French foreign investment: Guidelines published by the Ministry of the Economy | McDermott Will & Emery

On September 9, 2022, the Foreign Direct Investment Office of the Ministry of Economy (the FDI Office) issued guidelines on foreign investment control.

Among the clarifications provided by these guidelines, the most important are:

Regarding the investor:

  • Reminder of the now well-known rule according to which it suffices that a single entity in the investor’s chain of control be foreign for the transaction to enter the scope of control;
  • A foreign investor is any person who is not French or, even French, domiciled abroad for tax purposes (with the exception of Monegasque tax residents), as well as any entity established abroad (including in Monaco);
  • When several foreign investors jointly create a French investment vehicle without any of them having control of this vehicle, this vehicle is not considered a foreign investor. This hypothesis remains theoretical, the existence of an agreement between the foreign shareholders would lead to the application of the rules of joint or concerted control; and
  • In the presence of investment funds, it is not necessary to specify the identity of all the investors, but only that of their manager or of the persons exercising control over the funds.

Regarding the notions of joint control and concerted action:

  • Joint control is determined within the meaning of Article L. 233-3 of the Commercial Code and requires a legally binding agreement (statutes, pact, etc.) providing for the pursuit of a common policy with regard to the company which is the object of the investment. The existence of joint control can be characterized by veto rights over strategic decisions, over the appointment or dismissal of managers, over the conclusion of an investment or a contract, over the approval of the budget or the business plan;
  • Consultation is assessed in accordance with Article L. 233-3 III of the Commercial Code and independently of Article L. 233-10 of the Commercial Code. Two investors are considered to be acting in concert when they agree in advance on the decisions to be taken at the general meeting;
  • The transition from joint or concerted control to exclusive control by the foreign investor, and vice versa, does not require a new authorization from the IDE Office; and
  • For listed companies, the crossing of the threshold of 25% of the voting rights by a foreign investor already authorized to acquire 10% of the voting rights does not require the granting of a new authorization (provided that there is no there is no change in circumstances that would preclude this derogation).

Concerning the notion of “branch of activity”:

  • The FDI Office has defined it as “a unit capable of functioning by its own means under normal conditions”; the sale of part of a branch of activity is therefore likely to be considered as the sale of a single element of this set, such as a portfolio of sensitive contracts, a contract, a license or any essential equipment to the execution of a sensitive activity activity.

Regarding the notion of sensitive activity:

  • The FDI Office has a broad approach to R&D activities, the sensitivity of which is assessed with regard to all potential theoretical fields of application, and not just the applications envisaged by the company. This position should lead to a more systematic submission of applications to the FDI office;
  • The absence of a materiality threshold to trigger the control: the turnover of the target company or the amount of the operation is not in itself a criterion for determining the criticality of a company’s activity , but can be taken into account; and
  • The identity of the clients plays a decisive role in the conduct of the examination. The presence of sensitive customers can bring a company into the scope of the examination even though the activity itself is not particularly critical.

Regarding the application procedure:

  • It is not recommended to file a joint license application in cases involving two foreign investors who are independent of each other;
  • Business secrecy does not apply to requests for information sent to the FDI Office as part of the examination, which may go beyond the list of information provided for by law. The FDI Office may also request information directly from the target company which will not be disclosed to the investor. In practice, it is also possible for the target company to communicate separately to the Office the most sensitive information (list of clients, details of technologies and know-how, etc.) necessary for filing the application; and
  • Unlike the 30 working day deadline for phase 1 which is suspended with each request for information from the Bureau, the 45 day deadline for phase 2 is a firm deadline which cannot be interrupted.

In the event of non-compliance with the authorization application procedure or commitments:

  • Sanctions are not subject to a specific limitation period; and
  • When a transaction falling within the scope of control has not been subject to prior authorisation, the transaction is null and void and the investor may be liable to criminal penalties. If the investor discovers that a transaction has been carried out without authorisation, the FDI Office must be informed as soon as possible to regularize the transaction and avoid the risk of nullity.

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