On Tuesday, the government published the Screening of Third Country Transactions Bill 2022 (the "Bill"). The Bill is designed to implement the EU Screening Regulation1 and ensure all Member States have the legal tools to screen investments by non EU / EEA undertakings and individuals of certain key infrastructure assets with an Irish nexus, in particular concerning foreign investments into critical utilities and infrastructure sectors, high-tech and personal data focussed businesses, and media businesses.
The key takeaways are that this new regime is suspensory (with criminal sanctions), involves very low thresholds, covers a wide variety of sectors and needs to be considered in parallel with merger control rules. It remains to be seen how it will be implemented in practice and when the Minister will publish guidance documents on aspects which remain open to interpretation.
New Mandatory Notification
Under the Bill, a new mandatory notification to and 'screening procedure' by the Minister for Enterprise, Trade and Employment (the "Minister") will be required for certain transactions that involve third country or foreign-controlled undertakings (this includes both companies and individuals outside the EU, EEA and Switzerland) that are parties to a transaction if the following conditions are met:
- a third country undertaking or a connected person is a party to the transaction2;
- the value of the transaction is at least ?2m;
- the transaction relates to critical infrastructure and technologies, natural resources, sensitive data and media; and
- the transaction relates to an asset or undertaking in the State.
What is the Effect of the Notification?
Similar to the existing Irish and EU merger control regime, the Bill prescribes a standstill or suspensory obligation until clearance received from the Minister (so that parties cannot complete or take action for purposes of completing or furthering the transaction).
What Transactions are Caught?
A "transaction" includes any transaction or proposed transaction where a change of control of an asset or the acquisition of all or part of an undertaking in the State is effected. The concept of "control" is the same as in the EU and Irish merger control regime and relates to 'direct or indirect influence' over the activities of the undertaking, eg, voting rights or securities, ownership of assets of the undertaking or rights and contracts providing influence over the decisions of the undertaking.
Transactions for the acquisition of shares or voting rights only have to be notified where the above criteria are fulfilled and where the percentage of shares or voting rights held changes from (a) 25 or less to more than 25 percent or (b) from 50 or less to more than 50 percent.
What Sectors are Affected?
The Bill replicates the EU Screening Regulation and focusses the notification / screening obligation on transactions in the below sectors / businesses:
- Critical infrastructure including energy, transport, water, communications, aerospace, defence, data storage and processing;
- Critical technologies including artificial intelligence, robotics, semiconductors, cybersecurity, etc.;
- Critical inputs including energy, raw materials and food security;
- Access to sensitive and personal data; and
Who must Notify and When?
Obligation rests on all parties to a transaction (although practically we envisage the purchaser will lead on notifications to the Minister). A failure to correctly notify the Minister is a criminal offence and parties may be liable to (a) on summary conviction, a fine of up to ?2,500 and / or 6 months' imprisonment or (b) on conviction on indictment, a fine of up to ?4m and / or 5 years' imprisonment.
The transaction must be notified to the Minister at least 10 days before the date the transaction is completed. The notification must be accompanied by certain information, such as the identities and ownership structure of the parties, the value and funding of the transaction and details about the parties' businesses. The Minister may require that further information be provided by the parties.
What is the New Process?
The Minister will review notifications received but retains broad powers to also review non-notifiable transactions where there are reasonable grounds for believing that the transaction may affect security or public order in the State, and where the transaction results in a third country undertaking acquiring control of an asset or undertaking in the State.
In deciding whether a transaction may affect public order or security in the State, the Minister must consider a number of factors, such as whether:
- a party to the transaction is governed by a third-country government or is already involved in critical businesses in the State;
- there is a serious risk that a party to the transaction engages in illegal or criminal activities;
- the transaction would allow a person to engage in disruptive or destructive activities, increase access to sensitive undertakings, data and assets in the State or facilitate espionage;
- the transaction would likely affect the security or public order of another Member State.
Once the review has commenced, the Minister will issue a screening notice to the parties and will conclude the review within 90 days (extendable to 135 days). The Minister will then make a screening decision providing reasons as to why the transaction was considered to affect or not affect public order or security in the State. The Minister may decline to give reasons where public order or security is affected.
If a screening decision concludes that public order or security may be affected by a transaction, the Minister can direct that the transaction is not to be completed, or that certain other steps are undertaken by the parties.
'Call in Powers' and Scope for Minister to Review Completed Transactions
The Bill provides the Minister with certain retrospective powers to review non-notifiable transactions for a period of 15 months post completion, and non-notified transactions for a period of up to 5 years, where there are public order and security concerns.
New Deal Consideration Following Recent UK Legislation
The Bill has similar effects to the UK's National Security and Investment Act 2021 ("NSIA") which came into force earlier this year. The NSIA has retrospective effect for deals closed since 12 November 2020, meaning that transactions in connection with sensitive business sectors must be pre-notified to the UK government and cleared pre-completion. Similarly to the Bill, non-sensitive transactions under the NSIA can be voluntarily notified but the UK government retains a 5-year 'call-in' power to investigate non-notifiable transactions that may give rise to national security concerns.
Can Parties Appeal a Decision?
The parties to a transaction may appeal a screening decision to an adjudicator within 30 days. Adjudicators' decisions may be appealed further within 30 days to the High Court on points of law only. Such appeals proceedings are not held in public due to the sensitivity of issues involved.
1. Regulation (EU) 2019/452
2. A third country undertaking (or person connected with them). For the purposes of the Bill, a third country undertaking is any undertaking: (i) "constituted or otherwise governed by the laws of a third country", (ii) controlled by at least one director, partner, member or other person, who is a third country national or is constituted or governed by the laws of a third country or (iii) a third country national
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.