject to above-mentioned notification, within 10 days of the acquisition.
A notification must also be filed by a company entering into agreements regarding the purchase of products and services connected to the design, production or maintenance of 5G networks, with non-EEA persons.
15. Does the competent authority have a right to call-in, or to ex officio start a screening i.e. ask for information about an investment that has not been notified?
Law Decree 23/2020 confers to the Presidency of the Council of Ministers the power to initiate the procedure ex officio (if the investors has not notified the transaction to the Government) in the sectors covered by the Golden Power. Furthermore, the Italian authorities exercising powers in regulated sectors (e.g. banking, financial and insurance markets; energy sectors, transportation, etc.)have a specific mandate provided for in Law Decree 21/2012 to cooperate and share information for the purpose of protecting the objectives of the FDI laws.
16. What information does the authority normally require in a notification? For example, information about the ownership of the investor, the financing of the investment, and any ties to a foreign government?
The party filing the notification must provide the Government with a detailed report a give a full description of the prospected transaction.
17. What are the main steps of the procedure and the time limits for those steps? Is there a period within which the competent authority has to issue a decision?
The filing shall be made within 10 days following the acquisition or the adoption of the relevant resolution, as applicable. Upon receipt of the filing, a standstill period of 45 days begins during which the Italian Government will carry out the review of the envisaged investment or resolution, and any voting right attached to the acquired interest is frozen until the date in which the Italian Government resolves whether or not to exercise its powers. If the notification is considered incomplete, the 45-day term runs from the date the notification is completed. In the event that the Italian Government requests additional information, the above 45-day term may be extended only once and for a maximum period of 10 business days. If the government requests information from a third party, the 45-day term is delayed – only once – up to 20 business days, or less if the requested information is provided earlier.
The transaction is cleared if the government takes no action within the 45-day or extended term. Failure to notify a transaction may be sanctioned with a monetary penalty up to twice the value of the transaction (see infra paragraph 21).
Specific terms are provided by Article 16 of Law Decree 23/2020 in cases where the Presidency of the Council of Ministers exercise its power to initiate the procedure ex officio.
A special notification procedure is envisaged for transactions involving 5G networks. The timeframe for the decision is shortened to 30 business days, though it may be extended by up to 20 business days – and by another 20 business days on top of that – depending on the complexity of the case. If the notification is considered incomplete, the timeframe runs from the date the notification is completed.
18. Does the competent authority take the final decision or another authority or governmental body (e.g. consultation with other authorities)?
The government itself takes the final decision.
The law foresee cooperation between different public authorities and the information flow between the Bank of Italy, the Italian Supervisory Authority on Financial Markets (CONSOB), the Italian Supervisory Authority on Pension Funds (COVIP), the Italian Insurance Supervisory Authority (IVASS), the Authority for the New Rules of Transport (ART), the Antitrust Authority (AGCM), the Italian Communications Authority (AGCom) and the Italian Regulatory Authority for Electricity Gas and Water (ARERA).
Italian general rules of law protect confidential information in business transactions from being disseminated. However, there are no ad hoc provisions in FDI screening laws on confidentiality.
20. What types of decisions may the authority adopt, for example, to stop or condition an investment?
The Italian government has so called special/golden powers, which it may exercise with respect to companies operating in the sectors covered by relevant legal acts mentioned in question 1 above . The government may impose specific conditions on the purchase, veto the purchase, veto the adoption of resolutions or impose specific conditions on or veto the 5G Agreements. The government can only exercise these powers under special circumstances described in the law.
The government could be said to have “stronger” powers in case the company performs activities deemed strategic for the defence and national security system (or holding any such asset), compared to if the company is in the other sectors covered by relevant legislation.
21. What are the tools available to enforce decisions (for example fines or injunctions), and what are the penalties for not adhering to a decision by the competent authority?
In the event of failure to
(i) notify the government,
(ii) provide it with the required information or
(iii) comply with the relevant decisions by the government,
the related resolutions/transactions are null and void, and the perpetrators are subject to administrative fines up or equal, as the case may be, to twice the value of the transaction and, in any case, not lower than 1 per cent of the aggregate turnover made by the investor/involved companies in the last fiscal year for which financial statements have been approved.
22. Is the authority's decision subject to appeal in court or are there other means of changing a decision (new notification or filing)?
Interested parties may appeal against the Government decision to the Regional Administrative Court of Lazio (TAR Lazio), which has exclusive jurisdiction on these matters. TAR Lazio may annul the Government decision only on the grounds of lack of jurisdiction or competence, violation of the law, or abuse or misuse of powers. The discretionary judgment of the Government is not subject to judicial review except in limited circumstances. Decisions of the TAR Lazio are subject to appeal before the Supreme Administrative Court (Council of State).