September 27, 2022

French Foreign Investment: Guidelines Published by the Ministry of Economy

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On 9 September 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 those guidelines, the most important are:

Regarding the investor:

  • A recall of the now well-known rule that it is sufficient that only one entity in the investor's chain of control is a foreign one for the transaction to fall within the scope of control;
  • Any person who is not French or, even if French, is domiciled abroad for tax purposes (with the exception of tax residents in Monaco), as well as any entity established abroad (including in Monaco) is a foreign investor;
  • When several foreign investors jointly establish a French investment vehicle without any of them having control of this vehicle, this vehicle is not regarded as a foreign investor. This hypothesis remains delicate to address since the FDI Office may rely alternatively on Article 430-1-III of the French Commercial Code on merger control, which provides that it is sufficient to demonstrate the existence of a "decisive influence" on the composition, organs or decisions of an undertaking, even by a non-member, to establish the existence of control
  • In the presence of investment funds, it is not necessary to specify the identity of all investors, but only of their manager or the persons exercising control over the funds.

Regarding the concepts of joint control and concerted action:

  • Joint control is assessed within the meaning of Article L. 233-3-III of the Commercial Code. It therefore presupposes the existence of a concerted action - assessed independently of Article L. 233-10 - whose purpose is to implement a common policy with regard to the controlled company by means of a legally binding agreement (articles of association, pact, etc.) that enables the concerted parties to determine together, in fact, the company's decisions. Joint control is assessed using a range of indicators including veto rights on strategic decisions, on the appointment or dismissal of managers, on the conclusion of an investment or a contract, on the approval of the budget or business plan granted to each of the concert parties
  • The shift from joint or concerted control to sole control of the foreign investor, and vice versa, does not require a new authorisation from the FDI Office; and
  • The crossing of the threshold of 25% of the voting rights of the target entity, which alone constitutes an investment, may be characterized by the crossing of the threshold in concert within the meaning of Article L. 233-10 of the Commercial Code between several shareholders with respect to a given company. Two investors are considered to be acting in concert when they have entered into an agreement with a view to acquiring, disposing of or exercising voting rights, to implementing a common policy with respect to the company or to obtaining control of that company. The presumptions of concert under Article L. 233-10 may be applied; and
  • For listed companies, the crossing of the 25% voting rights threshold by a foreign investor already authorised to acquire 10% of the voting rights does not require the granting of a new authorisation (provided that there is no change in circumstances that would prevent this exemption).

Regarding the concept of "branch of activity":

  • The FDI Office defined it as "a whole capable of functioning by its own means under normal conditions"; the assignment of a part of a branch of activity is therefore likely to be considered as the assignment of a single element of this whole, such as a portfolio of sensitive contracts, a contract, a licence or any equipment essential for the performance of a sensitive activity.

Regarding the notion of sensitive activity:

  • The FDI Office has a broad approach regarding R&D activities, the sensitivity of which is assessed in the light of all the theoretical potential fields of application, and not just the applications considered by the company. This position should lead to a more systematic submission of applications to the FDI Office;
  • The absence of a materiality threshold for triggering the control: the turnover of the target company or the amount of the transaction is not in itself a criteria for determining the criticality of a company's activity, but may be taken into account; and
  • The identity of clients plays a decisive role in the conduct of the review. The presence of sensitive customers may lead to a company falling within the scope of the review even though the activity is not in itself particularly critical.

Regarding the application procedure:

  • It is not recommended to submit a joint application for authorisation in cases involving two foreign investors, who are independent of one another;
  • Business secrecy does not apply to requests for information from the FDI Office in the context of the review, which may go beyond the list of information set out in the law. The FDI Office may also request information directly from the target company that will not be disclosed to the investor. In practice, it is also possible for the target company to communicate separately to the Bureau the most sensitive information (list of clients, details of technologies and know-how, etc.) required for the filing of the application; and
  • Contrary to the 30 working daytime limit of phase 1 which is suspended at each request for information from the Bureau, the 45-day time limit of phase 2 is a firm time limit which cannot be interrupted.

In the event of non-compliance with the authorisation application procedure or the 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 operation is null and void and the investor may be subject to criminal sanctions. If the investor finds out that a transaction has been carried out without authorisation, the FDI Office should be informed as soon as possible to regularise the transaction and avoid the risk of nullity.

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