knowledge 9 November 2023 |

New Irish FDI Regime Signed into Law

The Act introduces a new mandatory notification regime, whereby parties are required to notify qualifying foreign acquisitions of Irish targets (whether assets or undertakings) active in particular sectors to the Minister for Enterprise, Trade and Employment (the “Minister”). Qualifying acquisitions may not be implemented until the Minister has approved the acquisition. The Minister has wide-ranging powers, including to prohibit, or impose remedial measures, where a transaction may present risks to the security or public order of the State. With the introduction of the regime, Ireland will join the other 22 EU Member States who have already introduced an FDI screening mechanism.  The new notification regime is expected to enter into full force in Q2 2024.

With a growing number of regimes in the EU and elsewhere, deal-makers are increasingly required to factor FDI approvals into transaction planning and documentation. This will now also be the case for deals involving foreign acquisitions of Irish targets in particular sectors. While Ireland has consistently adopted policies which encourage FDI, the new regime casts the net relatively widely and will require mandatory notification of many deals (including those involving acquirers from ‘friendly’ jurisdictions such as the US and the UK).

In this briefing, we outline the main aspects of the Act.

Overview of the New Irish FDI Regime

Background and key features

The EU FDI Regulation only provides for a partial harmonisation of the Member State’s screening regimes, and unlike the EU Foreign Subsidies Regulation or the EU Merger Regulation, does not give the European Commission the ability to render decisions on FDI itself. This has resulted in Member States adopting different jurisdictional thresholds and procedures for the screening of FDI across the EU.

Important points for deal-makers to bear in mind about the Irish regime are:

• The thresholds for mandatory notification under the Act may catch many foreign acquisitions of Irish targets, with a low threshold for deal value, and potential application to a wide range of sectors. Additionally, where the target is an undertaking, there is no requirement for control to be acquired (an increase of shareholding or voting rights from below 25% to above 25% or below 50% to above 50% will suffice), although an acquisition of control of an asset or undertaking could also trigger mandatory notification.

• A standstill obligation will apply, meaning that a deal that is caught by the mandatory notification regime will have to be notified and cleared before completion. This will increase the number of deals requiring a split signing and completion.

• Review times could be up to 135 days from the date the Minister issues the “screening notice”. Potentially lengthy review periods will need to be built into transaction timelines.

• Failure to notify a notifiable transaction will be a criminal offence and a person found guilty will be liable on summary conviction, to a class A fine (€5,000) and/or six months imprisonment, and on indictment, to a fine not exceeding €4,000,000 and/or a term of imprisonment not exceeding five years. It will be possible for the Minister to review an unnotified transaction for up to the later of 5 years post-completion or 6 months from the date on which the Minister first becomes aware of it.

• The Act allows the Minster to call-in for review transactions that fall outside of the mandatory notification regime where security or public order concerns arise. The Minister has a period of 15 months post-completion to call-in deals that do not require mandatory notification. In practical terms this means that the risk of a call-in will need to be considered going forward and contractual protections may be needed to protect parties’ positions if transactions are called-in post-completion.
  
  On a transitional basis, the Act will allow the Minister to call-in for review transactions that completed within 15 months of the call-in power provisions coming into operation. This means that the Act will be relevant to recently completed, as well as upcoming, transactions.

When will mandatory notification of a transaction be required?

The Act applies to any acquisition, agreement or other economic activity resulting in a change in control of an asset in the State or the acquisition of all or part of, or of any interest in, an undertaking in the State (a “Transaction”).

Under the Act, a Transaction will need to be notified to the Minister where all of the following criteria are met:

1. The Transaction relates to an asset or undertaking in the State. An asset will be regarded as being in the State where it is physically located in the State (in the case of tangible assets) or where the asset is owned, controlled or otherwise in the possession of an undertaking in the State (in the case of intangible assets). An undertaking will be regarded as being in the State where it is either constituted or otherwise governed by the laws of the State or has its principal place of business in the State.

2. A third country undertaking, or (importantly) a person connected with such an undertaking:
   • i. acquires control of an asset or undertaking in the State¹, or
   • ii. changes the percentage of shares or voting rights it holds in an undertaking in the State from 25% or less to more than 25%, or from 50% or less to more than 50%;

3. The cumulative value of the Transaction and each Transaction between the parties to the Transaction or relevant connected persons in the preceding 12 months is at least €2,000,000 (in the absence of an amount prescribed by the Minister);

4. The same undertaking does not, directly or indirectly, control all the parties to the Transaction. (This means that intra-group transactions will not be mandatorily notifiable under the regime); and

5. The Transaction relates to, or impacts upon one or more of the following areas:
   • i. critical infrastructure whether physical or virtual
   • ii. critical technologies and dual-use items
   • iii. supply of critical inputs
   • iv. access to sensitive information or
   • v. the freedom and pluralism of the media.

These areas of activity are derived from the EU FDI Regulation (Article 4(1)). We understand that the Department of Trade, Enterprise and Employment intends to publish guidance for stakeholders which will assist in the interpretation of the thresholds for mandatory notification.

What is a “third country undertaking”?

To fall in-scope of the Act, the investor must be a third country undertaking or a person connected with a third country undertaking.² A third country undertaking is defined as an undertaking that is:

1. constituted or otherwise governed by the laws of a third country,

2. controlled by at least one director, partner, member or other person, that is an undertaking constituted or otherwise governed by the laws of a third country or is a third country national; or

3. a third country national.

A third country means a state or territory other than Ireland, a member of the EU, a member of the EEA or Switzerland. Both the US and the UK are considered third countries under the Act.

What is the timing of the notification process?

The key timelines are as follows:

1. the parties must notify not less than 10 days before the date of completion;

2. the Minister will issue a screening notice ‘as soon as practicable’ after commencing the review; and

3. the Minister will issue a screening decision on whether or not the Transaction will affect the security or public order within the State within 90 days from the screening notice, though this may be extended to 135 days from the date of the screening notice.³

What are the potential outcomes of the Minister’s review?

Clearance: If the Minister issues a screening decision that the Transaction has not affected, or would not be likely to affect, the security or public order of the State, the parties will be able to complete the Transaction from the date of the screening decision.

Adverse screening decision: The Minister will have wide-ranging powers in the event of a finding that the Transaction affects or would be likely to affect the security or public order of the State. The Minister can make directions to the parties, including a direction not to complete the Transaction or part of the Transaction, to divest certain assets, shares or property, or to modify or cease conduct in a certain way.

Also contributed to by Louise O’Callaghan and Andrea Higgins